EXPRESS TRUSTS
Express trusts arise due to the intention of the settlor that certain property be held for the benefit of persons or purposes. The settlor can declare themselves a trustee subject to obligations of trusteeship or they can create a trust by transferring property to another person to hold and manage for the benefit of persons or purposes.
PARTIES TO AN EXPRESS TRUST:
SETTLOR A settlor creates the trust – absolute owner of property at outset (before trust was set up). Once the settlor has created the trust, he typically has no rights in respect of the trust property. He ‘drops out of the picture’
(although possible for the settlor to retain some influence over the management of a trust after it has been created, for example by expressly reserving a power in the trust instrument to vary or revoke the trust à rare).
Cannot dictate to trustee after trust is formed unless a power to do so is reserved
TRUSTEE A trustee (legal title/owner): holds title to the trust property and who must perform the trust obligations. A trustee does not have to consent to his appointment but if he does not want to act as trustee, he must disclaim the trusteeship.
BENEFICIARY A beneficiary (equitable/beneficial title/interest/owner) benefits from the administration of the trust (aka the
‘object’ of the trust).
Has Saunders v Vautier rights against the trustee: the rule in Saunders v Vautier provides that where all the beneficiaries are of full age and capacity they may terminate the trust by requiring the trustees to transfer the assets to them or at their direction à overrides any terms contained in the trust instrument.
Cannot dictate to trustee as to how they will exercise their discretion
TYPES OF EXPRESS TRUSTS & TRUST POWERS:
FIXED TRUST DISCRETIONARY TRUST
TRUSTEES Under a fixed trust the share of the trust property which each beneficiary is to receive is determined by the trust instrument.
For example, a direction to trustees ‘to pay the income to A for life, and then to divide the capital equally between B, C and D on A’s death’ creates a fixed trust.
The trust instrument, and not the trustees, determines the existence and share of each beneficiary’s interest under the trust.
Under a discretionary trust, on the other hand (or ‘trust power’), there is a ‘trust’, because the trustee is obliged to distribute property by the termination date of the trust, but it is coupled with a ‘power’
or discretion to choose which beneficiaries will receive the distribution (e.g. ‘to whichever of E, F and G the trustees shall select’).
Although the trustees have a discretion as to which beneficiary, among the class of beneficiaries, is to receive income or capital under the trust, they are under a duty to distribute the capital and income in accordance with the terms of the trust instrument by the date specified in the instrument.
DURATION: the trust must not be of indefinite duration. The rule against perpetuities prescribes the maximum duration of a trust.
Cf. BARE POWER à below.
BENEFICIARIES The beneficiary will have a
proprietary interest in property where a fixed trust has been created.
The interest may be vested, contingent; or of limited duration, such as a life estate
Where a discretionary trust has been created no member of the class of eligible beneficiaries has a proprietary interest in the trust property or any part of it.
TRUST POWER (aka discretionary trust) cf. BARE POWER à also confers a discretion on trustees.
TRUST POWER
“MUST” (i.e. still discretion but still obliged to distribute property).
Two types of power are relevant in the trusts context.
(1) powers of appointment, empowering the trustee or other person to appoint property among a class of potential beneficiaries.
(2) administrative, or managerial, powers conferred on trustees to facilitate the administration of the trust property, which includes the trustee’s power to invest trust funds.
BARE POWER
“MAY” (can be T or non-T).
Bare power of appointment gives a discretion to appoint trust property among the specified class of beneficiaries but places no obligation on the trustee to exercise this discretion à sometimes called ‘non-exhaustive’ trusts, as the trustee is not under an obligation to distribute the property.
• However, if the settlor has made arrangements for what is to happen to the property if the trustee does not exercise its discretion the trustee is not obliged to exercise it.
GIFT OVER:
The presence of a ‘gift over’ clause is determinative of a bare power. Frequently, these powers specify who will receive the property if the trustee does not exercise the discretion. The nominated beneficiary’s right to the property is known as a ‘gift over’.
• e.g. ‘I leave my house to my trustees to appoint the same to whichever of A, B and C they select; and in default of appointment, to C’ (i.e. C is entitled to the gift over if the trustees do not select amongst the class of beneficiaries).
POWERS OF APPOINTMENT:
It is common for discretionary trust deeds to confer a power of appointment onto a specified person, known as the ‘appointor’. The appointor may be given power to replace the trustee and/or to add or remove people from the class of eligible beneficiaries.
GENERAL A general power of appointment entitles the donee to appoint property to anyone, including the donee herself, e.g. a gift ‘to X for life, remainder to whomsoever X shall appoint’ is a general power.
SPECIAL A special power of appointment entitles the donee to make an appointment among a class of objects selected by the settlor (even if the donee is herself a member of a specific class).
Usually defined by inclusion (e.g. a power conferred on X to appoint trust income among the settlor’s children) but may be defined by exclusion too (e.g. a power to appoint trust income ‘among the settlor’s children, but not to X’).
HYBRID A hybrid, or intermediate, power of appointment entitles the donee to appoint to anyone except a specified class of persons, e.g. a power conferred on X to appoint to anyone except the settlor and the settlor’s spouse will be a hybrid power of appointment.
