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Trust Equity and Trustees
In order to advise Tony and Nathan, equity and trusts must be defined. It must be seen whether a trust actually exists and issues such as capacity, constitution, certainties and formalities must be addressed. The effect of a covenant under a trust deed must also be considered.
The word Equity in general refers to that which is fair. However within Law Equity represents a separate system of law where, when the common law provides no sufficient remedy, equity would attempt to supplement its limitations.
Defining a trust is a difficult task as there is so much variation. A definition would be a relationship which exists when a person, known as a trustee, is required in equity to hold property for the persons known as the beneficiaries. The creator of the trust would be known as the settlor
The trustee would have the legal ownership, carrying with it responsibilities and burdens whereas the beneficiary would have the advantages of any ownership. An executor would similarly have the burdens and responsibilities and would be expected to distribute property in accordance with the will.
This whole scenario concerns a Covenant in a trust deed, which is a promise made by the covenator to the covenatee binding the covenator to do something or refrain from doing something. The Trust deed would put this in writing making it a legally binding document. This would also lay down the terms of any trust.
In order to advice Tony In scenario A, it must firstly be seen whether a trust exists. A trust may be created Inter Vivos(IV) or by will. IV would be during lifetime and a Will would be effective on death. This is obviously during Brian's lifetime and there are two methods of creating trusts during ones lifetime.
Firstly the settlor maytransfer the property to the trustees and declare that those trustees will hold the property on trust for others, known as the beneficiaries. Secondly the Settlor may declare himself as the trustee, holding the property on trust for others.
These would be express trusts(ET) which are trusts created intentionally and expressly declared by the creator. Trusts may be private and public; a Private Trust would be for the benefit of close relations and people who are known personally to the settlor. A public trust however is created for the population at large.
This trust has been created IV as Brian the settlor has an intention of transferring the property, expressly declaring Pat and Richard(P&R) as the trustees, to hold the shares for Tony the beneficiary. This would also make this an ET which would also be deemed to be a private trust. However the terms of an ET must be further considered before this is even assumed to be a trust.
Issues such as capacity, certainty, formalities and constitution must be addressed. Also the shares have later been given to Donald so this must be considered.
Any person who has the capacity to own any particular form of property has the capacity to create a trust of it. There are some exceptions to this but they are not applicable to Brian.
This trust would be valid and Brian's capacity would mean that he is able to create all of the trusts which are to be discussed therefore capacity shall not be mentioned again.
There must also be certainty including certainty of intention(CI), Certainty of subject matter(CM) and Certainy of objects(CO). Knight v Knight said that these certainties must be present in order to create a valid ET.
Firstly it must be made clear that the trustees are required to carry out the settlers wishes. This is known as the CI in which ‘the words must be imperative' as mentioned in Wright v Atkyns. This means that it must be made clear that the people holding the property are holding it for the benefit of others. This is backed up by the case of Re Adams and Kensington Vestry, which says that the words used to create the trust must be completely clear, ensuring that there is no confusion as to the purpose of the trust. The case of Re Hamilton says that all the words used to create the trust must be taken into consideration.
There is also a maxim in equity which says that equity looks at the intent rather than the form6. This means that equity should pay attention to the substance of any transactions and not overly focus on formalities. The case of Re Kayford says that a trust may be created without the use of the words “trust” or “confidence”.
Brian has made clear that P&R are to hold the shares on trust for the Beneficiary Tony. His words make this absolutely clear so there appears to be CI.
However he later gave 2,000 of his shares to Donald so this clearly shows that his intentions changed. This would however be irrelevant because at the time the trust deed was made Brian's intentions were valid and clear, meaning that there is CI.
There must also be CS meaning that the settlor must properly identify what he intends to be subject matter under this trust. In the case of Palmer v Simmonds, what the subject matter consisted of was generalised and it was held that there was no CS. This means that it must be made clear as to what the subject matter consists of. The case of Re Goldcorp Exchange Ltd says that specific property must be identified for it to be capable of transferral, meaning that the shares must be identified individually. However the more recent cases of Hunter v Moss and Holland v Newbury says that there is no requirement to individually identify or separate the shares intended for the trust. Shares are deemed a special case as they are completely identical incapable of being individually identified.
