Express Trusts

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Express trusts are the classic, core trusts in which a party has created a trust as per all requirements. For a an express trust to be created successfully, the following requirements must be satisfied:

  1. Certainty as to the creator’s intention, the trust property, and the description of beneficiaries.
    1. Certainty of intention - it must be clear that the settlor intended to create a trust, as opposed to another entitlement: Hyhonie Holdings v Leroy.[1]
      • When determining intention, the question is of substance and not of form (ie, look at the conduct and not words): Commissioner of Stamp Duties v Joliffe[2]; Hyhonie Holdings v Leroy.[3]
    2. Certainty of subject matter - the property must be identified and known.
    3. Certainty of objects - the beneficiaries must be identified and known. Level of certainty required depends on the amount of discretion in the trust:
      • Fixed trust: ‘list certainty’ - the beneficiaries are ascertainable enough to make a list of all individual beneficiaries.
        • Exceptions might be granted in extreme cases: West v Weston.[4]
      • Discretionary trust: if there a criterion which a person must satisfy in order to be a beneficiary : Re Baden's Deed Trusts; McPhail v Doulton.[5]
  2. Proper constitution of the trust either by transfer, declaration, or direction.
    1. Transfer - this is where the settlor transfer the property to a trustee. The test for what constitutes sufficient transfer is:
      • The settlor must do all that is necessary on its own part to render the settlement binding, such that the donee can complete the transfer of their own accord. The trust also needs to be acknowledged by the trustee: Milroy v Lord.[6]
    2. Declaration - this is where the settlor declares that from now on, he holds the property on trust for the beneficiary (becomes the trustee himself).
      • The settlor needs to make an express declaration of trust binding itself.
      • Most trusts are created this way by execution of a deed of trust.
    3. Direction - this is where an original beneficiary creates a new trust in favour of a new beneficiary by directing the trustee to hold the property for the new beneficiary.
      • It must be in writing: Grey v IRC.[7]
  3. When dealing with land, creation of the trust must be in writing: Conveyancing Act 1919 (NSW), s 23C.

This article is a topic within the subject Property, Equity and Trusts 1.

Contents

Required Reading

Evans, Equity and Trusts, 3rd edition, Lexis Nexis, 2012, pp. 417-433 [25.1-25.26]; 440-442 [25.43-25.49]

Requirement of Certainty

[8] An express trust can be created any anyone with legal capacity, providing certain requirements are met. The requirements involve the three certainties, without any of which the trust will not be valid (the trust property will pass back to the settlor in a resulting trust).

  1. Certainty of intention - it must be clear that the settlor intended to create a trust, as opposed to another entitlement.[9]
  2. Certainty of subject matter - the property must be identified and known.
  3. Certainty of objects - the beneficiaries must be identified and known.

Intention

[10] The intention requirement is pretty straightforward - it must be clear that the settlor intended to create a trust and not something else.

  • In most cases, its not a problem as creation of a trust involves creation of a formal deed of trust (which clearly shows intention).
  • No particular form of words required - simply anything evincing an intention to create a trust.
  • However, words of 'request' do not count as evincing an intention to create a trust.

Intention was discussed in Commissioner of Stamp Duties v Joliffe:[11]

  • Facts: Mr Joliffe opened a bank account on trust for his wife, however he had deposited money only of his own and did not inform his wife of the money or that he opened it to avoid creditors. After her death, attempts were made (by the state) to claim 'estate duties' on the account since it was a part of the wife's estate, but Joliffe argued that he never intended it to be a trust - it was a pretense.
  • Held: A trust cannot be created contrary to the real intention of the creator, discernible by the actions of the person and regardless of the words used (the use/absence of the word 'trust' is irrelevant). The actions in this case demonstrate that Joliffe did not intend it to be a trust.

