INSTITUTE OF BANKERS IN MALAWI
DIPLOMA IN BANKING
MAY 2013 EXAMINATIONS
LAW OF TRUSTS, SETTLEMENTS & ADMINISTRATION OF ESTATES: IOBM - D217
SECTION “A” QUESTIONS
QUESTION ONE
Consider all the three scenarios below and advise whether they can result into a trust. Justify your answer.
(a) A bequeaths certain property to B, "having the fullest confidence that he will dispose of it for the benefit of C." – (5 marks)
(b) A bequeaths certain property to B "hoping he will continue it in the family".
(5 marks)
(c) A bequeaths certain property to B, requesting him to distribute it among such members of C's family as B should think most deserving. – (5 marks) [1]
QUESTION TWO
The law imposes a number of duties on trustees and one of them is the duty to invest. Discuss the extent of the duty to invest[2] – (15 marks)
QUESTION THREE
A gift is a gratuitous transfer of ownership of any property. One of the main categories of gifts is donatio mortis causa ( gifts of property by a donor in contemplation of, and conditional upon, his death). Briefly discuss the three (3) conditions that must be complied with in order for a donatio mortis causa to be effective[3]. – (15 marks)
QUESTION FOUR
A will is normally made for the purpose of making dispositions of property to take effect on or after the testator's death. With emphasis on how a will differs from other inter vivos dispositions, briefly discuss the essential characteristics of a will before and after the death of the testator.[4] – (15 marks)
SECTION “B” QUESTIONS
QUESTION FIVE
Pofera Salambura, a wealth business magnet bequeaths MK 20 million to Kaumphawi on condition that Kaumphawi shall marry Pofera Salambura's daughter Mbeta Salambura. Considering that Mbeta Salambura was dead at the date when the will was made. Advise Kaumphawi on the effect of that fact on the bequest[5]. – (20 marks)
QUESTION SIX
A trustee's powers may be administrative or dispositive. Administrative powers are those relating to prudent management in the discharge of the trustee's duty to maintain the trust estate whilst dispositive powers are those intended to have an actual effect on the benefits which the beneficiaries become entitled to receive.
(a) What is the extent of such powers (4 marks)
(b) Briefly discuss any four powers that a trustee possesses.[6] – (16 marks)
(TOTAL 20 MARKS)
QUESTION SEVEN
Mpondamatiki bequeaths a legacy to "Thomas, the son of my brother John". The testator has one brother only named John, who has no son named Thomas, but has a
son whose name is William. Advise the executor of mpondamatiki’s will if William will have the legacy.
QUESTION EIGHT
With illustrations, discuss any five (5) maxims of equity[7] - (20 marks)
Kathyali has bequeathed MK10 million to Sibo and another MK15 million to the eldest son of Dingase, and has made no other bequest. Kathyali has died leaving the sum of MK25 million only and no other property. Dingase dies two days before Kathyali’s death and without having ever had a son. Advise how the law of wills and inheritance will look at the sum of MK15 million which Kathyali has bequeathed to the eldest son of Dingase.[8] – (20 marks)
[1] This is from Chapter 3 of the module i.e. Creation of Trusts. It is on the Three Certainties under 3.1.
Three certainties’ are required for the creation of a trust. See Knight v Knight (1840) 3 Beav 148 and these are (a) certainty of words (b) certainty of subject and (c) certainty of object. This means:
(a) the words used must be so couched that, taken as a whole, they are deemed to be imperative. Since equity looks to the intent rather than the form, no particular form of words is required for the creation of a trust. The use of the word ‘trust’ is not essential, although, of course, highly desirable. It is therefore possible that words expressing desire, belief, recommendation or hope (known as precatory words) may create a trust. It is entirely a question of construction of the instrument whether the settlor intended to create a trust. See Comiskey v Bowring-Hanbury (1905) AC 84. A similar question of construction will arise when it has to be determined whether a trust or a mere power of appointment was intended by the settlor, for what appears to be a power may be treated, as a matter of construction, as a trust, in which case it is often referred to as a trust power or a power in the nature of a trust. See Blausten v IRC (1972) Ch 256. The same principles apply where it is alleged that a person has declared himself a trustee of property which he owns for the intended beneficiary. See Paul v Constance [1977] 1 All ER 195;
(b) the subject matter of the trust must be certain. The expression ‘certainty of subject matter’ can mean either that the trust property should be certain or that the beneficial interest of the cestui que trust must be certain. If the trust property cannot be identified, the purported trust is void ab initio. See Palmer v Simmonds (1854) 2 Drew 221; and lastly
(c) the persons or objects intended to be benefited must also be certain. Except in the case of charitable trusts, the objects of the trust must be certain. For the purpose of deciding whether the range of beneficiaries is ascertainable a distinction must be drawn between a power of appointment in their favour, on the one hand, and a trust, on the other. If a mere power of appointment is given, it is established that the test of certainty is whether or not it can be postulated of any given person whether or not he is an object of the power. See IRC v Broadway Cottages Trust (1955) Ch 20.
Now looking at the three certainties that are required in the creation of trust, answers for scenarios (a), (b) and (c) will be as follows:
(a) A bequeaths certain property to B, "having the fullest confidence that he will dispose of it for the benefit of C. This creates a trust so far as regards A and C because the subject matter is certain, the object is certain and so are the words.
(a) A bequeaths certain property to B "hoping he will continue it in the family". This does not create a trust, as the beneficiary is not indicated with reasonable certainty.
(b) A bequeaths certain property to B, requesting him to distribute it among such members of C's family as B should think most deserving. This does not create a trust, for the beneficiaries are not indicated with reasonable certainty.