In this situation Brian has clearly identified the subject matter as the 5,000 shares which he held in Echo Ltd. This would suffice for CS.
There must also be certainty as to who the beneficiaries under the trust are. When the beneficiaries are clearly named, a fixed trust would be applicable. The case of Re Endacott states that any beneficiaries must be ascertained or ascertainable.
This would be the case in this scenario as Tony is properly identified as the beneficiary. This would be sufficient for CO.
The Formalities when creating a trust will now be considered and as this overlaps with constitution, it will also be discussed. This property is in the form of shares which are intangible property also referred to as ‘chose in action'. Absolute ownership of these shares would form a legal interest; otherwise they would be part of an equitable interest. Shares are governed by the companies Act 1985 s.183 and this states that in order to transfer shares, a share transfer form must be executed and lodged. This must be done using the share certificates with the company who will then register the trustees as the legal owners of the shares. The case of Milroy v Lord states that a mere intention to transfer shares to the trustees will lead to an incompletely constituted trust. Paul v Paul states that the Settlors must do all within their power to constitute their trust. This is similarly mentioned in Re rose.
In Brian's case the shares would be part of a legal interest. However no share transfer form has been executed and Brian has not done all within his power to constitute this trust. There appear to have been no effort made to lodge a share transfer form, therefore this trust would fail on both constitution and formality.
Concluding on what has been discussed there is clearly no valid trust present between Brian, P&R and Tony. There is sufficient capacity and certainties however there is a lack of formality and constitution, which has lead to the existence of an incompletely constituted trust.
If this trust was constituted then Brian's change of intention (when giving the shares to Donald) would be completely illegitimate in regards to the trust. However in order to enforce an incompletely constituted trust the beneficiary must provide some form of consideration as stated in Re Brooks' ST. Tony has failed to do this, making him a volunteer incapable of receiving any equitable remedies13.
This means that Donald would be the rightful owner of any shares so long as the required formalities have been complied with.
The remaining 3,000 shares would be subject to the will. They would have to be handled in accordance with the formalities under s.9 of the wills act 1837. Tony and Nathan as the executors and trustees would distribute the remaining shares in agreement with what is said under the will. Any remedies available to Tony will be discussed at the end.
In Scenario B Brian's father is originally the trustee of the land, holding it for Brian the Beneficiary. On the death of Brian's father the will would take effect transferring the land to Brian.
Brian acting as a settlor has himself said that some land will be transferred to P&R to be held for the beneficiary Nathan. The issue of future property must also be addressed here.
This trust would again be an ET created IV. This is because Brian has again expressed his intentions to create a trust and it is during his lifetime. The formalities of an ET must again be looked at. Capacity has been discussed so any certainties will be discussed as outlined in Knight v Knight
Looking at the previously mentioned cases there appears to be CI. Brian has made clear that he wants P&R to be the trustees for Nathan the Beneficiary. The words used leave no doubt that he has intended to create a trust. This would suffice as CI.
It must now be seen whether there is CM. Palmer v Simmonds says that the words identifying the property must allow interpretation by individuals and the courts. In that case ‘the bulk of my estate' was held to be insufficient as was also the case in Boyce v Boyce. Re Goldcorp Exchange Ltd said that specific property must be identified and segregated to form part of the trust. Mussoorie Bank Ltd v Raynor says that uncertainty in regards to the subject matter throws doubts upon the intention of the settlor. However an exception to the rule would be Re Golay's Will Trusts, as in this case “one of my flats” was capable of interpretation, allowing a trust to be created.
Brian used the words ‘some prime agricultural land' which obviously lacks clarity. This is actually vaguer than in the case of Re Golay's Will Trusts. “one of my flats” at least defined an amount(of flats) where as “some” doesn't define how much land or which land. There is no CS and Common sense shows that a person cannot acquire a title to property if they cannot identify that property. This wouldn't suffice to create a trust.