Clearly, the question is one of substance (ie, the actions of the person) and not merely form (the words used etc). This is was reaffirmed in Hyhonie Holdings v Leroy:[12]

  • Conduct prevails over words.
  • Communication of the trust to others is not a requirement, however the absence of communication is a factor to be taken into account when determining whether a trust exists.
  • The absence of communication creates raises a presumption against an intention to make an irrevocable declaration of trust. It raises the presumption that the donor intended to reserve a right to adhere to or abandon the declaration as it served his or her advantage.

The question of substance depends on the facts of each case, as was discussed in Kauter v Hilton:[13]

  • Facts: a man told his niece he wanted to leave the money in her name, but became ill and died before he could create a trust deed in her name. He had, however, given her his passbooks, without which he could not operate the accounts without her consent and participation.
  • Held: the giving of the passbooks was sufficiently indicative of an intention to give her monies on trust.

[14] Mere payment into a specially named account will not be enough, by itself, to show the necessary intention to create a trust.

  • In Re Fada (Australia),[15] the mere creation of a ‘trust account’ was not enough to create any trust in favour of the applicants. It turns on the intention of the alleged settlor.
  • In Re Multi Guarantee,[16] premiums were paid into a special account from which funds could only be withdrawn from the consent of both parties. A trust was not held to be created, as the guarantor did not manifest a sufficient intention to create one.
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Quistclose Trusts

[17] The intention requirement is put in place to stop the imposition of trusts in every situation.

  • For example, in a commercial transaction, the mere fact that one party paid its consideration and the other didn't does not create a trust relationship where the executory consideration is held on trust for the promisee.
  • The relationship is generally one of creditor and debtor.

However, an intention to hold money received in a commercial transaction on trust can be evidenced when there is an attempt to separate that money from the rest of the assets. This was established in Barclays Banking v Quistclose Investments:

  • Where money is given with the mutual intention that it is held seperately and for a specific purpose, and that purpose fails, the money is held on trust for those who gave it (and should be returned).
  • This creates a trust relationship rather than merely a debtor/creditor relationship.

This was discussed in in Walker v Corboy:[18]

  • Facts: in this case, the agents made no attempt to separate the proceeds of sale of the plaintiffs’ produce from the other funds, and no attempt was made to separate funds referable to the sale of produce from one plaintiff to another.
  • Held: the agents did not hold the proceeds of sale on trust for the plaintiffs. The proper relationship was that between debtor and creditor.

Note that Quistclose refers only to cases of mutual intention. Creation of a unilateral trust may be governed by rules of unfair preference.[19]

A series of cases and rules relating to Quitclose Trusts -

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Subject Matter

[20] Certainty of subject matter means that it must be clear what property exactly is the subject matter of the trust. This is also fairly straightforward:

  • Vague statements like 'the bulk of my estate' will be held to be uncertain.[21]

Object

[22] Certainty of object means that the beneficiaries need to be sufficiently ascertainable in order to allow the trustee to make a distribution without breaching the trust.

The requirement differs depending on the amount of discretion in the trust.

Fixed Trusts

In a fixed trust, ‘list certainty’ is required. This means that the beneficiaries are ascertainable enough to make a list of all individual beneficiaries.

  • This is essential for a fixed trust – since they all they all have equitable interests, and one cannot know the proportions unless one knows every single beneficiary.

An exception was granted in West v Weston:[23]

  • Facts: a testator left his estate to be divided in equal shares between all of the issue of his four grandparents, which ended up being over 1,500 people.
  • Held: rejected the English method of putting an advertisement prompting beneficiaries to come forth. Rather, certainty of object would be satisfied if within a reasonable time after the gift comes into effect, the court can be satisfied on the balance of probabilities that:
    1. The substantial majority of the beneficiaries have been ascertained and
    2. that no reasonable inquiries could be made which would improve the situation.

This decision has been has been criticised on the basis that it is inconsistent with the statement of principle in Kinsela v Caldwell,[24] which only requires that upon the date the gift comes into operation, the beneficiaries can be ascertained with certainty.

