Constitution of a Trust

• Three ways of transferring property:

  • 1) An absolute gift (complete constitution is necessary)

    • Milroy v Lord (1862) - Settlor attempted to create trust of shares, but only handed over the share certificates, failed to complete share transfer certificate, failed to register this transfer. Held no trust; equity will not perfect an imperfect gift.

  • 2) Transfer of legal title for trustee to hold on trust for a beneficiary (complete constitution is necessary)

  • 3) Self-declaration of trust, settlor retains legal title holding it on trust for a beneficiary (legal title does not move so complete constitution is not necessary but intention must be clear)

    • Jones v Lock (1865) – husband puts 900 cheque in safe for baby after failing to bring it any presents. Intention to give to baby not clear (more likely just to end argument), therefore no self-declaration.

    • Paul v Constance [1977] - Cash in the bank account was used for bingo winnings of Claimant and her deceased partner, used this money to pay for joint holidays etc. Deemed held on trust, intention was clear from the treatment of the account.

• If the settlor attempts one mode of transfer and fails in this method, then the court will not help out and construe it as a different type of transfer: This is in part due to the onerous burden of trusteeship

• Rules for transferring different types of property:

  • Freehold Land must be by registered deed (s.52(1) LPA 1925)

  • Leasehold Land must be by deed (s.52(1) LPA 1925), which must be registered if >7years.

  • Chattels (goods) must be transferred by deed of gift or by actual delivery (Re Cole) with unequivocal intention (Glaister-Carlisle)

  • Shares under s.1 Stock Transfer Act 1963 require a signed stock transfer form to be sent to the company’s registrar with relevant share certificates who then update the share register of the company

  • Debts and other choses in action (including rights under bank accounts) are transferred by writing, complying with s136 LPA 1925.

  • Equitable interests must be in writing and signed under s.53(1)(c) LPA 1925.

• If the trust is completely constituted – it cannot be revoked - Re Bowden (1936)

• The strict approach:

  • Under Milroy v Lord (1862 above) the transfer had to be complete and exact

    • If the final stage is not reached, the gift is not perfect and Equity will not perfect an imperfect gift and Equity will not assist a volunteer

  • Re Fry [1946] - Settlor was abroad during the war and wished to transfer shares for the benefit of the son. In order to do so, he was required to gain consent from the treasury. This was given but before it formally arrived settlor died.

    • Held trust not completely constituted therefore failed.

  • In favour of strict approach:

    • Predictable & certain

    • Adheres to the application of equitable maxims

    • Consistent and respect rights of other parties

  • In favour of a more relaxed approach:

    • Strict application may give rise to unconscionable conduct

    • This can come accidentally, if the settlor dies before the process is completed – no fault

    • Harsh prevention of settlor’s intentions

    • In other areas of law, changing ones mind on something that is not legally binding is not unconscionable

Exceptions to Formality Requirements

• Exception 1: The Rule in Re Rose (nb two cases of same name, entirely coincidental)

  • Re Rose [1949] – First instance decision. The testator handed a transfer of the relevant shares to the donee, Mr Hook, together with the relevant certificates. The transfer had not been registered by the date of his death.Under strict rules this was invalid and property should have been distributed on intestacy rules.

    • Held that Court: transfer was completed in the lifetime, even though the formalities were not fully complied with, settlor had done everything in his power to divest himself of his legal title.

    • ‘Equity looks as done on what ought to be done’

  • Re Rose [1952] – Precedential CA decision. Stock transfer form completed and sent to the company to be registered. The company failed to register this for more than three months.

    • Tax liability depended on whether transfer was effective from date of registration or date the form was sent to company.

    • Held transfer deemed completed at the moment the transferor had done all that he could have done. Would be unconscionable to change mind.

  • Problems:

    • What makes a change of mind unconscionable?

    • Interferes with director’s rights to refuse transfer.

  • Mascall v Mascall (1985) – father wished to transfer land to his son. Made and gave deed and certificate of land. Father changed his mind before son had registered transfer with HM Land Registry.

    • Lawton LJ and Browne-Wilkinson LJ: the property belonged to the son in equity, and was held on trust for the son by the father, because the father had done everything in his power to make the transfer effective.

  • Choithram v Pagarani [2001] - donor declared intention to make a gift on trust to a charity. Failed to fully constitute trust before he died. Called all the trustees, and friends and family and said that he “gave all his wealth to the foundation”

    • Lord Browne Wilkinson: although equity will not assist a volunteer, it will not strike officiously to defeat a gift

    • Privy Council upheld gift as donor was one of the trustees of the charity anyway, therefore one of the charity’s trustees already had the property vested in him, therefore a self-declaration of trust not requiring full constitution.

  • Pennington v. Wayne [2002] - Aunt wished to benefit her nephew with shares. Asked Pennington to handle the paperwork. Failed to send it to the company as required so shares transfer was not registered.

    • As her agent, anything Pennington does or doesn’t do is attributed directly to the principle. Therefore, settlor had failed to irrevocably transfer ownership. But in reliance of this transfer the transferee had accepted the position as a director of the company, taking up a fiduciary office.

    • Arden LJ: “a donor will not be...

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