A trust is where a trustee holds the title to property on trust for one or more beneficiaries. The trustees are under a duty to administer the trust property on behalf of the beneficiaries and to distribute the property accordingly to the beneficial interests laid down by the settlor. Where the trust is a discretionary one, the trustees are under a duty to consider which beneficiary(s) should receive the trust property.
In order to validate whether a trust has been created, Lord Langdale MR formulated a test known as the three certainties, the test specified the following conditions must be satisfied for a valid trust to come into existence:
- Intention to create a trust;
- Certainty of subject matter;
- Certainty of objects or beneficiaries.
An express private trust can be created either by ‘inter vivos’ or by will. An inter vivos trust is created by a settlor and takes effect during their lifetime. A trust created by will is created by a testator and takes effect on the death of the testator, also known as a testimonial trust.
There are a number of requirements for the valid creation of an express private trust, these are:
- Capacity
- Formality
- Certainty
- And constitution of trusts
A will must be subject to s9 of the Wills Act 1837 in order to be executed. If this is not the case then Aishas’s will may be void. An inter vivos trust is created during a person’s lifetime to save money on taxes or set up long term property management.
In each instance where Aishah talks about all her children, the term ‘en vetre sa mere’ will be taken into consideration, a child which is in the womb of his/her mother at the time will be classed as a minor so long as the child is born alive and will have the same rights as a born person.
The Re Cravens Estate case laid down the conditions for an effective donatio mortis causa, firstly the intention to make gift which is effective on death; secondly made in contemplation of death. This is a method by which property can be passed on death without the formalities of creating a deed of trust or will. The donor must part with dominion over the subject matter, a car in this matter, passing of keys was sufficiently certain also set out in Re Lillington and also the property must be capable of passing as a DMC.
1- A discretionary trust is where the trust fund is not fixed for the beneficiaries however the settlor sets out certain instructions in the trust instrument. Here, Aishah requests her water colours to be sold, the subject matter and intention is clear here, and further; the proceeds to go to her children on absolute discretion.
The trustees have the power to ascertain the beneficiaries; Waheeda would fit in to this as she would fall within the specified class of ‘all my children’. The trustees also have the power to select any amount the beneficiaries should receive.
It is permissible for a trust to have a fixed number of beneficiaries or to have a class of beneficiaries from where trustees could select the individuals
The law in Broadway Cottages was that a discretionary trust: ‘ is void for uncertainty unless the whole range of objects eligible for selection is ascertained or capable of ascertainment’.
However the courts were wrong in its decision that the trust was void for certainty accepted in McPhail v Doulton.
2. Aishah has precisely specified what property is to be sold and held on trust therefore the subject matter is certain also.
The settler must have intended to create a trust by presenting clearly the necessary intention. Aishah uses the words “..in full confidence..”, here the issue may arise as to whether Khalil will take the property as a trustee or take the property beneficially, free from any trust.
The words, also known as precatory words, may have no legal effect, similar words were used in the case of Adams & Kensington where it was held that no trust was created.
Originally, precatory words were sufficient in creating a trust, the Le Marchant case held that a trust was valid where similar words were used, however the effect of precatory words was expressed in 1895 by Lopes LJ:
‘…it seems to me perfectly clear that the current of decisions with regard to precatory trusts is now changed, and that the result of the change is this, that the courts will not allow a precatory trust to be raised unless on the consideration of all the words employed it comes to the conclusion that it was the intention of the testator to create a trust’.
If precatory words are construed as showing an intention to create a binding obligation, which seems to be the case here, then the trust would be no different from any other trust; which does not require the term ‘trust’ to be employed in order to be valid.
As the words leave no measure of freedom to Khalil to decide whether or not the property should be applied as indicated, it would be regarded as sufficient to create a trust. The distinguishable factor as shown in the case of Comiskey is that there is further instruction as to the property.
Secondly, the subject matter refers to Aishah’s properties in the Bradford; this would include Horton House, Cheltenham Terrace and also 10 and 12 Shipley Avenue in Bingley which is part of Bradford. The beneficiaries being all five children, however, as there is more than one beneficiary, all of them need to be adults and without any disability in order for them to aquire the legal estate and thereby terminate the trust.
3. In relation to the properties in Berkley Square, since Amar has passed away and has therefore not made a choice between either of the two properties, it would not be possible for Meena to inherit the remaining property and the trust would therefore fail and be transferred into the residue. If a gift fails, the gift lapses; and when a gift lapses it will form part of the residue in the will and will be distributed.