Although there is a failure of CS it must now be seen whether there is CO. Nathan is clearly identified; P&R are also identified as the trustees making this a fixed private trust. This would be in compliance with Re Endacott and would suffice as CS.
Now the certainties have been looked at it must be seen whether the formalities have been complied with. The property involved in this scenario is land; therefore the Law of Property Act 1925(LPA) must be looked at. Also it must be noted that on creation of the trust Brian only had an equitable interest as he was yet to inherit the land from his father.
When looking at the formalities of Land s.53(1)b and s.53(1)c of the LPA will be looked at in order to ensure that a declaration of trust has been made and that there has been a transfer of ownership.
A declaration of trust under s.53(1)b will be firstly looked at. The case of Rochefoucauld v Boustedad states that the declaration and writing need not be contemporaneous, meaning that someone can declare a trust of land, but the writing which manifests the trust may be done separately(before or after). The case of Tweddel v Henderson said that any writing must include the material terms of the trust. Also Tierny v Wood said that any equitable owner of property must sign for any declaration to be effective.
The statue clearly states that there must be a declaration and a signature. Brian appears to have declared the trust and any deed would be signed. Also this deed would presumably contain the material terms under the trust. If this is the case then the terms under s.53(1)b would be fulfilled.
s.53(1)c must also be applied as the interest in situation is and equitable interest. This is similar to s.53(1)b in the sense that there is a requirement to have it in writing and signed as stated in Vandervell v IRC. However this also requires that there be a disposition of the property at the time of writing. A disposition would be where someone has an interest at the beginning but fails to have an interest in the end as distinguished in the case of Grey v IRC.
So it must be shown that Nathan had a beneficial interest which ceased to exist by the end of any transaction. In order to clearly see whether Nathan has a beneficiary interest the issue of future property must be looked at.
This issue must be addressed because when the covenant was entered into, Brian was yet to acquire the property. The case of Re Lind states that future property may include that which is received under a will. It also says that this property may not be passed on, during the life of the testator. This is supported by the case of Re Ellenborough which states that a trust cannot be created in regards to future property.
Norman v Federal Commissioner of Taxation however said that the Donor may make a promise that when he acquires that property, he will give it to the intended Donee. This also says that the donor may later refuse to pass on the property unless consideration is given.
Applying these cases to Brian, it would be said that at the time of making the covenant under the trust deed, he had still not acquired the property. This means that no trust of that property could be made. However a promise to transfer the property would be enforceable under equity, had Nathan provided any consideration. He has not, thus meaning that any equitable remedies would fail. This would also mean that there has been no disposition as Nathan never had a beneficial interest in the property. There has again been a lack of compliance with the formalities.
The final issue is whether the trust has been constituted. Milroy v Lord said that in order for a trust to be constituted the legal title has to be vested in the trustees.
This is clearly not the case as future property cannot form part of a trust and the legal title was in Brian's father name at the time the trust deed was made.
Concluding on what has been said there is a lack of clarity in regards to the CS. There is no compliance with formality as a trust cannot be created of future property. This leads to the conclusion that there is no trust in existence.
Nathan would be the executor and trustee with Tony under the will and they would be required to distribute any property in accordance with it. Nathan's remedies will be discussed at the end.
In Scenario C Brian has said that he will give his house to Pat on her marriage. She was at the time engaged to marry Jonathan. It would firstly be important to define whether this is a trust and if it is not then its validity as a gift must be addressed.
The case of Richards v Delbridge stated that a general intention to benefit some other person will not be enough to create a trust. “The settlor need not use the words ‘I declare my self the trustee' but he must do something equivalent to it”. This case also said that an intention to create a trust will not be inferred when the transferor intends to make an outright transfer of that property. This is supported by Milroy v Lord, which states that a claimant cannot rely on the law of trusts to effectuate an incomplete gift.
Looking at the words used Brian hasn't appointed any trustees so in order for this to be a valid trust there must be a self declaration of trust. There has been no self declaration or anything of equivalence so this would be a gift, which by looking at Brian's words, would be transferred under the condition of marriage.
