#4627 - Formalities - GDL Equity and Trusts

Three methods of giving the benefit of property to someone: all mentioned in Milroy v Lord

1. Outright gift: transfer of legal and equitable

2. Transfer on trust

3. Self-declaration of trust

Declarations in general

• If a person wants to create a trust on death – he must comply with the Wills Act 1837 s9

  • All testamentary dispositions must be in writing, signed by testator in presence of 2 witnesses present at the same time who must attest their witnessing

• Lifetime (inter vivos) trusts may be declared formally (or orally/by conduct) – Paul v Constance unless there is a specific requirement for them to be in writing - Subsections 53(1)(b) and (c) of the Law of Property Act 1925 – require writing for certain trust dealings

Declarations of a trust of land

S 53 (1)(b) Law of Property Act 1925: ‘ A declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will’

• Failure to comply renders trust unenforceable (not void)

• If the settlor orally declared a trust of land and then later evidenced it in writing – date of declaration is the date of the original oral declaration

• S53(1)(b) applies to express trusts only

• s53(2) LPA 1925 provides that the requirements of s53(1) don’t apply to implied, resulting or constructive trusts – exempt from the need for writing – Hodgson v Marks

Dispositions of subsisting equitable interests in any property

• Section 53(1)(c) LPA 1925– formalities for the disposition of a subsisting (or pre-existing) equitable interest, whether in land or pure personalty

• Subsisting in the sense that legal/equitable ownership have been separated

• ‘a disposition of an equitable interest subsisting at the time of the disposition must be in writing, signed by the person disposing of the same or by his agent lawfully authorised in writing or by will’ – failure to comply makes it void

• ‘Disposition’ is a very wide term – can include sale, gift, assignment and a declaration of trust

4 types from Timpson’s Executors v Yerbury :

1. Assign directly to 3^rd party

2. Direct T to hold for 3^rd party

3. Sell it – ‘contract for valuable consideration’

4. Declare a sub-trust

Direction to trustees to hold on trust for another

1. Grey v IRC (1960) : (See full description of case in previous notes/manual)

• Settlor, Mr Hunter wanted to avoid stamp duty in creating settlements for his grandchildren

• Step 1: 6 settlements created

• Step 2: Mr H transferred 18,000 shares to trustees to hold as nominees for Mr H

• Step 3: Mr H orally and irrevocably directed the trustees to hold the shares according to the terms of the six nominal settlements – intention was that the shares should be held on trust for Mr H’s grandchildren

• Step 4: All this was confirmed by deed executed by Mr Hunter and the trustees

• Mr H argued that oral direction to hold shares for grandchildren was not a ‘disposition’ – so s53(1)(c) didn’t apply (no need for signed writing)

• HL disagreed: attempted disposition of a subsisting equitable interest: void for failure to comply with s53(1)(c)

• Key point – regard the trustees, TT as the apex of a triangle holding shares for H down below, who called up to TT to direct them to hold instead for GG, so that H was responsible for shuttling across his equitable interest to GG – disposing of his subsisting equitable interest

• TT held the shares first for H then held them in a different capacity for GG – trusts were different trusts, as though they had different trustees (so could be regarded as a square)

2. Vandervell v IRC (see previous notes & manual for full case description)

Guy Anthony Vandervell - wanted to give Royal College of Surgeons a substantial sum of money to institute a chair of pharmacology– wished to give them the income from certain shares for some years but then wished to settle the shares in favour of his children afterwards – scheme division to give untaxed income to the Royal College of Surgeons

• Step 1 – transferred the bare legal estate in certain shares to the National Provincial Bank (he became B)

• Step 2 – Mr V orally instructed the bank to transfer the shares to the RCS – transferred to them as a charity so that dividends could be paid and tax deducted could be recovered

• Step 3 - Mr V advised not to lose control of shares – so arranged that the RCS should grant an option over those shares to the Vandervell Family Trustee Company – so that the Company could buy the shares from the College for a nominal sum

• Step 4: Mr V arranged for dividends to be declared on the shares of an amount almost equal to the sum required to endow the chair of pharmacology.

• Inland revenue assessed Mr V to surtax in respect of the dividends declared in favour of the College – on the grounds that s415 Income Tax applied:

1. Claimed that the bank only ever transferred the legal interest to the College – equitable interest remained with Mr V – he hadn’t divested himself of interest (would have to do so in writing so as to comply with s53(1)(c) LPA ) – therefore he remained equitable owner and had tax liability

   • HL rejected this 1^st argument – exception to s53(1)(c) – where the absolute beneficial owner gives oral instructions to the bare legal owner to transfer the property to a third party, with the intention that the third party should become legal AND beneficial owner – the passing of the beneficial interest need not be in writing

2. When the option was granted to the Trustee Company, it acquired the option as trustee, but the trusts of the option were never declared: Mr V failed on this second point

   • There was therefore a resulting trust of the option back to Mr V – Trustee Company held the option on resulting trust to Mr V

   • If the option had been exercised then they would have held option for Mr V absolutely – had failed to divest himself of his entire interest in the shares so was liable to surtax on the dividend declared on those shares

RATIO – WHEN AN ASTOLUTELY ENTITLED BENEFICIARY INSTRUCTS TRUSTEE TO TRANSFER LEGAL TITLE TO A 3^RD PARTY WITH THE INTENTION EQUITABLE INTEREST SHOULD ALSO PASS, THEN THE LEGAL TITLE AND EQUITABLE TITLE PASS TOGETHER AND AN ORAL INSTRUCTION WILL SUFFICE AND S53(1)(C) DOES NOT APPLY

Contract to assign an existing equitable interest to another (i.e. selling beneficial interest)

• Not itself a disposition – one precedes the other

• Usually you would have to comply with s53(1)(c)

• Where however, the contract is specifically enforceable (a contract to sell beneficial interest in something unique) e.g. involving shares in a private company – then the equitable interest automatically passes to purchaser and the vendor holds the interest on constructive trust for the purchaser (subject to the price being paid)

• Neville v Wilson: contract for valuable consideration to assign an equitable interest in shares in a private company operated to transfer the interest, despite the absence of writing required by s53(1)(c) LPA 1925

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