Validity of Trusts Declared by Stella - Brompton Heights

The current issue will involve determining the validity of the trust declared by Stella regarding Brompton Heights and Belfast House; shares in the Private Detectives Ltd and dividends (income) from the shares; and the residue of the estate. The present issue comprises a variety of legal elements regarding the formation of a valid express thrust, bare trust that is fixed, and discretionary trust regarding non-charitable purpose. For determining the validity of the trusts declared by Stella, relevant trust principles will include, but not limited to the three certainties tests, principle of in unconscionability, and perpetuities

Issue 1 – Brompton Heights and Belfast House

In order to be a valid express trust, it must meet the three certainties tests. The declaration must be certain about the intention of the settlor to create the trusts. Applying this test, the current issue will involve determining whether the declaration of trust regarding the properties is valid.

The certainty of intention requires an evidence while the settlor declares the trust. It does not need any specific trust or deed. The ruling in Re Williams provides that evidence can be in the form of a detailed instruction that brings certainty. Thus, if the settlor expresses the intention with insufficient certainty, for example precatory words and unclear direction, it cannot bind the conscience of the recipient.

The declaration of the trust must be certain about the property to be held in trust. This is supported by the ruling in Re Golay’s Wt that states that if the settlor instructs that the beneficiary will get a reasonable income from the property in trust, it clearly indicates that the income is the subject of the trust.

The declaration of the trust must be certain about the object or beneficiaries or purposes of the trust. In a fixed trust, the declaration of the trust must be clear

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1. Gary Watt, Trusts and Equity (Oxford University Press 2020) 79.
2. Kirsten Edwards, Equity and Trusts (Taylor & Francis Group 2000) 8.
3. Re Williams (1897) 2 Ch 12.
4. Gary Watt, Trusts and Equity (Oxford University Press 2020) 80.
5. Ibid, 82.
6. Gary Watt, Trusts and Equity (Oxford University Press 2020) 79; Iain McDonald and Anne Street, Concentrate Equity and Trusts (Oxford University Press 2014), 28
7. Re Golay’s Wt [1965] 2 All ER 660.
8. Gary Watt, Trusts and Equity (Oxford University Press 2020) 79.

regarding the object or the purpose of the trust when the settlor prepares the complete list of all beneficiaries. This means the beneficial interest must be clear. Thus, despite the property to be held in trust is clearly identified, the trust fails when the beneficial interest is not identified. This occurred in Boyce v Boyce the trust failed as the beneficial interest cannot be determined because the trustees do not have the power to choose the property in question.

Applying the three certainties tests to the declaration of trust by Stella, Stella has clearly express intention of creating the trust making Paul the trustee to hold the mentioned properties for the benefit of Jim and the two children. There is a detailed instruction as to holding the property in trust for Jim for life and then in remainder to Matt and Archie where Matt shall the first choice as to the properties. Stella’s instructions are clear and not precatory as to the properties, Brompton Heights and Belfast House. The trust is a fixed trust, where her declaration is clear that Jim, Matt and Archie are the beneficiaries in the mode as instructed by Stella.

The problem with Stella’s declaration is that it fails to meet the first test. As the trust is for land, it requires the declaration to be in writing effecting the transfer of title of the property to Paul. Hence, there is non-compliance of the Law of Property 1925, S 53(1)(b) that requires the declaration of trust to be in writing and signed by Stella to make the trust enforceable in law. This would have created a right for Paul to take necessary legal action.

In the current case, there is no transfer of the properties to Paul. This is an ineffective transaction that amounts to a conditional declaration where the condition, which is the transfer, is not satisfied. The declaration of her trust without the transfer is of no effect.

Issue 2 – Shares in Private Detectives Ltd

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9. Iain McDonald and Anne Street, Concentrate Equity and Trusts (Oxford University Press 2014), 24.
10. Ibid, 29.
11. Boyce v Boyce (1849) 16 Sim 476.
12. Iain McDonald and Anne Street, Concentrate Equity and Trusts (Oxford University Press 2014), 24.
13. Ben McFarlane, Nicholas Hopkins and Sarah Nield, Land Law: Text, Cases, and Materials (Oxford University Press 2015) 177.