4. In considering the shares which have been instructed to be held on trust for Serish and Sofia, the beneficiaries and the intention is certain, however the subject matter is not. Aisha has 2500 shares in Shipley Properties Plc and House of Fraser Plc; it is instructed that only 1000 are to be held on trust.
If a trust stated 100 shares from my 1000 in a company it would be valid as they are intangible.
Shares are an example of “chosen action” the title to which can be asserted only by taking legal action in the courts. These require special formalities in order to be transferred. Here, Aishah must have executed a share transfer form and lodged it with the share certificates, with the company, which will then register the trustees as legal owners of the shares in accordance with the requirements laid down by the articles of association of the company.
It has been possible to transfer shares in certain companies electronically, thereby avoiding the need for transfer forms and share certificates, but this does not detract from the principle that legal title only passes on registration.
The settlor must do in all her power and sign the stock transfer form in order to divest herself from the shares. If the doner has not done so the gift will be rendered incomplete since the donee has no equity to perfect an imperfect gift. Similar to the case of Re Rose, however there was an exception in the Milroy v Lord case which relates to the equitable maxim ‘equity will not provide gratuitous promises’, Turner LJ stated there were three modes of making a gift:
- An outright transfer of the legal title to the property
- A transfer of legal title of the property to a trustee
- A self-declaration of trust
The court of Appeal adopted in the case of Hunter v Moss that if a subject matter of a trust is apportioned from a bulk which had all its constituents to be of the same features (value, kind, etc), then such a trust should not fail for want of certainty of subject matter where it was adequately quantified. The subject matter in this instance is not sufficiently certain.
5. The fifth criteria involves Horton House and Amex Import and Export Ltd, since Horton House is in Bradford, it has already been passed to Khalil to hold on trust for the children. Also, Aishah is not the legal owner of Amex business; therefore she cannot dispose of the property she may inherit in the future. The assignment here would be void even if it was by deed, not in equity or in common law.
The reason is that: ‘…to make a grant or assignment valid the thing which us the subject of it must have an existence…at the time of such grant or assignment..’ And an expectancy of the subject matter has no existence and also ‘…who may not be owned may not be effectively assigned..’
6. Under Broadway Cottages it was held that a trust was void unless it was possible to draw up a list of beneficiaries. Certainty of objects was made stricter once the complete list test was established. Therefore in order to be valid ‘the whole range of objects’ must be ascertained, which is not possible in this instance so which will make it a resulting trust.
7. The charitable trust must be of a charitable nature set out in the preamble of the statute of Elizabeth. For a trust to be charitable it must be for the benefit of the public , to be charitable, Lord Macnaughten in the Pemsel case set out the following criteria:
- Relief of poverty
- Advancement in education
- Advancement in religion
- Any other beneficial purpose
Similar to the Re Niyazi’s case which was based on a charitable bequest for the construction in Re Gwyon, provided a fund for underwear for the boys in the Farnham area. Although this trust failed on the basis that the rich were not expressly excluded, which is not the case in Aishah’s trust.
Education has been widely interpreted beyond the encouragement of teaching in school, in this instance the uniforms are encouraging study, similar to Re Mariette. The trust is solely charitable therefore is valid.
On the other hand, the trust for the homeless in Mumbai, taking into account the District Orditor case it can be argued that the trust is invalid on the basis that it is administratively unworkable. Lloyd LJ stated:
‘a trust with as many as two and a half million beneficiaries is, in my judgement, quite simply unworkable. The class is far too large.’
However, a will is not invalid because it is capricious which includes beneficiaries such as ‘all the residents of Greater London’. In Gulbenkians settlement, Lord Reid stated:
‘It may be that there is a class of case where, although the description of the class of beneficiaries is clear enough, any attempts to apply it to the facts would lead to such administrative difficulties that it would for that reason be held to be invalid.’
8. A property to which legal/equitable titles are owned may be the subject of a trust. However, it must be sufficiently identifiable, or it may fall foul of the certainty of subject matter, as seems to be the case here.
The words ‘bulk of my residue’ was deemed insufficient to create a trust as laid out in the case of Palmer; and also the word bulk was ambiguous. In Re Last it was said the beneficiaries would be able to enjoy the benefits as the remainder or residue is easily determined once the beneficiaries have taken their share.
The settlor must specify what is to be taken and how it is apportioned, therefore there is no certainty of subject matter.