In the scenario presented there are various trust properties that need to be examined, to see whether or not they have fulfilled the required formalities to create an express trust or whether they will pass through the testators will.
Express trusts can be created for individual beneficiaries or a group of beneficiaries, known as a private trust. Express trusts can also be created for a large number of beneficiaries i.e. charities known a public trusts. There are two methods of creating a trust:
a; The settlor can make a declaration of trust and transfer the legal title to the trustees; or
b; The settlor can simply declare himself to be trustee of the property.
A trust created in a person's lifetime is known as a inter vivos trust, the creator is known as a settlor, alternatively it can be created by a will on the death of the creator know as testator. In this analysis the creation of express private trusts, created by the inter vivos method shall be considered.
To create an express private inter vivos trust the settlor must fulfil certain formalities for a trust to be a fully constituted.
The first formality of capacity “In general, any person who has the capacity to own any particular form of property has the capacity to create a trust of it and also to hold such property on trust“. Sarah is of sound mind and also beyond the legal age of 18, therefore has the legal capacity to create a trust. Capacity has been fulfilled for all of Sarah's intend trusts.
The second formality of declaration is fulfilled when the settlor makes a valid declaration. The first trust property Blackacre (legal interest) is classed as real property, as a result any declaration to create a trust must comply with s.53(1)(b) Law of Property Act 1925 (LPA 1925) according to this statue a person who is able to declare a trust must prove or manifest the declaration in writing otherwise the trust will be unenforceable. In some trusts where a element of fraud is present the declaration does not have to be declared in writing. The maxim ‘Equity will not allow a statute to be used as an-instrument of fraud' is applied in cases of fraud.
Sarah has not made a valid declaration; Sarah's declaration must be in writing, there is no presence of fraud, therefore a oral declaration is insufficient.
To fulfil the third formality of transfer the settlor must make a valid transfer of any interests held in that trust property. Lord Turner LJ stated “to render a voluntary settlement effectual, the settlor must have done everything which, according to the nature of the property comprised in the settlement, was necessary in order to transfer the property and render the settlement binding on him”, in other words the transferor must have done everything within his power to transfer the legal title of that property, in accordance with any required method needed for a valid transfer. Sarah must have disposed of her interests in Blackacre by way of deed of conveyance.
Sarah has sent the title deeds to her trustees. She should have also enclosed a deed of conveyance under s.52 (1) Law of Property Act 1925 (LPA 1925) which states that it is a deed, and that Blackacre is now vested in her trustees for the benefit of her grandchildren. The deed must also be signed, witnessed, delivered and apparent on its face that it is a deed. Sarah has not done all that she can do in her power to dispose of Blackacre as she has not created a valid deed of conveyance.
However, the letter written by Sarah two days before her death, may satisfy this requirement, but only if it satisfies section s.53(1)(b) (LPA 1925) and s.52(1) (LPA 1925). However the courts will only regard this letter as a acknowledgement of the earlier agreement and not a new declaration nor a deed of conveyance.
Sarah has granted Edward a lease for Blackacre. At the time she granted the lease, she did not have legal title as she assumed, she had completed the necessary method required to dispose of Blackacre. Therefore this lease is invalid.
The trust property of Blackacre is incompletely constituted. The formalities of declaration and transfer have not been fulfilled.
The second trust property is that of Shares (legal interest). Shares are considered to be personal property (a chose in action). Unlike like real property, there is no statutory requirement for a written declaration. Sarah has orally expressed that Robin and Richard are to act as trustees for her shares in North Oil PLC.
The only formality required is that of transfer. In regards to shares the relevant statute is found in The Companies Act 2006 S.770 (CA 2006). To transfer shares in a company, the transferor must execute a stock transfer form and deliver it to the transferee with the share certificate, at this point the transfer is binding upon the transferor, but the legal title will not belong to the transferee until the company has registered the transferee as the new share holder.
Sarah has sent the share certificate to her trustees but has not enclosed a completed share transfer form; therefore the legal title cannot be vested in her trustees. In Milroy Lord Turner LJ stated three methods of making a gift; An outright transfer of the legal title or property, a transfer of legal title of the property to a trustee to hold on trust or a self-declaration of trust.
Sarah has attempted to complete the second method outlined by Lord Turner LJ, as she has appointed trustees to hold the North Oil shares on trust. However she has not completed a valid transfer which is required under s.770 (CA 2006) therefore the attempted transfer is incomplete.
