Formalities for creating express inter vivos trusts

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Miranda is a horticulturist who owns farmland in the Yorkshire countryside. She decides to create a trust of the farmland for her longtime friend, Evelyn, intending that all proceeds from the land be used for Evelyn’s living expenses. Miranda verbally declares this trust in a phone call with Evelyn, explicitly stating that Evelyn shall manage the land on trust. No written document or formal contract is drawn up, but Miranda later sends an unsigned text message repeating her instructions. A dispute arises when Evelyn wonders if the trust can be enforced without written evidence that meets statutory requirements.


Which of the following is the single best statement regarding the trust’s enforceability under the relevant formalities for trusts involving land?

Introduction

An express inter vivos trust is a trust intentionally established by a settlor during their lifetime. Its formation relies on satisfying specific legal criteria, ensuring that the trust is valid and enforceable. Central to creating such a trust are the "three certainties"—certainty of intention, certainty of subject-matter, and certainty of objects. Additionally, adhering to statutory formalities, particularly concerning trusts involving land, is essential. This article examines these core principles, reviewing the requirements and their practical applications within trust law.

Essential Elements for Valid Express Trusts

To create a valid express inter vivos trust, it's important to establish the "three certainties" that confirm the trust's clarity and enforceability.

Certainty of Intention

The settlor must demonstrate a clear intention to create a trust. This intention doesn't require any formalistic language; rather, the overall conduct and expressions of the settlor are considered.

Key Points:

  • The intention can be conveyed through words or actions.
  • Formal or technical language is unnecessary.
  • Courts look at the substance over the form.

For instance, in the case of Paul v Constance [1977] 1 WLR 527, Mr. Constance's informal statement, "The money is as much yours as mine," was deemed sufficient to establish his intention to create a trust for his partner.

Certainty of Subject-Matter

The trust property must be clearly identified so that the trustees know exactly what assets are subject to the trust.

Key Points:

  • The property must be specified precisely.
  • Vague descriptions can lead to the trust failing.
  • It must be clear how much of the property is included.

In Palmer v Simmonds (1854) 2 Drew 221, the term "the bulk of my residuary estate" was too uncertain, resulting in the trust failing due to the lack of precise identification of the subject-matter.

Certainty of Objects

It's necessary that the beneficiaries (the objects of the trust) are identifiable so that the trust obligations can be properly enforced.

Key Points:

  • Beneficiaries must be clearly defined.
  • For fixed trusts, the complete list test applies.
  • For discretionary trusts, the "is or is not" test is used.

In McPhail v Doulton [1971] AC 424, the House of Lords favored a more flexible approach for discretionary trusts, allowing trusts to be valid if it can be said of any given individual whether they are or are not a member of the class of beneficiaries.

Legal Formalities for Express Inter Vivos Trusts

Beyond the "three certainties," certain legal formalities must be observed, especially when the trust involves land.

Trusts Involving Land

Under Section 53(1)(b) of the Law of Property Act 1925, a declaration of trust concerning land or any interest therein must be evidenced in writing and signed by a person able to declare such a trust.

Key Points:

  • The trust must be evidenced in writing.
  • The writing doesn't have to be at the time of trust creation but must be before enforcement.
  • Failure to comply renders the trust unenforceable, not void.

However, equity can intervene to prevent fraud. In Rochefoucauld v Boustead [1897] 1 Ch 196, the court held that an express trust of land could be enforced even without written evidence if the trustee would otherwise be using the statute as an instrument of fraud.

Trusts of Personal Property

For trusts involving personal property, there is generally no requirement for writing; a trust can be declared orally.

Key Points:

  • No statutory requirement for writing.
  • Oral declarations are sufficient.
  • Equitable assignments must be in writing under Section 53(1)(c) LPA 1925.

An example is Re Cole [1964] Ch 175, where delivery and intention were sufficient to transfer chattels into a trust without any written documentation.

Exceptions and Equitable Principles

Equity, aiming to achieve fairness, may provide exceptions to strict legal formalities to ensure that justice is done.

Secret Trusts

Secret trusts arise when a testator leaves property to a person in their will, based on the understanding that the person will hold it on trust for someone else.

Key Points:

  • Operate outside the will.
  • Require communication of the trust and acceptance by the trustee during the testator's lifetime.
  • Can be fully secret or half-secret.

In Blackwell v Blackwell [1929] AC 318, the courts upheld the validity of half-secret trusts, emphasizing that equity will not permit a statute to be used as an instrument of fraud.

The Rule in Strong v Bird

When a donor intends to make a gift but fails to complete it during their lifetime, the gift can be perfected if the donee becomes the executor of the donor's estate.

Key Points:

  • The donor's intention must be immediate and continue unchanged until death.
  • The donee must be appointed as executor.

In Re Stewart [1908] 2 Ch 251, the court applied the rule where the intended gift was incomplete, but the recipient became the executor, thus perfecting the imperfect gift.

Practical Application: A Real-World Example

Sarah wishes to create a trust during her lifetime for her nephew, Liam. She tells her friend, Emma, "I want you to hold these shares for Liam until he turns 21." Sarah hands over the share certificates to Emma but doesn't put anything in writing.

Analysis:

  • Certainty of Intention: Sarah's statement and action indicate a clear intention to create a trust.
  • Certainty of Subject-Matter: The shares are specific and identifiable property.
  • Certainty of Objects: Liam is a clearly identified beneficiary.
  • Formalities: Since the trust concerns personal property (shares), there is no statutory requirement for writing.

In this scenario, the trust would likely be considered valid despite the absence of written documentation.

The Interplay of Legal Principles

The creation of express inter vivos trusts involves a careful balancing of strict legal requirements and equitable principles that aim to uphold the settlor's true intentions. While statutory formalities mandate specific procedures, equity ensures that following these procedures does not result in injustice or frustrate genuine intentions.

For example, although section 53(1)(b) of the Law of Property Act 1925 requires trusts of land to be evidenced in writing, equity may enforce an oral trust to prevent fraud, as demonstrated in Rochefoucauld v Boustead. This interplay ensures that the law remains both predictable and fair, respecting formal requirements while acknowledging the complexities of human intentions.

Conclusion

Creating a valid express inter vivos trust necessitates fulfilling the "three certainties"—intention, subject-matter, and objects—to ensure clarity and enforceability. Compliance with statutory formalities is necessary, particularly for trusts involving land, as mandated by the Law of Property Act 1925. Equitable principles, such as those demonstrated in cases of secret trusts and the rule in Strong v Bird, play a significant role when formal requirements are not strictly met, ensuring that the settlor's intentions are honored. The complex relationship between these legal principles highlights the importance of precision and clarity in trust creation, exemplified through case law and practical applications.

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