The second issue will involve determining whether the declaration of Stella meets the

three certainties tests and whether she has done all that is necessary to transfer the title to the shares.

The determination of validity of the declaration of trust in question will involve two sections. The first will be regarding validity of trust involving the minors as the beneficiaries. The second will involve the discretionary trust regarding the residents of Brompton as the beneficiaries.

The first section In regard to the trust involving the minor, it is a bare trust where the shares will be held in the name of Paul. The minors can claim the rights over the shares at any time when they are of 18 years of age or over. The shares will go directly to these intended beneficiaries.

Applying the three certainties tests, it can be stated that declaration of Stella is certain about her intention to create the trust where Paul will hold the 50 shares for Cary, until she reaches the age of 21 years old, and remainder of the shares equally distributed between the nephews when they are 18. This is a detailed instruction and constitutes a clear the intention of Stella.

Stella’s declaration shows certainties that Cary and the two nephews are the beneficiaries. This is the purpose of the trust. This is a fixed trust. The beneficiaries are fixed as to the shares that are going to be held on trust. In a fixed trust, the declaration of the trust must be clear regarding the object or the purpose of the trust when the settlor prepares the complete list of all beneficiaries.

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14. GOV.UK, ‘Trusts and taxes’ ‘Trusts and taxes’ accessed 13 August 2021 .
15. Gary Watt, Trusts and Equity (Oxford University Press 2020) 79.
16. Kirsten Edwards, Equity and Trusts (Taylor & Francis Group 2000) 8; Re Williams (1897) 2 Ch 12.
17. Gary Watt, Trusts and Equity (Oxford University Press 2020) 79; Iain McDonald and Anne Street, Concentrate Equity and Trusts (Oxford University Press 2014), 24.

Stella’s declaration is also certain about the subject of the trust, which is 50 out 950 shares in Private Detectives Ltd. for Cary and the remainder of the shares for the nephew.

The Companies Act 2006 provides for stock transfer to transfer title to the shares to another holder. Section 105(1) of the Companies Act 2016 provides that shares can be transferred by executing an instrument of transfer duly executed and stamped and lodge with the company register. This means that the trust is valid and enforceable when Stella completes this legal formality. The ruling in Milroy v Lord invalidated a trust when the voluntary deed of trust was not registered. However, equity rules provides exception to this formalities requirements. Thus, following the principle in Re Rose, if Stella completes all that is necessary to transfer the title to the shares, but fails to register the trust, equity will still hold the trust valid. Following the principle of unconscionability as laid down in T Choithram International SA, if Stella has taken all the steps necessary to complete the registration of the trust, the trust will be valid as it would be unconscionable to change the mind later. Cobbe also support this application of the rules of equity, which reduces the harshness of common law rules, reconciles rights with a moral understanding and prevents the conduct that would disrupt judicial conscience.

Considering the relevant applicable principles to this particular trust, the declaration of the trust by Stella fails the first test regarding the intention. This arises due to her failure to comply with the formalities. According to the Law of Property Act, 1925, S53(1)(c), Stella must dispose of the trust in a signed writing signed. Since this was not done in the case, as had occurred in the Grey case, the non-compliance of this mandatory will make the trust void. The rules of equity will also not apply as Stella did not do all the things necessary to transfer the title. The trust will not be effective.

The declaration regarding the dividends (income) from the shares is a discretionary trust where Paul has the discretion to distribute the income as he thinks fit; and also an accumulation trust where Paul may accumulate any surplus. The question is whether it is a valid trust. The purpose of the trust is a non-charitable purpose trust.

In regard to the declaration regarding the residents of Brompton, according to the ruling in Morice the trust will be valid if the object of the trust is defined with some minimal certainty. Similar with what happened in R v District Auditor, it was not clear at all about the class of residents that Stella desires to benefit from the income of her shares. As this is a discretionary trust, the declaration must be certain as to whether an individual is a member of the class. This demonstrates that Stella is not clear as to which residents should benefit from the trust. There is no class of residents clearly identified in the declaration. For example, residents could be the older generation, the young generation, the current residents, or residents who could come reside in Brompton in future.

