MindMap Gallery Lectures on Trust Law
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Lectures on Trust Law
This clear mind map of the trust law seminar centers on "Trust Law," with branches including "Fully Secret Trusts," "Semi-Secret Trusts," "Procedures for Establishing a Trust," and "Inter Vivos Trust Relationships." Each branch further divides into sub-themes and keywords. For instance, under "Fully Secret Trusts," we delve into its definition, functions, and applicable scenarios; whereas "Procedures for Establishing a Trust" details the preparation of legal documents, asset transfer, registration processes, etc. Such a structure not only helps the audience understand the complexities of trust law but also facilitates memorization and review of the seminar's key points.
Edited at 2022-01-07 13:42:30
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- Outline
Trusts Law Lecture 2
Formalities required for creating an express trust
Formalities for inter vivos trusts
The basic rule is that express trusts must be declared. The formalities that apply to this declaration differ for personal and real property.
Personal property:
No formalities apply. Trusts over personal property may be declared by parol. (created orally)
Note that where it is not the settlor who declares him/herself as a trustee but where the property is intended to be held by a separate trustee, the trust property must be legally transferred to the trustee for a trust to come into being. This may require certain formalities depending on the property in question, but this step is part of the constitution element of trust creation and does not constitute a formality requirement.
Real property:
Sections 53(1)(b) and 53(2) of the Law of Property Act 1925 apply:
• S. 53(1)(b): “a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will;”
Section 53(1)(b) LPA 1925 leaves open the possibility that a trust of land is declared by parol. However, this declaration must then be ‘manifested and proved by some writing.’*
• S. 53(2): “This section does not affect the creation or operation of resulting, implied or constructive trusts.”
Where land has been conveyed on a trust orally declared, which is then denied by the new legal owner, the formality requirement in the LPA 1925 is defeated by the equitable principle that ‘equity will not allow a statute to be used as an instrument for fraud.’
The authority for this is Rochefoucauld v Boustead [1897] 1 Ch 196, which concerned s. 7 of the Statute of Frauds 1677, which was the predecessor to S. 53(1)(b) LPA 1925. As per Lord Justice Lindley, at 205-206:
“We come, therefore, to the conclusion that the plaintiff has proved that the estates in question were conveyed to the defendant on May 27, 1873, upon trust for her, but subject to a charge in his favour in respect of all sums advanced by him in order to obtain the estates from the Dutch company in the first instance, and of all sums advanced by him in order to work them as coffee plantations after he had acquired them.
This conclusion renders it necessary to consider whether the Statute of Frauds affords a defence to the plaintiff's claim. The section relied upon is s. 7, which has been judicially interpreted in Forster v. Hale and Smith v. Matthews. According to these authorities, it is necessary to prove by some writing or writings signed by the defendant, not only that the conveyance to him was subject to some trust, but also what that trust was. But it is not necessary that the trust should have been declared by such a writing in the first instance; it is sufficient if the trust can be proved by some writing signed by the defendant, and the date of the writing is immaterial. It is further established by a series of cases, the propriety of which cannot now be questioned, that the Statute of Frauds does not prevent the proof of a fraud; and that it is a fraud on the part of a person to whom land is conveyed as a trustee, and who knows it was so conveyed, to deny the trust and claim the land himself. Consequently, notwithstanding the statute, it is competent for a person claiming land conveyed to another to prove by parol evidence that it was so conveyed upon trust for the claimant, and that the grantee, knowing the facts, is denying the trust and relying upon the form of conveyance and the statute, in order to keep the land himself.”
Formalities for testamentary trusts
The requirements for all types of property:
S. 9 of the Wills Act 1837 applies:
“No will shall be valid unless—
(a) it is in writing, and signed by the testator, or by some other person in his presence and by his direction; and
(b) it appears that the testator intended by his signature to give effect to the will; and
(c) the signature is made or acknowledged by the testator in the presence of two or more witnesses present at the same time; and
(d) each witness either—
(i) attests and signs the will; or
(ii) acknowledges his signature,
in the presence of the testator (but not necessarily in the presence of any other witness), but no form of attestation shall be necessary.”
Exceptions to the formality requirements for testamentary trusts
There are several exceptions to the formalities required for testamentary dispositions, two of which are the fully secret trust and the half-secret trust.
When someone dies, the personal representative charged with dealing with that person’s assets (called the executor when there is a will, and the administrator when the person has died intestate) takes on the business of registering the death, identifying what assets the deceased had, what debts remained outstanding and what taxes need to be paid. If there is a will, then the personal representative obtains a grant of probate from the Probate Registry, which authorises him/her to deal with the property and prove the validity of the will. When a will is granted probate, it becomes a public document and can be inspected by anyone for a fee.
