Week 6 - Express Private Trusts - Capacity, Title and the Three Certainties

Week 6 - Express Private Trusts - Capacity, Title and the Three Certainties.

Most trusts are created in one of two ways:
By transfer of property coupled with an intention to make the transferee the beneficial owner of that property; or
By declaration of trust, whereby the settlor declares themself to hold the property on trust for a beneficiary/ies or a charitable purpose.

Less frequently, a trust may also be formed by a direction to third parties to hold the property on trust.

Any of these methods creates an express trust. Certain elements are required for the trust to be valid:
The three certainties must be established;
The trust must be completely constituted;
Statutory requirements of writing must be observed; and
There must be no other factor, such as incapacity of the settlor or illegality, which prevents the creation of an express trust.

A - Capacity - Who may be settlor, trustee and beneficiary?

The Succession Act (Qld) s.8 provides that a person who has the capacity to make a will has the capacity to create a trust by will.

As far as trusts inter vivos are concerned, the position regarding capacity is similar to that relating to capacity to contract.

A trust set up by an infant will be binding on them unless they repudiate it at the age of majority - Edwards v. Carter [1893]. Majority = 18 - Age of Majority Act 1974 (Qld) s.5.

The principles with regard to insane persons are the same as those relating to contract.

If a corporation has power to alienate property, it may vest property in a trustee. A corporation has the same capacity as an individual to create a trust provided it has the power to do so in its memorandum of association - Re Thompson’s Settlement Trust [1905].

Anyone who can hold property may be a beneficiary, including a company.

Any person who is capable of holding property may be a trustee but persons under a disability will be unable to effectively discharge the duties and powers attached to the office - s.12(1) Trusts Act 1973 (Qld).

A corporation may be a trustee - A/G v. Landerfield (1744);Trusts Act s.5.

The Crown may be a trustee if it chooses, but cannot be forced to accept.

B - Title.

For the creation of a valid trust it is essential that the trustee’s obligation be imposed in relation to some specific property. That property may already be vested in the trustee or be transferred to the trustee before the trust can come into being. The trustee must therefore have title to the trust property. This was dealt with under Constitution of Trusts.

C - The Three Certainties.

An express trust requires certainty of intention, subject matter and objects.

(1) - Certainty of intention:

The intention to establish a trust must be distinguished from the creation of other obligations, such as a revocable mandate, as in CSD v. Howard-Smith (1936) or debt, as in Cohen v. Cohen (1929) and Walker v. Corboy (1990).

Equity looks to the intent and not the form, so that subject to statutory requirements, no formal words or expressions are necessary provided the requisite intention exists. Re Armstrong [1960]. In recent times the High Court has indicated conduct alone will be sufficient in some cases to establish an express trust. In Trident v. McNiece Bros (1986) per Deane J at CLR 147 an express trust will be formed where the intention to desire a result ‘clearly appears’ and the institution of a trust is the ‘appropriate legal measure’ to effect the intention. Thus the Court looks at the entire transaction and circumstances of the relationship to establish the existence of an express trust.

Re Williams [1897] 2 Ch 12; [1897] All Er 1764.

A testator bequeathed property:

“unto my wife Lucy her heirs executors administrators and assigns absolutely, in the fullest confidence that she will carry out my wishes in the following particulars ...”

The question arose as to whether the wife was bound by this.

Per Lindley LJ:

“ Trusts - that is, equitable obligations to deal with property in a particular way - can be imposed by any language which is clear enough to shew an intention to impose them ... There is no principle except to ascertain the intention of the testator from the words he has used, and to ascertain and give effect to the legal consequences of that intention when ascertained ...

[T]he testator has not used language sufficiently clear to impose upon his widow an obligation to leave either policy to his daughter. ... he has used the language which he did because he really intended to trust his widow’s discretion with respect to his daughter, and not to provide for his daughter himself by putting a legal fetter on his widow’s power of disposition of her own property which he left her. I read the will as expressing a wish that his daughter should have the both policies unless his widow should see reasons for otherwise disposing of them, and I do not find in the will a command to his widow to leave the policies to his daughter if his widow should think right to dispose of them otherwise.”

Also Mussorie Bank Ltd v. Raynor (1882) 7 App Cas 321 at 330.

An express trust can not be created contrary to the real intentions of the settlor, and thus it might be held that no trust exists, even though the words ‘trust’ or ‘trustee’ are used:

CSD v. Jolliffe (1920) 28 CLR 178

The respondent opened a bank account under the title ‘Mrs Hannah Joliffe - Edwin Alfred Joliffe, Trustee.’

After the death of Mrs Joliffe, the respondent withdrew the money. The CSD assessed him to duty as administrator of her estate, including in the assessment the moneys withdrawn from the account.

The respondent successfully appealed on the ground that the money was pleaded in the account for the sole purpose of procuring interest, with no intention to benefit Mrs Joliffe.

Per Knox CJ and Gavan Duffy J:

“ [W]e are bound to assume for the purpose of this appeal that it was not the real intention of the respondent to make a gift to his wife, but that the money was placed in the account for the sole purpose of procuring interest which the respondent believed would not be procurable from the Saving Bank if the money were placed in his own name ... In our opinion the finding of Lukin J on the facts is an insuperable obstacle to the appellant in seeking to establish this proposition [that the money was held on trust] We know of no authority, and none was cited, which would justify us in deciding that by using any form of words a trust can be created contrary to the real intention of the person alleged to have created it.”

