#17291 - Formalities Of A Trust - GDL Equity and Trusts

Valid declaration of trust creates a new interest.

Disposition of beneficial interest transfers an existing interest.

Three types of trust:

• Inter-vivos trust

• Testamentary Trust

• Trust of Land

Inter-vivos trusts:

• May be declared informally (orally or by conduct)

• Recall Paul v Constance [1977] - Cash in the bank account was used for bingo winnings of Claimant and her deceased partner. These had been shared. Conduct sufficient for trust.

• Must comply with Trusts of Land requirements.

Trusts created by will/testamentary trusts.

• Must be contained within a valid will (if the will is invalid all clauses are too).

• S.9 of the Wills Act 1837 (as amended by the Administration of Justice Act 1982)

  • Will must be in writing

  • Will must be signed by the testator

  • Will must be attested by two witnesses (in the presence of the testator but not necessarily in the presence of each other).

    • Attest does not mean signed. May just write name (Payne v Payne)

    • Lack of independence does not invalidate whole will, only invalidates the clauses relating to the non-independent person.

• Any amendments to the will must be made by declaring a new will or a codicil.

Trusts of Land

• s.53(1)b of the Law of Property Act 1925 requires all trusts of land be evidenced in writing.

  • s.1 TOLATA: a trust of land is any trust which consists of or includes land.

  • Non-compliance with s53(1)(b) will render the declaration of trust unenforceable, rather than void.

    • This requirement is ad probationem not ad validate: writing is necessary for evidence purposes but not to validate the declaration of trust.

    • This means it is possible to declare the trust orally but later provide evidence of that declaration in signed writing.

• The requirement is often ignored as equity will not allow a statute to be used as an instrument of fraud.

  • Rochefoucald v Bousted [1897] – land transferred to D on understanding it was on trust for Countess do Rouchefoucald, never written down.

    • Held that to deny the existence of the trust would amount to a fraud on the Comtesse. The trust could be evidenced by oral evidence.

  • Bannister v Bannister [1948] – Mrs Bannister inherited two cottages from husband. Transferred to brother-in-law for undervalue on oral agreement she would live there rent-free for life.

    • Trust enforced to prevent fraud from brother in law.

Disposition of a Subsisting Equitable Interest

• When a beneficiary under a trust is attempting to do something with their equitable interest (nb not legal interest).

• Timpson’s Executors v Yardley [2002] four valid methods of disposing of equitable interest:

  • 1) Assigning property/interest to a third party directly

  • 2) Directing the trustees to hold the property on trust for a third party.

  • 2) Contracting for valuable consideration (i.e. sell it)

  • 4) Declare a sub-trust of equitable interest with themselves as trustee.

• S.53 (1)(c) LPA 1925 applies to any trust regardless of the type of property:

  • Requires a disposition be in writing, signed by disposer or an authorised agent.

  • Non-compliance will make disposition void.

  • This only relates to intention transfers, not resulting, implied or constructive trusts. (S.53(2) LPA)

• A disposition is an act by which a person intends to cease their beneficial ownership of a property.

1) Assigning property/interest to a third party directly

• s. 53(1)(c) applies.

2) Directing the trustees to hold the property on trust for a third party.

• Grey v IRC [1960] – Grey wanted to avoid stamp duty. Transferred shares to trustees to hold on trust for him. Orally instructed trustees to hold beneficial interest on trust for his grandchildren. Later confirmed this by deed.

  • At no point did the legal title change (with the trustees at all times), therefore held that the oral direction was an attempted disposition therefore failed under s.53(1)(c).

  • The deed however was valid (which meant it incurred stamp duty as a written disposition).

• Vandervell v IRC [1967] – Vandervell was the absolute beneficiary of a bare trust. The National Provincial Bank (NPB) was trustee. V orally instructed NPB to transfer the legal title of the trust property to the Royal College of Surgeons (RCS), who would use the dividends to fund a professorship.

  • Held that the equitable title went with the legal title in this case. There was no disposition as V’s beneficial interest was simply extinguished, (following Saunders v Vautier) and so no need for s.53(1)(c) formalities.

• Vandervell (No 2) [1974] – V told RCS that there was an option to purchase the shares back. Later orally instructs that this option should go to his children.

  • The option was, therefore, treated as being held on resulting trust for Vandervell until he disposed of it. This disposition required s.53(1)(c) formalities be complied with leading to the tax that Vandervell wanted to avoid occurring.

• Margret Carran argues Grey & Verndervell cannot be reconciled.

  • Argue it can – in Grey the legal title does not change hands. In Vandervell it does. There is simply an outright legal owner of the property, who does not require the protection...