Secret Trusts
Originated in the wish to keep certain dispositions secret at a time when property had to be protected from religious persecutions and when leaving property to illegitimate children would have caused scandal. Testators would leave property in their will to a trusted friend, who would hold the property for the intended beneficiaries. The will would only name the trusted friend as a legatee (a legatee is a recipient of a legacy under a will).
Secret trusts do not comply with the requirements of s. 9 of the Wills Act 1837. They are nevertheless enforced, although their enforcement is controversial. Justifications include that they are enforced in order to counter fraudulent claims to the absolute ownership of property (‘equity will not allow a statute to be used as an instrument for fraud’) and/or because they are said to operate ‘dehors’ (outside) the will and are thus not subject to the provisions of the Wills Act.
According to Viscount Sumner in Blackwell v Blackwell [1929] AC 318, at 334:
“In itself the doctrine of equity, by which parol evidence is admissible to prove what is called 'fraud' in connection with secret trusts, and effect is given to such trusts when established, would not seem to conflict with any of the Acts under which from time to time the legislature has regulated the right of testamentary disposition. A court of conscience finds a man in the position of an absolute legal owner of a sum of money, which has been bequeathed to him under a valid will, and it declares that, on proof of certain facts relating to the motives and actions of the testator, it will not allow the legal owner to exercise his legal right to do what he will with his own. This seems to be a perfectly normal exercise of general equitable jurisdiction. The facts commonly but not necessarily involve some immoral and selfish conduct on the part of the legal owner. The necessary elements, on which the question turns, are intention, communication and acquiescence. The testator intends his absolute gift to be employed as he and not as the donee desires; he tells the proposed donee of this intention and, either by express promise or by the tacit promise, which is signified by acquiescence, the proposed donee encourages him to bequeath the money in the faith that his intentions will be carried out. The special circumstance, that the gift is by bequest only makes this rule a special case of the exercise of a general jurisdiction, but in its application to a bequest the doctrine must in principle rest on the assumption that the will has first operated according to its terms. It is because there is no-one to whom the law can give relief in the premises, that relief, if any, must be sought in equity. So far, and in the bare case of a legacy absolute on the face of it, I do not see how the statute-law relating to the form of a valid will is concerned at all, and the expressions, in which the doctrine has been habitually described, seem to bear this out. For the prevention of fraud equity fastens on the conscience of the legatee a trust, a trust, that is, which otherwise would be inoperative; in other words it makes him do what the will in itself has nothing to do with; it lets him take what the will gives him and then makes him apply it, as the court of conscience directs, and it does so in order to give effect to wishes of the testator, which would not otherwise be effectual.”
Formalities required for the disposition of equitable interests
Where a trust already exists, any disposition of the interests held by the beneficiaries is subject to writing requirements under the Law of Property Act 1925. The same requirements apply to all types of property:
• S. 53(1)(c): “a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorised in writing or by will.”
• S. 53(2): “This section does not affect the creation or operation of resulting, implied or constructive trusts.”
Originally, the writing requirement arose under s. 9 of the Statute of Frauds 1677. Later, instruments transferring an interest in property incurred ad valorem stamp duty, which motivated parties to explore the meaning of ‘a disposition of an equitable interest’ in situations that went beyond straight-forward assignment.
The meaning of ‘disposition’
1) Direct assignments to a third party
Transferring the equitable interest to a third party (as an inter vivos gift, under contract or by will) constitutes a disposition for the purposes of the LPA and therefore requires writing.
2) Directions to trustees to hold the property on trust for another
Grey v IRC [1959] 3 All ER 603: This case concerned the direction given by the beneficiary under a trust to his trustees to hold the trust property for the benefit of his grandchildren. The trustees subsequently executed a declaration of trust. The court looked at the transaction as a whole rather than at its individual parts. The equitable interest had changed hands, therefore there was a disposition of an interest to which s. 53(1)(c) (and consequently stamp duty) applied.
3) Self-declarations as sub-trustees
The application of s. 53(1)(c) LPA 1925 depends on the status of the sub-trustee after the declaration. According to Upjohn J in Grey v IRC [1958] Ch. 375 at 382, bare sub-trustees ‘disappear from the picture’ and can thus be said to have effectively assigned their beneficial interests, writing being required (but academic opinion on this remains divided).
4) Contracts to assign an equitable interest
Oughtred v IRC [1960] AC 206: Oral agreements were entered into to exchange shares. These were said to be specifically enforceable, causing the parties to hold the shares as constructive trustees of one another. Later, documents of transfer were executed. The question was at what point the equitable interest was transferred and whether the constructive trust analysis could exempt the transfers from the writing requirement under s. 53(1)(c) LPA 1925 (and thus exempt them from stamp duty). It was held that the transfer had occurred with the executed documents, and that a liability for stamp duty arose.