In Re Rose, the court held that, the date on which the shares were disposed of, was the date on which the required forms were completed, and registering the share transfer form with the company was a mere formality, and can be done at a later stage. The principle was re-confirmed in Hunter and Mascall.
The trustees cannot use the precedent in Re Rose or Milroy, as Sarah has only sent the share certificate and not a executed share transfer form and consequently has not done everything within her power to dispose of her shares in North Oil Plc.
However In Pennington it was held that an incompletely constituted gift may be completely constituted if it was unconscionable for the donor to change his mind. The trustees cannot follow the precedent in this case as Sarah never completed a share transfer form, it would be unconscionable for the court to constitute this trust.
North Oil Shares appear to be incompletely constituted and therefore unenforceable.
The third trust property is that of £10,000 (legal interest). Money is considered to be personal property and there is no statutory requirement of how a declaration and transfer should be made, therefore an oral declaration is sufficient.
Sarah must do all that is within her power to dispose of the £10,000. Sarah has done all that is within her power to transfer the £10,000 over to the trustees, as she issued a £10,000 check to her trustees two days before she died, which was revoked by the bank upon Sarah's death
However under the precedent of Re Beaumont, cheques are seen to be revocable property and therefore cannot be passed under a trust after the donors death, for a cheque to pass under a trust it must be cashed within the donor's lifetime, also in Re Gonin upon the death of a settlor any assets in bank accounts are frozen.
Therefore the £10,000 trust property is incompletely constituted.
The fourth trust property is that of Sarah's equitable interest that she has received from a trust created by her father.
Under the statutory requirement the disposition must be made in writing or by will s.53 (1)(c) Law of Property Act 1925 (LPA 1925). For an equitable disposition to be valid the property must be “subsisting at the time of the disposition” and not a future interest. The equitable interest that Sarah has is present at the moment. However there does not appear to be any written disposition by Sarah.
However, the letter written by Sarah two days before her death, may satisfy this requirement, but only if it satisfies s.53 (1)(c) (LPA 1925). However the court will only regard this letter as a acknowledgement of the earlier agreement and not a written disposition.
In Grey the House of Lords held the meaning of the word disposition should be given its natural meaning. An action whereby a beneficiary who has a beneficial interest at the beginning of the transaction, no longer has it at the end of the transaction is seen a disposition. The House of Lords also held that there had been a valid disposition according to the natural meaning of the word, as the shares were had been vested in another beneficiary. However the oral instructions were of no effect as there was no writing. The written declaration by the trustees, was seen to be an effective disposition as it was in writing s.53 (1)(c) (LPA 1925).
Sarah has declared her intention to dispose of her equitable interest but has not satisfied the requirements under s.53 (1)(c) (LPA 1925), her disposition must be made in writing and therefore is incomplete.
The fifth trust property is that of Sarah's shares in Firth Place Plc, Sarah has directed Huddersford Bank (HB) to transfer her interest in Firth Place Plc to her Daughter Caroline. From her directions the trust can be portrayed as a bare trust. A bare trust is when the trustees are mere nominees and do not have any active duties, except in the case of minors, the nominees must act according to the beneficiary's instruction. Sarah's direction to HB can be seen as a termination of the bare trust. The shares are a gift to her daughter Caroline.
In Vandervell all parties accepted the fact, whenever a sole owner who is absolutely entitled to the legal and beneficial title, and disposes of i.e shares, it can be seen as a disposition of a beneficial interest so s.53 (1)(c) (LPA 1925) will not apply. There will be no requirement for a written disposition. The directions by Sarah to HB to do not require writing, her interest should now be transferred to her daughter Caroline.
Lord Upjohn's states: “the intention of the beneficial owner in directing the trustees to transfer the legal estate to X is that X should be the beneficial owner, I can see no reason for any further document…expressly transferring the beneficial estate'.
For the legal title to be vested in Caroline, a executed share transfer form and the share certificate must be either lodged with Firth Place plc or delivered to Caroline so that she can lodge it with Firth Place Plc. At the moment the legal title is with HB therefore it is their duty to comply with s.770 (CA 2006). If this requirement is not followed then the gift from Sarah to her daughter Caroline will become incomplete.
None of the above trust properties appear to be incompletely constituted. The courts may take in to account whether or not the beneficiaries have provided any consideration to help constitute this trust.
