Constitution of Trusts

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1. Introduction

The intended separation of the legal and equitable title that generates a trust must actually have taken place. In the case of the creation of an express trust by the owner of the property, declaring himself as trustee, his declaration must be effective. If the trust is intended to be created by the transfer of the property to trustees, then the subject matter of the trust must be properly transferred. If the declaration and transfer and communication is effective, then the trust is said to be completely constituted, i.e. an effective trust relationship comes into being. If there is no effective transfer then the trust relationship will not have come into being, and the trust is said to be incompletely constituted.

2. Constituting the trust by declaration

In circumstances where the legal owner declares himself trustee of his legal title the question is one of whether he has manifested a sufficient intention to declare himself as trustee

3. Constituting the trust by transfer to trustees

Where the settlor attempts to create the trust by transferring the subject matter of the trust to trustees upon trust, he must effectively transfer the legal title to the trustees. What is required effectively to transfer his title will depend on the type of property in question.

4. Incompletely constituted trusts

Where no property is transferred to the trustees or where the legal owner of property fails to sufficiently declare himself trustee, the trust is said to be incompletely constituted. In reality there is no trusts since there has been no separation of legal and equitable title. The trust is said to be incompletely constituted. The question arises whether the intended beneficiary can compel the settlor to transfer the property and constitute the trust.

OPTION 2: Contract (Rights of Third Parties) Act 1999

Section 1 of this Act provides that a third party may in its own right enforce a terms of the contract if the contract expressly provides that he may, or if the term of the contract purports to confer a benefit on him.

S1(5) avails all the normal contractual remedies to the third party, therefore including specific performance.

However, it is questionable whether specific performance will be available because the contract is still not recognised in equity.

OPTION 3:

(A) Where the beneficiary was a party to the settlor`s covenant to create a trust,

B): Where the trustees were parties to the settlor`s covenant to create a trust.

The question here is whether the trustee who is a party to the contract with the settlor can sue for the benefit of the beneficiary?

OPTION 4: Trust of a Promise

It is quite possible for there to be a completely constituted trust of a promise, i.e. a chose in action.

see: Fletcher v Fletcher (1844) 4 Hare 67.

Despite this, the finding of a trust of a promise in any given situation is not a straightforward task. Indeed, the courts are reluctant to find such trusts because they undermine the principle of privity of contract.

OPTION 5: Specific performance.

Although this case is cited in many writings on constitution of trusts. It must be narrowly confined to its facts. It is questionable whether the principle applies to the case of voluntary covenants

Trusts of future property:

A voluntary covenant to convey future property cannot be enforced by the beneficiary and neither can the covenant itself become the subject matter of the trust.

5. Exceptions to the rule that “equity will not assist a volunteer”

In limited circumstances equity is prepared to assist a volunteer transferee where the transferor has failed to effectively transfer the legal title to the property.

A) The Rule in Strong v Bird (1874) LR 18 Eq 315

This rule operates to perfect an imperfect gift made during a donor’s lifetime in circumstances when the donee is appointed as the personal representative of the donor.

B) Donatio Mortis Causa

The application of this rule is subject to a number of requirements.

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