Hi, I’m Nailah Robinson. Here is what I discussed in my review session for Trusts in November 2016 along with a few notes from earlier tutorials.
Important concepts:
A person who makes a will is called a ‘testator’. A person who dies having made a will is said to have died ‘testate’. Where a person dies without a will, he or she is said to have died ‘intestate’. In this case, their property falls into intestacy.
The formalities for signing a will are: the testator signs in the presence of two witnesses. These witnesses must actually observe the testator signing and must observe each other signing. The testator must observe the witnesses signing.
Where the testator leaves a gift in the will to one of the witnesses or the spouse of one of the witnesses, that gift fails.
Where a person leaves a will but fails to distribute certain property, that property falls into the residuary or into intestacy. For example, imagine that the testator, T, makes a will and then acquires Blackacre the following day. If there is a residuary clause – ‘I leave all the rest of my property to X’ – then Blackacre goes to the residuary beneficiary, X. If there is no residuary clause, then Blackacre falls into intestacy and is distributed to T’s next-of-kin according to the rules of intestacy.
You will see that many of the cases end up in Court because it is in the interest of the next-of-kin to show that a particular trust has failed so that the money reverts to the estate. Another common Court scenario involves a question of taxes – many people try to use trusts to avoid taxes. The Revenue Department exercises vigilance to prevent this.
The questions below are taken from the 2015 July paper.
Adrian, a beneficiary under a trust of land, orally declares that he now holds his interest on trust for Rachel for her life, with remainder to Stephanie. Three days later, Adrian emails his attorney, telling him what he has declared.
In Timpson’s Executors v Yerbury, Romer LJ stated: “The equitable interest in property in the hands of a trustee can be disposed of by the person entitled to in in favour of a third party in any one of four different ways. The person entitled to it:
Can assign it to a third party directly
Can direct the trustees to hold the property in trust for the third party
Can contract for valuable consideration to assign the equitable interest to him
Can declare himself to be a trustee for him of such interest.
Section 53(1)(c) of the UK Property Act 1925 provides that a disposition of an equitable interest, subsisting at the time of disposition, must be in writing, signed by the person disposing of same or by his agent lawfully authorised in writing, or by will.
Where a beneficiary who is absolutely entitled declares himself a trustee of his interest for another, it is argued that this is not a disposition but a sub-trust. However, it was argued in Grainge v Wilberforce that this is a disposition – if A holds for B and B holds for C, then A holds for C because B disappears from the picture and C becomes the beneficiary. B disappears if he does not have any active duties under the trust. If this is a disposition, writing is required under section 53(1)(c).
If the situation is a sub-trust, then unless the property is land, no writing is required. If it is land, then signed evidence in writing is required under section 53(1)(b). This does not have to be an express declaration of a trust, simply evidence of the oral declaration: Walcott v Barclays Bank (oral declaration in favour of wife, then in will referred to wife as joint tenant, and to trusts in her favour).
In the present situation, whether this declaration is a disposition or a subtrust, because it relates to land, evidence in writing is required. The question is whether the email sent to the attorney is evidence in writing signed by Adrian. In Bassano v Toft et al [2014] EWHC 377, the Court stated:
Generally speaking a signature is the writing or otherwise affixing of a person's name, or a mark to represent his name, with the intention of authenticating the document as being that of, or binding on, the person whose name is so written or affixed. The signature may be affixed by the name being typed in an electronic communication such as an email: see Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd [2012] 2 All ER (Comm) 978 at [32]. Section 7 of the Electronic Communications Act 2000 recognises the validity of such an electronic signature by providing that an electronic signature is admissible as evidence of authenticity.
A signature need not consist of a name, but may be of a letter by way of mark, even where the party executing the mark can write: Baker v Dening (1838) 8 Ad & E 93. The signature may consist of a description of the signatory if sufficiently unambiguous, such as "Your loving mother" (In re Cook [1960] 1 All ER 689) or "Servant to Mr Sperling" (In re Sperling (1863) 3 Sw & Tr 272).