This analysis was challenged in Neville v Wilson [1996] 3 WLR 460, where an agreement to transfer equitable interests was held to be effective in transferring the interests under a constructive trust and thus despite the absence of writing (see s. 53(2) LPA 1925). However, the case can be distinguished from Oughtred v IRC [1960] AC 206 in that in the latter case an informal agreement had been followed up with a formal transfer in writing.
5) Transfers of legal and equitable title together
In Vandervell v IRC [1967] 2 AC 291 the beneficial owner directed his bare trustees to transfer the legal and the equitable title together to another party. This was held to be a disposition outside the scope of s. 53(1)(c) LPA 1925; no writing was required.
6) The nomination of a beneficiary under a pension fund or life assurance policy
Where the beneficiary of a pension fund or insurance policy nominates the person who should receive the benefit on the death of the policy holder, this does not constitute a disposition for the purposes of the LPA and does not require writing (Gold v Hill [1999] 1 FLR 54).
7) The disclaiming or extinguishment of an equitable interest
Where a beneficiary disclaims his equitable interest, this does not constitute a disposition but avoidance. No writing is therefore required (Re Paradise Motor Co Ltd [1968] 2 All ER 625, CA). Neither is writing required where an equitable interest is extinguished through the bona fide purchaser rule.
The Half Secret Trust
For a half-secret trust, the will states that the legatee is subject to a trust, but gives no details about any intended beneficiaries. Half-secret trusts must be communicated to and accepted by the trustee, with communication being the key requirement.
Communication:
• Communication must take place before or at the same time as the will is executed (Blackwell v Blackwell [1929] AC 318 HL)
•Th e testator cannot reserve to himself the power to determine the objects of the trust at a later date: In Re Bateman's WT [1970] 3 All ER 817 the testator left “[£24,000 to] such persons … as shall be stated by me in a sealed letter.” The trust failed.
• Conflicts between the will and the terms of the trust: In Re Keen [1937] Ch 236 CA, a testator left £10,000 to two people “to be held upon trust and disposed of by them among such person, persons or charities as may be notified by me to them or either of them during my lifetime.” Even though the testator had in fact informed the trustee of the identity of the beneficiaries before the execution of the will, the trust nevertheless failed as it conflicted with the term in the will that envisaged future communication. The language of the above passage also appeared to reserve to the testator the ability to make any number of future dispositions.
What happens when a fully secret trust fails? In that case, the legatee holds the property on trust for the residuary estate.
The Fully Secret Trust
The fully secret trust makes no mention of the intended trust or its beneficiaries in the will, which appears to leave the property absolutely to the primary donee, the intended trustee.
The requirements are set out in Ottaway v Norman [1971] 3 All ER 1325, at 1332 per Brightman J.: “It will be convenient to call the person on whom such a trust is imposed the ‘primary donee’ and the beneficiary under that trust as the ‘secondary donee.’ The essential elements which must be proved to exist are:
(i) the intention of the testator to subject the primary donee to an obligation in favour of the secondary donee; (ii) communication of that intention to the primary donee; and (iii) the acceptance of that obligation by the primary donee either expressly or by acquiescence. It is immaterial whether these elements precede or succeed the will of the donor.”
There must also be transfer of the property (usually by will) to the primary donee. Before then, the trust has not been completely constituted and can be revoked at any time.
Intention:
• Ottaway v Norman [1971] 3 All ER 1325 and Re Snowden [1979] Ch 528.
Communication:
• There must be communication before death: Wallgrave v Tebbs [1855] 2 K & J 313.
• The trust can be communicated orally or in writing.
• Does a fully secret trust of land need to be in writing in order to comply with s. 53(1)(b) LPA 1925 or are fully secret trusts constructive trusts that do not need to comply with s. 53(1)(b) (see s. 53(2) LPA 1925)?
Ottaway v Norman [1971] 3 All ER 1325 leaves this issue unresolved.
• Communication can be by sealed letter provided that the recipient knows that it contains the terms of the trust: Re Keen [1937] Ch 236.
• To be effective, the communication must state the terms of the trust and not simply that the recipient should act as trustee.
In Re Boyes [1884] 26 Ch D 531 the trust failed because the letter with details was only found after the testator’s death.
Acceptance:
• Acceptance may be informal; acquiescence will suffice: Moss v Cooper [1861] 1 John & H 352.
• Is acceptance by one co-owner sufficient to bind all? See Re Stead [1900] 1 Ch 237.
What happens when a fully secret trust fails? If a fully secret trust is not proved, the legatee takes the property beneficially.
However, if the failure relates merely to the communication of the terms (and not to the existence of the trust itself), the legatee holds the property on trust for the residuary estate.