#30 - Constitution Of Trusts - Trusts and Equity

Constitution An express trust is completely constituted either by an effective transfer of the trust property to trustees or by an effective declaration of trust Implications brought out by Turner LJ in Milroy v Lord "Settlor must have done everything which according to the nature of the property comprised in the settlement was necessary to be done in order to render the settlement binding upon him. He may do this by * * * Actually transferring the property to the persons for whom he intends to provide If he transfers it to a trustee for the purposes of a settlement Declares that he holds it on trust If the property is personal the trust may be declared in writing or on parol, but there is no equity to perfect an imperfect gift" Difference between a completely and an incompletely constituted trust = only when constituted is it binding on settlor Trusts completely constituted are divided into executed and executory trusts Executed trust arises when settlor has defined in the trust instrument precisely what interests are to be taken by the beneficiaries, Executory trust arises when instrument or declaration requires subsequent execution of further instrument When trust not properly constituted, beneficiaries have no equitable proprietary interest whatever; position often illustrated by reference to equitable maxims In such circumstances, the trust can be enforced under contract, but in the absence of this they are "volunteers" Three questions: 1. When is trust properly constituted? 2. What is difference between executed and executory trusts? 3. When will beneficiaries have contractual remedy? 1. When is a trust properly constituted? a) by transfer of trust property to trusteesif the subject matter is a legal estate or interest, transfer of trust property must be effective to vest that estate in the trustees Settlor must comply with all of the formalities requires for a complete transfer of property in order to give trustees full legal title thereto I.e:Gift of land = deed Registered land = registration of transfer on land register Copyright = writing signed by or on behalf of assignor Shares = correct form of transfer plus registration of transfer in Share Register of company in question Etc In Milroy, intending settlor had covenanted to transfer bank shares to D on trust for C D already had general power of attorney to transfer the shares in his own name, but did not do so before Settlor's death This revoked power of attorney - shares therefore remained settlor's property, and as such were part of the residuary estate and could not be claimed by C This decision and Re Fry, establish that so long as something remains to be done by a settlor in order to render a voluntary transfer effective, that transfer will remain abortive But some more recent decisions seem to have created limited exceptions to this rule; Oakley says that they are "extremely questionable" In re Vandervell's trusts (No2) Denning held in the alternative ground to the view that the shares in the company were held on trust for the children's settlement that: V had made a perfect gift to the trust company of the dividends of the shares "so far as they were handed over or treated by him as belonging to the trust company for the benefit of the children" Purported to follow Milroy, but in the latter case, the settlor has given the intended trustee the power of attorney to collect the dividends and so must inevitably have intended them to be held for the beneficiary, whereas V had not even been aware that he still retained an equitable interest in the option relating to the shares at the time when he had made the supposedly perfect gift O therefore says the two decisions are readily distinguishableEquitable interests A perfect assignment of the transferor's interest must be made, universally required to be in writing by virtue of s53(1)(c) of LPA 1925 This assignment will be followed by a direction to the trustees to hold for the future its subject matter on trust for the assignee This at least must be done: Re McArdle b) By declaration of trust The above method is by far the most common However, alternatively, the settlor can unilaterally make a declaration of trust