It is argued that the email is sufficient evidence in writing to create a valid trust for Rachel for life with remainder for Stephanie. Adrian is no longer a beneficiary under the trust.
Beatrice, the beneficiary of a trust comprising various intellectual property, orally agrees to sell her beneficial interest to Tracy for the sum of $100,000.
In Oughtred v IRC, the House of Lords held that the purchaser’s interest after the agreement was similar to that of a purchaser of land between contract and conveyance. It was described as “a proprietary interest of a sort which arises in anticipation of the execution of the transfer”. This means that after the oral contract, Tracy gains a beneficial interest in the intellectual property. She has a right to demand specific performance. However, the actual transfer of the equitable interest must still be in writing under section 53(1)(c), and until then, Beatrice remains the beneficiary.
Cassandra, the beneficiary of a trust fund of shares, instructs her trustee to transfer the legal title of the shares to the Barbago Horticultural Society.
It was held in Vandervell v IRC that section 53(1)(c) does not apply where a bare trustee transfers the entire legal and equitable estate to a third party at the direction of the beneficial owner. In Vandervell in similar circumstances, the IRC initially stated that Vandervell retained the beneficial interest because there had been no written disposition of the beneficial interest. They therefore demanded that he pay tax on the dividends. The House of Lords held that s53(1)(c) does not apply where the sole beneficial owner directs his trustees to transfer the whole legal and equitable estate in the property together. The effect of the transaction therefore is that Cassandra and the trustees have both given up their interest and the BHS is now the full legal and beneficial owner of the shares.
[NB: some of the students attending the review session had a bit of confusion about this because the question does not explicitly say that Cassandra gave away her beneficial interest. We can assume that this is the case – otherwise BHS would simply be the new trustees holding a bare legal title for Cassandra. The trustees do not have any benefits at all, and here Cassandra is trying to benefit the BHS. Vandervell applies.]
Desmond, the beneficiary of a trust fund worth $1 million, directs his trustees henceforth to hold his beneficial interest on trust for his daughter, Wanda.
Where a beneficiary who is absolutely entitled directs his trustees henceforth to hold upon trust for another, there is a disposition and the direction must be in writing, otherwise it will be void. This was established in Grey v IRC where there was an attempt to avoid the payment of stamp duty. Stamp duty is payable on written instruments transferring property. If a bare legal estate only is transferred, no duty is payable. In this case, we are not told that Desmond’s instructions were in writing, so his attempt will be null and void. The beneficial interest will not pass to Wanda.
[Some students were confused about the difference between C and D. In C, Cassandra directed her trustees to hand over their interest so that they (the trustees) would drop out of the picture. In D, Desmond directed the trustees to hand over his interest so that he (Desmond) would drop out of the picture.]
A trust may be defined as ‘an equitable obligation binding on a person (trustee) to deal with property over which he has control (trust property) for the benefit of the beneficiaries of which he himself may be one.’ In general a trust may be created in any form, including by will and there are no particular words needed. It may be express or implied.
An express trust will not take effect unless the ‘three certainties’ are present. These are: (i) certainty of intention; (ii) certainty of subject-matter; and (iii) certainty of objects.
Certainty of Words
The fundamental principle is that an express trust is created where the settler shows an intention to do so. It is therefore necessary that the settlor’s intention to create a trust, as opposed to a mere moral obligation, be indicated with sufficient certainty. No precise words need to be used, but instead the court uses the construction of the words used as well as any admissible extrinsic evidence.
