EXPRESS TRUSTS
STEP 1: FORMALITIES
Declaration of an interest:
- If trust property is land:
o A declaration of trust respecting any land must be manifested and proved by writing and signed by the person declaring the trust: s 53(1)(b) PLA
▪ ie, it doesn’t have to be in writing o Can occur after declaration of trust
▪ eg, I can declare a trust in favour of X today and do it orally and then next week, I take a diary note and say ‘yes on that day I declared the trust’ – what this means is that the trust has been manifested and proved by writing and signed even though it was at a later date o Can be in more than one document: James // The writing needed to satisfy s
53(1)(b) can be gathered from a number of documents.
o The trust takes effect from the date of declaration, not at the time of writing //
The trust is valid from the time of declaration, rather than a later date of written evidence: James
- If trust property is personal:
o No formalities requirements – oral declaration suffices o No writing necessary
The ‘cloak for fraud’ exception: Last v Rosenfeld
- The plaintiffs gave up their interest in a joint tenancy on the understanding that their interest would be returned if the defendants did not personally occupy the house within 12 months.
- There was only an oral agreement – formalities had not been complied with. Defendant relies on this.
- Equity won’t allow the statute to be used as an instrument of fraud. The oral agreement was enforceable.
STEP 2: CERTAINITIES
- All trusts, whether or not they also have to satisfy writing requirements, must be sufficiently certain in order to be enforceable.
- An express trust must be certain in three distinct respects, sometimes called the ‘three certainties’. They are:
o (a) certainty of intention. The settlor must have intended to create a trust of her property, as opposed to making a gift of it or lending it to another
o (b) certainty of subject-matter. The subject-matter of the trust must be specified with reasonable certainty.
o (c) Certainty of objects. The beneficiaries of the trust must be sufficiently identifiable.
Certainty of Intention
What intention has to be proved?
- The would-be settlor must have intended to create a trust of their property as opposed to making a gift or a loan (Paul v Constance)
- An intention to create a trust is an intention to impose on a property owner an
obligation (as opposed to a discretion) to apply the property for the benefit of identified beneficiaries or for recognised charitable purposes.
Need not have used the word ‘trust’ (Paul v Constance)
- If a trust is the most appropriate legal mechanism for giving effect to the settlor’s wishes, an inference will be drawn that the settlor intended to create a trust - Paul v Constance:
o Constance had never used the word ‘trust’ in his conversations with the plaintiff but this was irrelevant, bearing in mind ‘the unsophisticated character of the deceased and his relationship with the plaintiff during the last few years of his life’
The intention to create a trust is determined by reference to the settlor’s objective intention: would a reasonable person consider that in all the circumstances the settlor intended to create a trust? → confirmed in Byrnes v Kendle
- Byrnes v Kendle
o HC held that defendant manifested an objective intention to create a trust and that his mental reservations were irrelevant in construing the document the parties had signed.
o Gummow Hayne JJ observed: the question which must be answered is ‘What is the meaning of what the parties have said?’, not ‘What did the parties mean to say?’
o The objective construction of the document was that the defendant had declared a trust of an undivided half share in the property for the plaintiff - Subjective intention is only relevant where there is a question of vitiating factor (eg,
mistake, duress unconscionable dealing)
o As the facts suggest the possibility of vitiating factors/sham the parties’
subjective intentions may be considered
o ‘subjective intention is only relevant in relation to trusts when the transaction is open to some challenge or some application for modification – an equitable challenge for mistake or misrepresentation or undue influence or
unconscionable dealing or other fraud in equity…’
Courts will consider the words and conduct of the parties in light of the context of the transaction (Paul v Constance)
Language:
- No particular form of express necessary
- The focus is on the ‘substance and effect’ of the words in context (Paul v Constance)
- Simply because the word ‘trust’ is used does not mean that a trust will be found (Re Elizabethan Theatre Trust)
- YES
o Paul v Constance: ‘the money in that account is much yours as it is mine’
o Imperative words with clear command: ‘to X on trust’, ‘money to be placed in trust account’
- NO
o Precatory words with no clear command / words that express a hope or wish, without intending to impose enforceable obligations on the recipient of property: Re Williams / language must impose an obligation using imperative language
▪ A testator left his residuary estate in his will to his wife ‘in fullest confidence’ that she would leave insurance moneys to their daughter. Court found that the words ‘in fullest
confidence’ did not create a trust for Lucy and that the wife was entitled to keep the insurance moneys for herself.
Conduct:
- Paul v Constance: use of joint account bank account
Surrounding context:
- Paul v Constance: Constance had never used the word ‘trust’ in his
conversations with the plaintiff but this was irrelevant, bearing in mind ‘the unsophisticated character of the deceased and his relationship with the plaintiff during the last few years of his life’
- Higher standard suspected of lawyers or business people Certainty of subject matter
1. The subject matter of the trust must be legally recognised property // The trust must have some (legal or equitable) property as its subject matter.
2. Certainty as to quantum
o A trust over ‘the bulk of my estate’ does not have certain subject matter – how much of it is ‘the bulk’? (Palmer v Simmonds)
▪ The term ‘bulk’ was not capable of objective quantification
▪ Strict approach
o The trustee may determine the quantum themselves, as long as the criteria for doing so are themselves certain. In Re Golay, a grant of ‘a reasonable income’
was a sufficiently certain criteria for the trustee to apply.
Trusts over fungible assets
- Hunter v Moss – the settlor held 950 identical shares in a company and declared that 50 of them were held on trust. The NSW Court of Appeal found that there was certainty of subject matter.
o A specified percentage of shares is certain, so long as there is only one class of shares and it is clear in which company those shares are: Hunter v Moss
o A trust of 5% of shares that were all of the same class in the same company was sufficiently certain
- White v Shortall – the settlor declared that they held 220,000 of 1.5 million shares on trust. Court found that the settlor held the entire shareholding on trust for themselves and the other beneficiary, circumventing the reasoning in Hunter v Moss but reaching the same result.
o Use of a ‘mechanical solution’ – the whole of the shares is held on trust
Certainty of objects
→ beneficiaries of a trust must be identifiable
The requirements for certainty of objects depends on the type of trust.
- Fixed trust: ‘List certainty’ test
- Mere power: ‘Criterion certainty’ – Re Gulbenkian’s Settlement Trusts
- Trust power/discretionary trust: ‘Criterion certainty’ and possibly ‘loose class’
requirement – McPhail v Doulton
