This article analyzes the requirements and procedures for a valid trust. In UK law, a trust is an arrangement that involves three classes of people; a Settlor, Trustees and Beneficiaries. The Settlor is the person who transfers the property to the Trust. The 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 Beneficiaries are the persons for whose benefit the trust property is maintained and can receive income or capital from the Trust.
“No particular form of expression is necessary for the creation of a trust, if as a whole it can be deduced that a trust was intended.” This statement gives the impression that no formalities are required and could be misleading. Although equity generally looks at intention rather than form, mere intention in the property owner’s mind is not enough. For a valid trust to exist, the Settlor must have the ability to create a trust. You must validly transfer the fiduciary property to a third-party fiduciary or declare yourself a fiduciary. In addition, you must intend to create a trust and must clearly define the trust’s ownership and beneficiaries. This is known as the “three certainties”; certainty of the subject, certainty of the objects and certainty of the intention.
Certainty of intent refers to a person’s specific intention to create a trust arrangement whereby the Trustees (who may include themselves) hold the property, not for their own benefit, but for the benefit of another person.
When trusts are created in writing and with the advice of legal professionals, it is clear that intent is present. [Re Steele’s Will Trusts 1948]. However, no particular form of words is needed to create a trust and the equitable maxim applies here, “Equity looks to intention rather than form.” Therefore, it is sometimes necessary for the courts to examine the words used by the property owner, and what obligations, if any, he intended to impose on those receiving the property.
It is not necessary for the Owner to expressly call the agreement a trust or declare himself a trustee. However, you must demonstrate this intention by your conduct 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 “both his and mine.” Also, your joint bingo winnings were credited to the account and the withdrawals were considered your joint money. Therefore, the Tribunal concluded from the words and conduct of Mr. Constance that he was seeking a trust.
The certainty of intention is also known as certainty of words, although it has been suggested that confidence can be inferred only from behavior. Looking at Re Kayford 1975 1All ER 604, Megarry J says of the certainty of the words, “the question is whether in essence sufficient intention has been manifested to create a trust.” In this case, Kayford Ltd deposited the client’s money into a separate bank account and was considered to be a “useful” indication of the intention to create a trust, although not conclusive. It was considered that there was a trust based on the conversations between the managing director, the accountant and the manager of the Company, so words were necessary for the conclusion.
On the contrary, when the word ‘trust’ is used expressly, this does not constitute conclusive proof of the existence of a Trust; in fact, the agreement may be something very different. [Stamp Duties Comr (Queensland) v Jolliffe (1920)]. For example, the deed may contain words such as “In trust, with power to appoint my nephews in actions that my Trustee, Wilfred, decides in his absolute discretion, and in the absence of appointment, my friend George.” Although professing to be a trust, Wilfred is not required to name nephews and a provision is made for the property to pass to George if he does not. Therefore, this is a power of appointment, not a trust. [eg. Re Leek (deceased) Darwen v Leek and Others [1968] 1 All ER 793].
Sometimes in a will, the property owner will use ‘precautionary’ words as expressing a ‘wish, hope, belief or wish’ that the recipient of the property will handle it in a certain way. For example, in Re Adams and Kensington Vestry 1884, a husband turned over all his property to his wife, “with full confidence that she will do the right thing in disposing of it to 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. Words of caution can sometimes build trust. In Comiskey v Bowring-Hanbury 1905, the words “in full confidence” were used again, but the will also included more clauses, which were interpreted to create a trust. The Court will examine the entire document to determine the testator’s intention, rather than dismissing the trust due to individual clauses.
There are more formalities required for certain types of trust property, and for a trust to be valid, title to the trust property 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 deed of ownership. If the trust is not properly constituted, the alleged beneficiaries do not have the right to oblige the Settlor to properly transfer the Property, since “the estate will not help a volunteer.” The exception to this is when 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 default.
When a probate trust of land or personal property is sought, 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 personality 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 all the necessary formalities to properly transfer the Property to the trustees, for example, the execution and delivery of a transfer form of shares for shares.
To create an inter vivos trust of the land or an equitable interest in the land, in addition to the land transfer formalities, the declaration of trust must be in writing and must be signed by the person capable of creating the trust, that is i.e. the Settlor or his attorney [S.53(1)(b) Law Property Act 1925]. When this formality is not complied with, the Trustee would retain the land in trust for the Settlor instead of the Beneficiary. The exception is where the rule in Strong v Bird 1874 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, 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 confidence if intention was present. This is clearly not the case. There are formalities for creating inter vivos land trusts and testamentary trusts and, if not followed, the trust will fail unless consideration has been provided or the rule applied in Strong v Bird 1874, even if the Trustee had the best intentions. Also, the form of the words used in those formalities must be clear and unambiguous, or they cannot amount to a trust. He goes on to say that ‘you can create a trust without using the word’ trust ” and this is true in the sense that other words and conduct to that effect suffice. However, the Tribunal does not limit itself to considering the “substance” of the words. If the wording used does not meet the ‘three certainties’ or, for example, the person making the declaration does not have the ability to make a trust, the trust will fail. This is clearly not the desired ‘effect’ or the intention of the owner.