As regard to the accumulation of surplus, Paul can accumulate the income within the trust and add it to its capital. This accumulated income can be used to pay income out when the beneficiaries are legally entitled to the income. However, there is no clarity about the intention and the object regarding the use of this accumulated income.

Given the rules set out in the first and the second sections, the declaration of Stella has not met the three certainties tests. Hence, the trust as she desired to form fails. In regard to the shares to be held on trust for niece and the nephews, Stella did not do all that was necessary to transfer the title. Thus, despite clarity about the subject and the object, this non-compliance of the formalities fails the certainty test of intention to create the trust. In regard to the discretionary trust regarding the residents of Brompton, there was no certainty as to the class of beneficiaries. The list of beneficiaries is not compiled and identified with clarity. Hence, this trust also fails. In regard to the accumulated surplus of income, applying the three certainties tests,

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18. Morice v Bishop of Durham [1805] EWHC Ch J80.
19. R v District Auditor, ex parte West Yorkshire Metropolitan County Council [1986] RVR 24.
20. Iain McDonald and Anne Street, Concentrate Equity and Trusts (Oxford University Press 2014), 24.

it is only clear with the subject, which is the accumulated surplus. There is no declaration as to the intention or the purpose of the trust.

Issue 3 – residue of Stella’s estate

The third issue involves determining whether declaration regarding the non-charitable purpose regarding the maintenance and upkeep of my horses and hounds; the surplus; and the Horse Hotel Rescue will constitute valid trusts.

The ruling in Morice states that a non-charitable purpose trust does not have beneficiaries and is against the beneficiary principle that requires a trust to have beneficiaries to be valid. If the purpose is clearly defined and the beneficiaries are ascertained, the trust will be valid. The trust will be valid if the trustees are willing to perform the trust. Even where the trustees fail to comply with the terms of the trust or misapply the trust property, the person entitled to the property can enforce the trust. If the person who will take the remainder is ascertained, the court can enforce the trust. The remainder money must be devoted to the purposes of the trust. A third-party enforcer of a non-charitable purpose trust has sufficient proprietary interest in the trust property.

A trust for the welfare of animals is a valid charitable trust. But it is not valid when it is for a single animal. However, a trust will be valid although it is for a non-charitable purpose if it complies with the perpetuity rule. Following the Perpetuities and Accumulation Acts of 2009 amendments, there are two rules relevant here. The property must not vest in the beneficiary outside the perpetuity period that is 125 years. A purpose trust cannot continue for ever. The trust must not be longer than a human life plus 21 years. Thus, according to the ruling in Re Dean, a trust will be valid if it is for the maintenance of the horses and hounds belonging to the testator for fifty years if they lived that long.

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21. Morice v Bishop of Durham (1805) 10 Ves 522.
22. Paul S. Davies and Graham Virgo, Equity & Trusts: Text, Cases, and Materials (Oxford University Press 2019) 286.
23. Ibid, 285.
24. Ibid, 286.
25. Ibid, 289.
26. Iain McDonald and Anne Street, Equity & Trusts Concentrate: Law Revision and Study Guide (Oxford University Press 2013) 99-100.

Applying the rules related to non-charitable purpose trust, firstly, Paul must be willing to perform this trust. The purpose is clear as to the care of Stella’s horses and hounds, which are the beneficiaries. Danielle can always enforce this trust in case Paul fails to comply with the terms of the trust or misapply the trust property. The trust has identified Danielle as the person who will take the remainder for the care of Stella’s horses and hounds.

Stella’s declaration states that the residue money must be applied for the horses and hounds for as long as they shall live. This a valid trust as per the perpetuity rule, which states that the trust will be valid for a period of 125 years or a human life plus 21 years. Thus, regarding the horses and hounds, the three certainties are present.

