This article discusses the requirements and procedures for a valid trust. In UK law, a trust is an arrangement involving three classes of people; a Settlor, Trustees and Beneficiaries. The Settlor is the person who transfers the property to the Trust. Trustees are persons who legally own the Trust Property and manage it for the Beneficiaries. The powers of the Trustees are determined by law and may be defined by a trust agreement. The Trustees are the persons for whose benefit the trust property is held, and may receive income or principal from the Trust.
“No particular form of expression is necessary for the constitution of a trust, if on the whole it can be deduced that a trust was intended.” This statement gives the impression that no formalities are necessary and could be misleading. Although fairness is generally seen more in intent than in form, mere intent in the mind of the property owner is not enough. For a valid trust to exist, the Settlor must have the capacity to create a trust. He must validly transfer the trust assets to a third-party trustee or declare himself a trustee. In addition, he must intend to create a trust and must clearly define the ownership of the trust and the beneficiaries. This is known as the ‘three certainties’; certainty of matter, certainty of objects and certainty of intention.
Certainty of intent refers to a person’s specific intent to create a trust agreement whereby the trustees (which may include themselves) own property, not for their own benefit, but for the benefit of another person.
It is clear that when trusts are created in writing and with the advice of legal professionals, that intention is present [Re Steele’s Will Trusts 1948]. However, no particular form of words is needed for the creation of a trust and the equitable maxim, “Equity seeks intent rather than form,” applies here. Therefore, it is sometimes necessary for the courts to examine the words used by the owner of the property and what obligations, if any, the owner intended to impose on those receiving the property.
It is not necessary for the Owner to expressly name the agreement a trust, or to declare himself a trustee. However, he must by his conduct demonstrate this intention and use words that have the same effect. [Richards v Delbridge 1874]. For example, in Paul v Constance 1977, Mr. Constance did not expressly declare a trust for himself and his wife, but assured his wife that the money was “as much yours as mine.” In addition, his joint bingo winnings were credited to the account and withdrawals were treated as his joint money. Therefore, the Court concluded from Mr. Constance’s words and conduct that he intended a trust.
Certainty of intent is also known as certainty of words, although it has been suggested that trust can be inferred from behavior alone. Looking at Re Kayford 1975 1All ER 604, Megarry J says of the truth of the words, “the question is whether sufficient intent to create a trust has essentially manifested itself.” In this case, Kayford Ltd deposited the client’s money in a separate bank account and this was considered to be a “useful” indication of the intention to create a trust, although not conclusive. A trust was deemed to exist on the basis of conversations between the managing director, the accountant and the manager of the Company, so words were necessary for the conclusion.
In contrast, when the word ‘trust’ is expressly used, it is not conclusive proof of the existence of a trust; in fact, the agreement may be something quite different. [Stamp Duties Comr (Queensland) v Jolliffe (1920)]. For example, the deed may contain wording such as “In trust, with power to appoint my nephews in such actions, as my Trustee, Wilfred, shall decide in his absolute discretion, and failing appointment, my friend George “. Although professing to be a trust, Wilfred is not required to name the nephews and the estate is expected to pass to George if he fails to do so. Therefore, it is a power of appointment, not a trust [eg. Re Leek (deceased) Darwen v Leek and Others [1968] 1 AllER 793].
Sometimes in a will, the owner of the property will use ‘precautionary’ words as expressing a ‘wish, hope, belief, or wish’ that the recipient of the property handles the property in a certain way. For example, in Re Adams and Kensington Vestry 1884, a husband gave all his property to his wife, “in full confidence that she will do right as to the disposition thereof among my children…” . The Court held that the wife may have had a moral obligation to treat the Property in a certain way, but this was not enough to create a binding trust. Sometimes words of caution can still build trust. In Comiskey v Bowring-Hanbury 1905, the words ‘in full trust’ were used again, but the will also included additional clauses, which were interpreted to create a trust. The court will examine the entire document to determine the intent of the testator, rather than dismissing the trust based on individual clauses.
Other formalities are required for certain types of trust property, and for a trust to be valid, title to the trust must be vested in the Trustees, or the trust must be “incorporated”. This could be done, for example, by handing over movable property or by deeding the land. If the trust is not duly constituted, the intended beneficiaries have no right to compel the Settlor to properly transfer the Property, as ‘equity will not assist a volunteer’. The exception to this is where the Beneficiary has provided consideration (including marriage) for the Settlor’s promise, in which case, there would be a valid contract and the Beneficiary could sue for breach.
Where a testamentary trust of land or personal property is intended, the will in which it is contained must be in writing and executed in accordance with Section 9 of the Wills Act of 1837, which means that the will must be signed by the Testator in the joint presence of two witnesses, and then signed by the two witnesses in the presence of the testator.
When a Settlor wishes to create a personal property inter vivos trust, the formalities are minimal. In addition to the usual requirements for a trust (capacity, the three certainties, etc.), the Settlor must comply with the formalities required to properly transfer the Property to the trustees, for example, the execution and delivery of a share transfer form .
To create a land trust inter vivos or for an equitable interest in land, in addition to the formalities of transferring the land, the trust declaration must be in writing and must be signed by the person capable of creating the trust, it is say, the Settlor or his attorney [S.53(1)(b) Law Property Act 1925]. In case this formality is not complied with, the Trustee would hold the land in trust for the Settlor instead of the Beneficiary. The exception is where the Strong v Bird 1874 rule applies: the Settlor intended to make an immediate unconditional transfer to the Trustees, the intention to do this did not change until the death of the Settlor, and at least one of the Trustees is the administrator of the Settlor or executor. In this case, since the property is automatically transferred to the personal representatives of the Settlor and the trust is constituted.
It is sometimes claimed that no particular form of expression is necessary to create a trust if the intent was present. Clearly this is not the case. Formalities exist to create inter vivos land trusts and testamentary trusts and if they are not followed the trust will fail unless consideration has been provided or the Strong v Bird 1874 rule applies, even if the Trustee had the best of intentions. Also, the form of words used in those formalities must be clear and unambiguous, or they may not amount to a trust. He goes on to say that ‘a trust can be created without using the word ‘trust’ and this is true in the sense that other words and conduct to that effect are sufficient. However, the Court of Justice does not limit itself to considering the “substance” of words. If the wording used does not meet the ‘three certainties’ or, for example, the person making the declaration does not have the capacity to make a trust, the trust will fail. Clearly this is not the desired ‘effect’ or the owner’s intent.