Discretionary Trusts

In a discretionary trust, certainty of object is satisfied if it can be said that there is a criterion which a person must satisfy in order to be a beneficiary (ie, whether there is a 'class' of beneficiaries, which a person can be said to belong to). In that way, persons who satisfy that criterion (who are members of that class) can enforce the trust.[25]

Requirement of Proper Constitution

[26] A trust which has not been properly constituted will fail.

  • This is because it would only amount to an agreement to create a trust, which is lacking in consideration (since the trustee receives nothing).
  • The beneficiary would be a 'volunteer', and equity doesn't assist a volunteer (maxim of equity).

A trust can be properly constituted in 3 ways:

  1. Transfer to trustees - this is where the settlor transfer the property to a trustee. The test for what constitutes sufficient transfer is:
    • The settlor must do all that is necessary on its own part to render the settlement binding, such that the donee can complete the transfer of their own accord. The trust also needs to be acknowledged by the trustee.[27]
    • In cases where the intended trustee is also the executor of the will, it is not necessary for the legal title to transfer, since the executor acquires that title by virtue of the grant of probate.[28]
  2. Declaration of trust - this is where the settlor declares that from now on, he holds the property on trust for the beneficiary (becomes the trustee himself).
    • The settlor needs to make an express declaration of trust binding itself.
    • A voluntary trust created by declaration is fully constituted, and enforceable by the beneficiaries, even if they are volunteers.
    • Most trusts are created this way by execution of a deed of trust.
  3. Direction to a trustee - this is where an original beneficiary creates a new trust in favour of a new beneficiary by directing the trustee to hold the property for the new beneficiary.
    • It must be in writing.[29]
    • There can be a completely constituted trust of the benefit of a voluntary covenant.[30]

Requirement of Writing

[31] As per s 23C of the Conveyancing Act 1919 (NSW), any transfer of interest in land must be in writing. Accordingly, all trusts involving interests in land must be done by writing.

End

This is the end of this topic. Click here to go back to the main subject page for Property, Equity and Trusts 1.

References

Property Textbook refers to Edgeworth et all, Sackville and Neave's Property Law Cases and Materials, 8th edition, Lexis Nexis, 2008.

Equity Textbook refers to Evans, Equity and Trusts, 3rd edition, Lexis Nexis, 2012.

  1. [2003] NSWSC 624.
  2. (1920) 28 CLR 178.
  3. [2003] NSWSC 624.
  4. (1998) 44 NSWLR 657.
  5. [1971] AC 424.
  6. (1862) 45 ER 1185
  7. [1960] AC 1.
  8. Equity Textbook, p. 417 [25.1].
  9. Hyhonie Holdings v Leroy [2003] NSWSC 624.
  10. Equity Textbook, pp. 417-20 [25.2-25.5].
  11. (1920) 28 CLR 178.
  12. [2003] NSWSC 624
  13. (1953) 90 CLR 86.
  14. Equity Textbook, pp. 424- [25.12-25.].
  15. [1927] SASR 590.
  16. [1987] BCLC 257.
  17. Equity Textbook, pp. 422-4 [25.8-25.11].
  18. (1990) 19 NSWLR 382.
  19. Re Kayford Ltd [1975] 1 WLR 279.
  20. Equity Textbook, p. 430 [25.20].
  21. Palmer v Simmonds (1854) 2 Drew 221.
  22. Equity Textbook, pp. 430-3 [25.21-25.26].
  23. (1998) 44 NSWLR 657.
  24. (1975) 132 CLR 458, 461.
  25. Re Baden's Deed Trusts; McPhail v Doulton [1971] AC 424.
  26. Equity Textbook, pp. 440-2 [25.43-25.48].
  27. Milroy v Lord (1862) 45 ER 1185
  28. Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694.
  29. Grey v IRC [1960] AC 1.
  30. Fletcher v Fletcher (1844) 67 ER 564.
  31. Equity Textbook, p. 442 [25.49].
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