In regard to the surplus, it is discretionary in nature. Thus, a declaration of the trust will not be conclusive in regard to the quantification of the beneficial ownership if the nature or extent of the beneficial interest is not defined. According to the certainty test, as mentioned earlier, the declaration must be certain about the subject or property of the trust. In this case, it is not clear how much surplus will be left after having spent on the horse and the hounds. The surplus stated here is, thus, not clear as regards to its nature or extent of the beneficial interest.

Regarding the declaration regarding Horse Hotel Rescue centre, Stella is clear about her intention to transfer the surplus to the centre. Her instruction is clear that if Danielle does not select the worthy cause within 10 years from the death of the horses and hounds, the surplus will go the centre. Question arises as to the certainty of the subject of the trust, which is how to define or be certain about the amount of the surplus when the trust regarding Danielle applying the surplus to a worthy cause has failed. As this trust fails, it becomes an incomplete express trust. This forms a resulting trust governing the surplus after the horses and hounds have lived. This will constitute an automatic resulting trust relying on the principle that there cannot be a property that does not have an owner. Such trust is not imposed by law against the

trustee’s intention. It gives effect to their presumed intention. The equitable interest reverts to the settlor. Thus, as was held in Re Vandervell Trustees Ltd, if the transaction fails to make an effective disposition of the interest, there is no effect.

Given the principles set out, applying the perpetuity rule the trust regarding the horses and hounds is valid as the purpose is clearly defined and the beneficiaries are ascertained. Regarding the declaration about the surplus, the quantification of surplus is not defined. It fails the certainty test regarding the subject or property as Stella did not clearly define the surplus after having spent on the horse and the hounds. This declaration will, thus fail. As the surplus is not clear, this makes invalid the declaration about transferring the surplus to the Horse Hotel Rescue centre. This is incomplete express trust.

To conclude, Stella did not transfer Brompton Heights and Belfast House to Pau. Her declaration is of no effect unless the title to the property is transferred. Hence, there is no valid express trust. Her declaration of trust regarding the shares and surplus also fails. She has not done all that are necessary to transfer the title to the shares. This fails the certainty test of intention. Regarding the declaration involving residents of Brompton, she did not identify or classify the class of beneficiaries. Hence, this trust also fails. Similarly, as Stella did not clarify about the intention and the purpose regarding the surplus, this fails the certainty test of intention and purpose. There is no valid trust. Regarding the non-charitable purpose trust involving the horses and the hounds, it is a valid trust. Along with the perpetuity rule, it passes the three certainties test. However, the declaration regarding the surplus, there is no clear quantification of the surplus and hence, it fails. Thus, there will not be any application of the surplus for a worthy cause or to the Horse Hotel Rescue centre.

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Bibliography

Cases

Boyce v Boyce (1849) 16 Sim 476

Cobbe v Yeoman’s Row Management Ltd [2008] 1 WLR 1752, 92

Grey v IRC [1960] AC 1 HL.

Milroy v Lord (1862) 4 De GF & J 264.

Morice v Bishop of Durham [1805] EWHC Ch J80

R v District Auditor, ex parte West Yorkshire Metropolitan County Council [1986] RVR 24

Re Dean (1889) 41 Ch. D 552.

Re Golay’s Wt [1965] 2 All ER 660

Re Vandervell Trustees Ltd (No 2) [1974] EWCA Civ 7

Re Williams (1897) 2 Ch 12.

T Choithram International SA v Pagarani [2001] 1 WLR 1.

Books

Davies PS and Graham Virgo, Equity & Trusts: Text, Cases, and Materials (Oxford University Press 2019)

Edwards K, Equity and Trusts (Taylor & Francis Group 2000)

Hudson A, Equity and Trusts (Cavendish Pub. 2005)

McDonald I and Anne Street, Concentrate Equity and Trusts (Oxford University Press 2014),

McFarlane B, Nicholas Hopkins and Sarah Nield, Land Law: Text, Cases, and Materials (Oxford University Press 2015)

Pearce RA and Warren Barr, Pearce & Stevens' Trusts and Equitable Obligations (Oxford University Press 2015)

Watt G, Trusts and Equity (Oxford University Press 2020) 79.

Websites

GOV.UK, ‘Trusts and taxes’ accessed 13 August 2021 .