[2] This is from Chapter 7 paragraph 7.1.13 of the module. Unless a trustee is expressly otherwise authorised or required under the terms of his trust, he must duly and promptly invest all capital trust money coming to his hands. See Cann v Cann (1884) 51 LT 770. Six months is the maximum period for which it can reasonably be left uninvested.
The same applies to all income which cannot be immediately applied for the purposes of the trust. The trustee is liable for any loss which may result from its being improperly invested or being left uninvested for an unreasonable length of time, and for interest during the period of its being so left. The investment must be made in the name of the trustee, and, if there are several trustees, in the name of all of them, except where, under the conditions of the investment, it may only be made in the name of one, or except where the power to invest in bearer securities applies.
[3] This is from Chapter 11. Although it is dealing with gifts which are only partly covered under 11.5, the thinking behind this question is to test the students if they have grasped the general principales of disposition of property in contempaltation of death and the general conditions applicable thereto.
Three conditions must be complied with in order for a donatio mortis causa to be effective are:
a. the gift must be made in contemplation, although not necessarily in expectation, of impending death;
b. the gift must be made upon the condition that it is to be absolute and perfected only on the donor’s death, being revocable until that event occurs and ineffective if it does not;
c. there must be a delivery of the subject matter of the gift, or the essential indicia of title thereto, which amounts to a parting with dominion and not mere physical possession over the subject matter of the gift.
If there has been a complete delivery or transfer of the subject-matter of the donatio such as would suffice in an inter vivos gift, on the donor’s death the conditional gift becomes unconditional and the gift is complete without any further act, either by the personal representatives or by anyone else, being necessary.
However, if the transfer has been inchoate or incomplete, the legal title not having become vested in the donee—as is commonly, though not necessarily, the case in relation to land and choses in action—in contrast to the rule for inter vivos gifts equity will complete the imperfect gift. See Ward v Turner (1752) 2 Ves Sen 431.
[4] This is from Chapter 11 i.e. Nature of wills.
A ‘will’ or ‘testament’ is a declaration, made in accordance with the formalities required by statute, of the intention of the person making it with regard to matters which he wishes to take effect upon or after his death. See A-G v Jones and Bartlett (1817) 3 Price 368 at 391.
Before the death of the testator, a will is ambulatory in nature in that every will has the essential characteristic that, during the life of the testator, it may be freely revoked or altered in accordance with requisite formalities. See Vynior’s Case (1609) 8 Co Rep 81b
Until the testator’s death, a will is said to be ambulatory, or without a fixed effect. See Beddington v Baumann (1903) AC 13 at 19, HL
On his death, a will crystallises and takes effect according to its tenor. See Forse and Hembling’s Case (1588) 4 Co Rep 60b.
It therefore follows that no instrument which is irrevocable, and no instrument which can take effect or come into operation during the lifetime of the person by whom it is made, can be testamentary. See Thorncroft and Clarke v Lashmar (1862) 2 Sw & Tr 479.
A will or testamentary disposition must therefore be distinguished from a disposition made inter vivos such as:
(a) a donatio mortis causa which is made in contemplation of the death of the donor in circumstances which show that it is to take effect only in that event;
(b) a voluntary settlement with a power of revocation. See Tompson v Browne (1835) 3 My & K 32; or
(c) an instrument which is final on execution by the maker, although intended to take effect on some future even. See Marjoribanks v Hovenden (1843) Drury temp Sug 11
An attempted testamentary disposition cannot be enforced as a declaration of trust. See Cross v Cross (1877) 1 LR Ir 389.
It is of the essence of a will that its revocable nature cannot be lost, even by a declaration that it is irrevocable, or by a covenant not to revoke it.
[5] This is from Chapter 11 of the module i.e. Paragraph 11.2 which deals with conditional wills
An instrument may be conditionally testamentary.
Therefore, a testator may refer in his will to some contingency, such as an impending journey by him or his possible death while abroad, or other event, in terms which make the will conditional, or limited in operation to the happening of that contingency or event. See Parsons v Lanoe (1748) 1 Ves Sen 189.
But a conditional will is of no effect if the contingency fails. See Roberts v Roberts (1862) 2 Sw & Tr 337.
But a conditional will may take effect free from the contingency in question if re-executed or republished after the time for the contingency has passed. See Re Cawthron’s Goods (1863) 3 Sw & Tr 417.
In this case, the bequest is void because of the impossibility of the condition since Mbeta Salambura was dead at the date of the will.
[6] In this case, the bequest is void because of the impossibility of the condition since Mbeta Salambura was dead at the time of the will. This is from Chapter 7 of the module under paragraph 7.2.
Trustees are commonly given wide powers of appointment or advancement. The powers, having been given to the trustees, cannot be controlled by the settlor (unless expressly so provided to the contrary, for example by inserting a requirement that during his lifetime the settlor’s consent to the exercise of the power is needed), but there is nothing improper in the settlor providing the trustees, when he creates the trust, with a memorandum of his wishes.
In discussing specific powers, students are expected to discuss any five of the following:
a) Power of sale per section 25 of the Trustees Act
b) Power to give receipts per section 23 of the Trustees Act
c) Power to insure per section 28 of the Trustees Act
d) Power to compound liabilities per section 24 of the Trustees Act
e) Power of advancement per section 42 of the Trustees Act
f) Power to allow maintenance to minors per section 41 of the Trustees Act
[7] This is from Chapter 1 of the module on page 10 i.e. 1.5. This Chapter deals with development of equity and trust law amongst other things. For each correct point and explanation, a student will 3 marks. In answering this question, students are expected to mention any five of the following maxims of equity.
(a) Equity will not suffer a wrong to be without remedy:
Simply means that wrongs must be addressed. Where there is a wrong, there is a remedy. Where there is right there is a remedy. A right without a remedy is a vex thing.