The issue often arises in wills where the testator has used ‘precatory’ words such as ‘wish’, ‘hope’, ‘desire’ or ‘in full confidence’. These indicate a mere moral obligation. In Re Adams and the Kensington Vestry (1884) 27 ChD 394, the testator gave all his property to his wife “in full confidence that she will do what is right...”. The Court held that these words created a mere moral obligation and that she took the property outright as a gift. If he intended that his wish was to have imposed on his widow the imperative obligations of a trustee, he should have expressed this intention in mandatory form or with otherwise sufficient clarity.” The trust would also have failed because of there was no certainty of subject matter,
In Da Costa v Warburton (1917) 17 WIR 334, a testator made a will stating “I give and bequeath to my wife J, my property known as 52 North Street.” He then stated “I direct J that in the event of her selling the property, she must give my grandchildren one quarter. If the property is not sold before my wife dies, it shall revert to my grandchildren.” These instructions contradicted with the outright gift. The Court held that the wife took the property free from any trust. The Court said that if he wanted to impose a trust, he should have expressed this intention in mandatory form or with otherwise sufficient clarity.
Certainty of Subject-matter
There must be certainty of the property to be held on trust and certainty as to the beneficial interests which each beneficiary is to receive. In Sprange v Barnard (1789) 29 ER 320, a testatrix gave property to her husband by will ‘for his sole use’, stating ‘at his death, whatever is left that he does not want for his own use’ was to be divided between her brother and sister. The court held that there was no trust and that the husband took absolutely since it was uncertain what would be left at his death.
Certainty of Objects
The objects are the beneficiaries. These must be sufficiently identifiable. Where there is a fixed trust, and each beneficiary is allocated a particular beneficial interest, then the ‘list test’ applies – it must be possible to make a complete list of the beneficiaries. For a discretionary trust, where the trustees have discretion to determine the portion to each beneficiary, the ‘any given postulant test’ applies – McPhail v Doulton [1971] AC 424. For this test, it is sufficient that it is possible to say with certainty whether or not a claimant is a member of a particular class. Lord Wilberforce said in McPhail that the description must not be so obscure that the trustees cannot determine whether a claimant fits the class. For example, ‘any persons having a moral claim on the settlor’ or ‘any old friends’. However, in Re Butler, Oakes v Oakes (1987) Supreme Court, The Bahamas, No 539 (unreported), where the testatrix bequeathed property for ‘friends or relatives’, the Court held that ‘relatives’ were persons connected by blood or affinity. The Court further held that ‘friends’ could be determined using the test from Re Barlows Will Trust [1979] 1 All ER 296: long standing social relationship that was enjoyed when circumstances permitted. In that case, the testatrix had left a list of her friends and relatives which the court permitted the trustees to use.
Another rule is that class must not be so wide that the trust is administratively unworkable. In R v District Auditor, ex p West Yorkshire Metropolitan County Council (1986) 26 RVR 24, a trust for ‘any or all or some of the inhabitants of West Yorkshire’, which were 2.5 million people, was held to be unworkable.
A: Nancy with remainder to nephew and niece
The words ‘I bequeath’ suggest an outright gift. However, Gloria has attempted to specify what should be done with the remainder. Does this mean that a trust is imposed?
Is there certainty of intention? In the first place, she uses the words ‘I would like’ which seem to be precatory. In the second place, for her to specify what should be done with the money seem to be contrary to the incidents of ownership which leads to a contradiction. There is no certainty of intention
Is there certainty of objects? The objects, her niece and nephew, are certain.
Is there certainty of subject matter? While the shares of the nephew and niece are certain (half share each), it cannot be known in advance what will be left when Nancy dies. Therefore, as in Re Adams and Kensington there is no certainty of intention.
Conclusion: any trust would fail on the basis of lack of certainty of intention and of subject matter. Nancy takes the gift outright.
B: Inhabitants of island of Grenada
Is there certainty of intention? Yes. A discretionary is declared.
Is there certainty of subject matter? Yes, the sum of $500,000.
Is there certainty of objects? No. Although the class is clear – inhabitants of Grenada, and although Grenada is much smaller than West Yorkshire CC, the Court will likely find that this is administratively unworkable.
Charitable Trusts
Charitable trusts, known as public trusts, are exempt from certainty of objects rule. To be charitable, the trust must be for exclusively charitable purposes – relief of the poor, elderly or disabled, for the sick, for education, for religion, or for other similar purposes. There must be a public benefit. The trust will fail as a charitable trust if it is not for exclusively charitable purposes: Attorney General of the Bahamas v Royal Trust Co [1986] 3 All ER 423.