CREATING & ENFORCING AN EXPRESS TRUST
In addition to satisfying the certainty requirements and not infringing public policy prohibitions on creating trusts, an express trust must have been validly constituted: it must be properly declared, and title to the trust property must be properly vested in the trustee.
In determining whether [x] has the right to [property/remedy], it must first be established whether a valid express trust was created.
An express trust is only enforceable if the following are satisfied:
(1) it was validly created and complies with statute
(2) Certainty of intention (3) Certainty of subject matter (4) Certainty of objects
CREATING AN EXPRESS TRUST: FORMALITIES Express trusts can be created in one of three ways:
TESTAMENTARY (unilateral)
Testamentary trusts are created by will, and only come into effect on the death of the testator.
INTER VIVOS (unilateral)
Inter vivos trusts can be created by the settlor declaring that the settlor holds property for beneficiaries.
Alternatively, the settlor can create a trust by transferring property to another to act as trustee on behalf of beneficiaries. Whichever method of creation is adopted, it is essential that intention to create a trust be shown.
SELF-DECLARATION:
A settlor can declare herself trustee of her own property. The settlor already holds title to the property, and all that she has to do is to make a valid declaration of trust. In effect, a declaration of trust simply means that the trust satisfies the requirement of certainty of intention (see Byrnes v Kendle and Re Williams, as the authorities on certainty of intention are therefore also authorities on declaration of trust: Re Armstrong).
In trusts created by declaration, then, the settlor must intend to impose trustee obligations upon themselves.
As such, the words and acts of the settlor, once objectively construed, can be used to determine whether a trust has been validly declared.
A court will not, however, construe a declaration of trust out of an invalid gift.
In Richards v Delbridge:
• A grandfather who was the lessee of business premises wanted to benefit his grandson. He wrote on the back of the deed of lease: ‘This deed and all thereto belonging I give to [my grandson] from this time forth, with all the stock-in-trade’. The lease was delivered to the grandson’s mother. The grandfather died, making no mention of the property in his will.
• The writing did not constitute a valid gift of the lease to the grandson. A gift would have required execution of a separate deed under seal.
• Jessel MR held that the words were also inappropriate for the declaration of trust: ‘[F]or a man to make himself a trustee there must be an expression of intention to become a trustee, whereas words of present gift shew an intention to give over property to another, and not retain it in the donor’s own hands for any purpose, fiduciary or otherwise’.
(note whether it is a trust of PERSONAL PROPERTY or LAND à relevant to statutory requirements relevant to an inter vivos trust created by declaration, below).
TRANSFER:
Alternatively, a settlor can create an express trust by transferring property to a trustee to hold on trust. A settlor who appoints another as the trustee of her property must vest title to the property in the trustee.
STEPS à where a trust is created by transfer of property to an intended trustee, two requirements must be satisfied:
(1) DECLARATION OF TRUST: the declaration must establish the recipient intended to take property in the capacity as Trustee and not beneficially or as a gift
(a) The words used by the settlor in transferring the property will be construed in the context of the transfer itself. In T Choithram International SA v Pagarini the settlor executed a trust deed establishing a charitable foundation. He then made statements which appeared to indicate an intention to make outright gifts of property to the intended trustees.
(i) The Privy Council held that in the context of the creation of a charitable foundation, the words used should be taken to establish an intention to transfer property on the terms of the charitable foundation, and not to make absolute gifts. As such, an enforceable trust of his property had been created even though TCP had not declared himself sole trustee of his own property and had not transferred his property to the trustees of the charitable foundation before he died.
(ii) On the basis that TCP intended to make an immediate absolute gift ‘to the foundation’, despite not having vested the gifted property in all the trustees of the foundation, the trusts of the foundation trust deed are nonetheless enforceable against the deposits and the shares
(iii) The words ‘I give to the foundation’ can only mean ‘I give to the trustees of the foundation trust deed to be held by them on the trusts of foundation trust deed’.
(iv) Cf. a case where there has been an imperfect gift which cannot be enforced against TCP's estate whatever TCP's intentions
(2) VALID TRANSFER: there needs to be a valid transfer of intended trust property to the intended trustee. Title to property can only be vested in, or transferred to, another by complying with formal requirements applicable to the type of property in question. A failure to comply with the requirements will usually result in failure to create the trust (Milroy v Lord) unless the principle articulated in Corin v Patton applies.
(a) According to Corin v Patton: equity will treat a transfer invalid at common law as valid in equity if the settlor has done everything necessary to complete or perfect the transfer of interest in the property
The declaration of trust and vesting of property in the intended trustee will usually be simultaneous. If the settlor vests title to the property in the intended trustee before declaring the trust, a gift will have been made unless the circumstances surrounding the transfer attract the presumption of resulting trust.
Conversely, if the settlor declares a trust of the property before vesting title to the property in the intended trustee, the later vesting of title will complete the previously incomplete trust (Re Bowden).
AGREEMENT (bilateral)
trusts can also be created bilaterally, by agreement between two parties. In such cases, the mutual intention of the parties is critical (e.g. Quistclose trusts à below).