A gift is a direct transfer of property from a donor to donee taking place in the absence of consideration. There are two types of conditional gifts, a condition subsequent and a condition precedent. This gift would be a condition precedent as this requires something to happen before the gift is given. This differs from a trust in the sense that with a trust someone would retain the legal ownership, for the benefit of another.
Milroy v Lord described a gift as an outright transfer of the legal title to the donee. If the gift has not been transferred to the donee, then this would be an imperfect gift, which under equity would be unenforceable unless consideration is given. This case also states that if the donee has done everything in their power to transfer the property then this would suffice to make the gift valid. Pennington v Waine said that courts of equity should not be officious in defeating gifts. Meaning that if there is an absolute intention to give a gift, but for some reason the property isn't transferred through the correct formalities, then the gift may be seen as complete in certain circumstances.
Brian doesn't appear to have made any effort to transfer the gift however he does intend to make a transferral under marriage consideration(MC). In cases involving incomplete gifts it would be upon the courts discretion to decide whether Brian has done everything within his power to transfer the property.
As Brian is the legal owner of the land he would have to complete this gift in accordance with s.52(1) of the LPA. This has obviously not taken place as Brian has made a promise to transfer under MC. His promise is yet to materialise.
If Pat does not fulfil this condition then Pats rights under equity would cease to exist as equity will not assist a volunteer and equity will not perfect an imperfect gift. So Pat must show that she has fulfilled this condition, allowing her to be seen as giving consideration. It must be noted that equity recognises marriage as consideration whereas the common law doesn't.
Marriage consideration may be simply defined as consideration in the form of marriage. Case law on MC is rather scarce but there are various standards which are abided by. In order for marriage consideration to be valid it must be in consideration of a specific marriage. This is not the case in this scenario as Brian has not mentioned who Pat should marry. At the time the deed was made Pat was engaged to Jonathan so it may be assumed that Brian was expecting Pat to marry him. This being said Pat has married George. This may mean that Pat has failed to fulfil Brian's condition. However the gift is likely to fail anyway as there is a lack of clarity as to Brian's intentions.
As equity will not assist a volunteer and will not perfect an imperfect gift, it can be said that Pat would have no right to the land under equity. Common law doesn't even recognise MC and would similarly be ineffective.
The property would thus be transferred to Tony and Nathan as the executors and it would be upon them to distribute the land in accordance with the will.
The final scenario involves the transferral of one of Brian's houses to Richard. This is an unconditional gift.
Richards v Delbridge shows that this isn't a trust as there has been no declaration of trust or anything equivalent to a declaration. In order to comply with a gift Milroy v Lord must be adhered to. Any transferral must be an outright transfer of legal title otherwise this may be deemed an imperfect gift, which under equity would be unenforceable unless consideration is given. This case also states that if the donee has done everything in their power to transfer the property then this would suffice to make the gift valid. Also in accordance with Pennington v Waine, the courts of equity should not be officious in defeating gifts
Brian doesn't appear to have made any attempt to make a transfer in accordance with s.52(1) of the LPA. If he had done so then this gift would be valid and Richard would be the legal owner. He has promised to make a transferral under a signed deed but this is simply an insufficient promise.
Brian however did have an intention to give the gift and he may have been planning to complete the transferral. Richard could say that his unlikely death may have prevented him from doing so. However the courts would be unlikely to complete the gift on this basis and it would be said that there was a two year period in which the transfer could have been completed.
Also the terms of this gift are also unclear as Brian has used the words “one of my other houses”.
This has been discussed previously and the majority of cases would not recognise this as a valid description of the subject matter. The obvious exception is Re Golay's Will Trusts, in which “one of my flats” was capable of interpretation by the courts. This is however a rare case, although similar to the current scenario it would more than likely be said that this description is insufficient to describe a gift.
Concluding on this scenario it would be said that this gift is definitely imperfect. The description of the subject matter is also contentious but this would be irrelevant as the gift is incomplete.
Looking at the scenarios as a whole it is clear that there would be no equitable remedies available. Tony and Nathan would have to rely on the Third Parties Act in which they would receive nominal damages.
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