Per Isaacs J (in dissent):

“ It is plain that if Joliffe’s statement, still adhered to, be true, he was committing what Lukin J justly termed an ‘illegal act’. ... The question, as I view it, is whether what Joliffe did was in itself an explicit declaration of trust; and, if it was, whether any evidence of secret intention is admissible to contradict the effect of such a declaration. ... [T]he Court searches for a ‘declaration’ of trust: if it finds an express declaration, there is an end to the matter; but if not, then it examines the evidence to see whether such a ‘declaration’ should be presumed.

In the present case, looking at the documents by the light of the relevant law and the directions of the bank and the uncontroverted circumstances, which include the bank’s acting on Joliffe’s direction in treating the account as one in trust for Mrs Joliffe, there appears to me to be a distinct declaration by Joliffe that he deposited and held the deposit of £500 on trust for his wife ... Then, was the evidence of secret intention admissible? I may observe that there has been no case of ‘revocability’ or ‘revocation’ set up here ... but I mention it to indicate I have not overlooked it. It has been, and is merely, a question of the original constitution of the trust. ...

[T]he only possible interpretation which could be attached by the Bank, or anyone else for that matter, to his actual words was that they amounted to an express declaration that Joliffe was in reality only trustee of the money for his wife. ... No man can protect himself from the consequences of his own acts, intentional and deliberate, including the natural conclusions to be drawn from them, by afterwards setting up his secret intention to defraud or break the law. ... [I] unfortunately differ from my learned brethren in this, that I am of the opinion that if his own words and acts, properly interpreted, assuming them honest, would establish his liability, he cannot escape that liability by relying on his own mental turpitude. ... In my opinion, shortly stating it, the actual words are, in the circumstances, equivalent to the words ‘I hereby declare myself to be trustee for my wife.’”

The majority judgement in the above case can be contrasted with Kauter v. Hilton (1953) 90 CLR 86 where evidence that the beneficiary received the passbook to the bank account and was treated by the trustee as the beneficial owner of the money led to the Court’s conclusion that a trust was intended and set up.

It should be noted that the intention will only be enforced to its extent -

Re Armstrong [1960] VR 202

The testator died in 1956. Before his death, he expressed to his bank a desire to invest a sum of money for his two sons in fixed deposit accounts. He wished the interest on the deposit to be paid to himself and on the maturity of the investments, after his death, the principal to be paid to his sons. He received a receipt for each of the deposits made, and on the back of the receipts were written ‘George Armstrong in re Bernard,’ and ‘GA in re William.’

After his death the issue arose as to whether the account formed part of his residuary estate, and therefore subject to probate tax, or were held on trust for the sons.

Per Herring CJ:

To establish a declaration of trust a person must plainly declare that what is vested in him is now held by way of trust for certain beneficiaries or charitable purposes.

The deceased could not have intended a gift as he was to have the interest of the investments during his life. However two factors supported an intention to create a trust:

(1) the appearance of the names of the two sons on the back of the receipts; and

(2) the conversation with the bank manager evincing an intention to benefit the sons.

The trust was enforced to its extent, namely, that the sons took the principal only.

2 - Certainty of Subject Matter.

Subject to a few limited exceptions, any property, real or intangible, legal or equitable, may be the subject of a trust. - TA s.5.

The property must be described or defined with sufficient certainty otherwise the trust will fail.- Mussoorie Bank Ltd v. Raynor (1882).

With a fixed trust, not only must the testator identify which property is to be held on trust, but also the quantum of the beneficiaries’ interests -

Re Boyce (1849) 16 Sim 476; 60 ER 659

A testator devised four houses to trustees on trust to convey to Maria:

“whichever she may think proper to choose and the others to Charlotte. “

Maria predeceased the testator without making a decision. It was held that Charlotte’s claim failed as, while the trust property had been clearly identified, her beneficial interest had not.

In cases such as these, a resulting trust arises in favour of the testator’s beneficiary or next of kin as the case may be. If , however, the trustees are given a discretion as to the quantum of the interests, a valid discretionary trust arises.

Where the words used are capable of being interpreted with certainty by the Court the gift may be saved. A Court may construe the words in their context, eg, some objective criteria for calculating the quantum may be applied and the trust will not fail for want of certainty -

Re Golay [1965] 2 All ER 660

The testator directed his executors to allow a beneficiary:

“ to enjoy one of my flats during her lifetime and to receive a reasonable income from my other properties.”

Per Ungoed-Thomas J:

The executors could select the flat the beneficiary could live in, and the words ‘reasonable income’ provided an effective determinant:

“ the Court is constantly involved in making such objective assessments of what is reasonable and it is not to be deterred from doing so because subjective influences can never be wholly disregarded.”

3 - Certainty of Objects

The beneficiary principle requires that, as a general rule, a trust must be made in favour of definite beneficiaries, ascertained or capable of ascertainment, or of a recognised charitable organisation.

Per the High Court in Kinslea v. Caldwell (1975) 132 CLR 458:

‘ a trust is not uncertain merely because the actual persons to whom the distribution will be made cannot be known in advance of the date of distribution; it is sufficient that the provision to the trust ensure that upon the date the beneficiaries can be ascertained with certainty.”

With regard to fixed private trusts, the principle has been converted into a requirement that to be valid, a list of the possible objects of the trust had to be compiled or be capable of compilation.

With regard to discretionary private trusts, the class of objects must be defined with sufficient certainty to satisfy the criterion certainty rule, ie, a given individual must be able to ascertain if they are or are not a member of the range of objects.

An example of a trust that failed for want of certainty is Perpetual Trustee Co Ltd . John Fairfax & Sons Pty Ltd (1959) 76 WN (NSW) 226, where the trust was to benefit ‘deserving journalists’ and no criteria at all was given to ascertain who were deserving journalists.

With regard to charitable trust the principle requires that the purpose is a valid one recognised at law.