In the present situation, the trust is not for exclusively charitable purposes and cannot therefore take effect as a charitable trust. It will fail.
Conclusion: this trust will fail and the money fall into the residue or intestacy.
C: Wine cellar to Ann-Marie in expectation it will be divided between old friends and good neighbours
Certainty of intention: “in expectation” seems to be mere precatory words. There is no certainty of intention.
Certainty of subject matter: contents of wine cellar are certain.
Certainty of objects: while ‘old friends’ can be found using the test from Re Barlow, the question of
‘good neighbours’ seems difficult to resolve. How big is the neighbourhood. Are these social relationships? What is ‘good’? There does not seem to be a memo to assist as in Butler.
Conclusion: The trust will likely fail for uncertainty of intention and objects. Ann-Marie will take as an outright gift.
Definition of Secret Trust
A secret trust is used where the testator wishes to bequeath something without anyone knowing about it. A fully secret trust is one where both the existence of the trust and the terms of the trust are secret, in other words, are not evident on the face of the will. This is compared to a half-secret trust where the existence trust is revealed by the will, but the terms are secret.
Secret trusts were recognized (obiter) by the House of Lords in McCormick v Grogan (1869) LR 4 HL 82 on the basis that it would be fraudulent for the trustee to take the equitable interest instead of enforcing the trust in favour of the beneficiaries. In Bannister v Bannister [1948] 2 All ER 133, the court expanded this theory to encompass situations where the trustee genuinely intended to fulfil the testator’s wishes but changed his mind after the testator died. In both cases, the trust exists independently of the trustee’s wishes. Under this theory, the trust is considered to be constructive rather than express which means that it is not incompatible with section 53 of the Property Act.
The cases Blackwell v Blackwell (1929) AC 318 and Ottoway v Norman [1972] Ch 698 set out the requirements for a secret trust.
Intention of donor to bind the trustee. This must be more than a mere moral obligation, and is essentially the first of the three certaintees.
Communication of the trust to the trustee during the lifetime of the testator. This must be orally or in writing (Re Boyes (1884) 26 Ch 583).
Express or implied acceptance by the trustee who must be given the chance to decline.
For a half secret trust, the communication must be before the signing of the will. There is no clear explanation why this differs from the requirement for a secret trust, but it has been theorized that otherwise the will, which gives evidence of the half-secret trust, will be false.
Is there a trust for Mary?
Is there intention? Yes, the settlor, Christian, has the intention to create a trust of land in favour of Mary.
Is there communication during the testator’s lifetime? Yes. Christian communicated to Peter that he wanted him to hold the land for Mary.
Is there express or implied acceptance by the trustee? No. In fact, there is express denial. Peter writes to Christian telling him that he will not act as trustee.
Hence, there is no trust of the land for Mary.
What happens to the land? It is not unlikely that a trustee could keep the trust property. He would have to show evidence that the testator intended him to keep it. For Peter to keep the property would be for him to carry out a fraud. If the land passed to Peter, then a resulting trust would arise in favour of Christian’s estate. In this case, however, the land would not even pass to Peter because he was a witness to the will. While it is not settled law whether a secret trustee can be a witness to a will, in a situation like this where the trust fails, there will certainly be no incentive for the Court to make an exception to the rule that a beneficiary under a will cannot witness the will. The gift of land to Peter will be void and the land will remain in Christian’s estate.
Is there a trust for Matthew?
Is there intention? Yes, the settlor, Christian, has the intention to create a trust of the piano in favour of Matthew.
Has there been communication before the signing of the will? No. Christian only communicated the identity of the secret beneficiary after the execution of the will. This half-secret trust will therefore fail.
What happens to the piano? In general, a gift and a secret trust both fail if the trustee predeceases the testator : (Re Maddock [1902] 2 Ch 220). The piano will therefore remain in Christian’s estate.
I recommend Kodilyne’s book which has a good description of this concept and how it is applied in Caribbean settings.