Consideration by covenant cannot be used, as no deed of conveyance or covenant has been provided by Sarah. Consideration by marriage cannot be used as the beneficiaries are seen to be the next of kin and not an issue of the marriage i.e children. Consideration of money's worth will not be considered as no money has been provided by her beneficiaries. Therefore consideration will not help constitute any of the above trust properties.
The maxim ‘Equity will not assist a volunteer' is relevant as her beneficiaries are volunteers. There certain exceptions that may help a volunteer constitute a trust these are; Donatio mortis causa (DMC) and proprietary estoppel. The only exclusions applicable will be that in Strong v. Bird, as no gift was made in contemplation of death (DMC) and there has been no misrepresentation by Sarah (proprietary estoppel).
The rule in Strong is only enforceable if the donor had the intention up until death to make an immediate gift, but failed in his life time to make a legitimate transfer to the donee, but upon the death of the donor the donee is appointed his executor this will prefect the gift.
The trustees have been appointed the executor of Sarah's estate; they are capable of using this exclusion. However for the exception in Strong to apply the donor must not have treated the property as his own during that period. Sarah granted Edward a lease for Blackacre six months after she sent the title deeds to her trustees. Sarah was still using the property as her own and therefore did not have intention up until her death to transfer the property; this exclusion therefore cannot be used. Therefore the trust property of Blackacre will be returned in to Sarah's estate, and executors of her estate can dispose of Blackacre in accordance with her Will.
However Sarah has appointed Richard and Robin the intended trustees as the executors of her will. She had the intention up until her death to transfer her North Oil Shares and the £10,000, as two days before her death; she sent a letter and a cheque to her intended trustees referring them to what had been acknowledged in the earlier agreement. The rule in Strong is fulfilled and can be used to constitute the trust properties of North Oil Shares and the £10,000.
The exception in Strong cannot be used to constitute the disposition of Sarah's equitable interest. The courts have only applied the rule in Strong to cases concerning the transfer of legal title and not equitable dispositions. A equitable disposition must be made in writing s.53 (1)(c) (LPA 1925) by the beneficiary to whom the interest belongs to.
The exception in Strong cannot be applied to the shares in Firth Place PLC as this is a bade trust, with different trustees, Sarah has also terminated this trust.
In conclusion, the trust property of Blackacre and the equitable interest cannot be constituted and therefore will be returned back in to Sarah estate, which under her will, which James can claim. The trust properties of North Oil Plc and the £10,000 are constituted under the exception in Strong and they can be held on trust for Sarah's grandchildren. The trust property of Firth Place Plc is a gift to Caroline, Sarah has terminated the bare trust. For the gift to be completed the legal title must be vested in Caroline under s.770 (CA 2006) as soon as this requirement is fulfilled, the gift will be perfected.
Graham Moffat, (2005) Trust Law: Text and Materials, Forth Edition.
Gary Watt,(2008) Trust and Equity, 3rd Edition
Nigel Stockwell and Richard Edwards. (2009) Trusts and Equity (Foundation Studies in Law Series) 9th Edition
Cain v Moon  2 QB 283
Dillwyn v Llewellyn (1862) 4De GF&J 517
Grey v I.R.C.  AC 1
Hunter v Moss  1 W.L.R. 452
Jones v Lock (1865) LR 1 Ch App 25
Knight v Knight (1840) 3 Beav 148
Milroy v Lord (1862) 4 De GF & J 264
Mascall v Macall (1989) 50 P & CR 119 CA
Pennington v Waine  1 WLR 2075;  EWCA Civ 227
Pullan v Koe  1 CH 9
Re Beaumont  I Ch 88
Re Danish Bacon Co Ltd Staff Pension Fund Trusts
Re Gonin, decd  Ch 16
Re Lillingston  2 All ER 184
Re Rose  Ch 499 HC
Re Plumptre's Marriage Settlement  1 CH 609
Rochefoucauld v. Boustead (1897) 1 Ch. 196
Strong v Bird LR 18 Eq 315 CA
Vandervell v I.R.C.  2 AC 291(No.1)
Wilkes v Allington  2 Ch 104
s. 53(1)(b) of Law of Property Act 1925
s.183 Companies Act 1985
s.177 Companies Act 2006
s. 1Stock Transfer Act 1963
s . 52(1) of Law of Property Act 1925
s. 2 Law of Property (Miscellaneous Provisions) Act 1989
s. 53(1)(b) of Law of Property Act 1925
s.770 Companies Act 2006
Wills Act 1837
Bills of Exchange Act 1882