Friday, January 18, 2013

LAW STUDENT’S REVIEW SERIES

BY

OLATUNDE AFUWAPE

LAW OF TRUSTS

 
 INTRODUCTION TO THE LAW OF TRUSTS


INTRODUCTTION

The term 'trust' describes a particular form (or forms) of property holding. Where there is a trust, the legal title holder must apply the property for the benefit of someone else unlike the standard absolute ownership where the owner is free to use the property howsoever he wishes. The person holding the property is a trustee and the person for whose benefit he holds it is the beneficiary and the person who set up the trust is usually referred to as the settlor. In a typical trust, the beneficiary has right against the trustee that the property be applied solely for his benefits, he also have equitable title to the trust property.


Trust could either be expressed (what the owner wanted), while other are imposed by law irrespective of the property owner's wishes. These are resulting or constructive trusts. For a long time English law had both the common law applied by the king's courts and equity applied by the chancery court. These two were merged in 1875.

Trusts are extremely versatile legal devise. Settlors may use them both to provide for family members and to secure their commercial interest. The law imposed trusts ti ensure a just division of the family home upon relationship breakdown, to strip gains from wrongdoers, and to return misapplied property. It is for this reason that trusts play such a central role in English law.


CERTAINTY

To create a valid express trust, the settlor must have intended to create a trust, the trust property must be sufficiently certain and the beneficiaries must have been adequately identified. These are know as the three certainties; intention, subject matter and objects. The purpose of this is to enable the court have adequate information. Trust is intentional and failed gift will not be re-interpreted as trust. No trust will be created if the settlor intended merely to impose some moral obligation on the trustee to use the property for another's benefit. The intention must be legal obligations. The court in establishing whether a settlor intended to create a trust would adopt objective rather than subjective approach. Trust object and subject matter may be uncertain in a variety of ways and to differing degrees. These could be either inexact words (conceptual uncertainty) or not enough factual information (evidential uncertainty).


In respect to certainty of subject matter, the general principle is that the precise identity and location of the trust property, what parts are to go to which beneficiaries must be clearly stated. There is however an exception with homogeneous intangible property, where it is sufficient to identify the source of the trust property from the proportion of that bulk which is to be held on trust. Where a trust if x£ to each of my friend, the trust will succeed so long as any one person can be found who falls within the defined class of beneficiaries. However, where it is x£ to be shared among certain beneficiaries, the trust will only succeed if it is possible to draw-up a complete list of all those who falls within the defined class of beneficiaries.


Where a settlor creates a discretionary trust, the trust will success only if it can be said of any given person that he is or he is not a members of the class of beneficiaries. A discretionary trust will fail, even if its objects are sufficiently certain, it is held to be administratively unworkable or capricious. This is where the class is too big (administrative) and settlor reason for choosing the beneficiaries (capriciousness.) It may be possible to cure uncertainty of subject matter or objects by stipulating for a third party to fix the problem (most useful of evidential uncertainty). If the settlor seeks to make a self declaration of trust, then any uncertainty will result in him continuing to hold the property absolutely, where the property is transferred to a trust, then uncertainty of objects or subject will lead to the trustee holding the property on trust for the settlor.


PURPOSE TRUST


Purpose trusts are set up to use property to promote a particular objective rather than benefit certain individuals. However, the basic rule of English trusts law is that trust must have beneficiaries, where there is no beneficiaries it is not possible to create a purpose trust. This rule is known as the beneficiary principle firmly established in Re Ebdacott (1960) Probition applies only to purpose trust and not to powers for purpose (Re. Douglas (1887). There are however a number of exceptions to the beneficiary principle.

The most frequently cited explanation for the rules come from Marice v Bishop of Durham, which ruled that for trust to be valid it must be capable of being supervised by the courts to ensure that the trustees’ duties are enforced and the settlor's intentions respected. This is based on the reasoning that A) if a trust cannot be enforced it must fail; and b) it is only beneficiaries that can enforce a trust.

 

 


ENFORCEMENT OF TRUSTS


The general rule is that a settlor is divorced from the trust once it is created and the trustees and the beneficiary are then left to enforce the trust. There is a counter argument that if a settlor is still alive, he should be able to enforce the trust in addition to other interested parties.


MUST TRUST BE ENFORCEABLE


There is need to find an enforcer to ensure that the trustees perform their duty. It might be possible however for an honest settlor to enforce a purpose trust to allow if from failure. The difficulty in finding a beneficiary to enforces Sauders v Vaulier right is one the things militating against enforcement of purpose trusts.
Re. Bowes (£5,000 for planting shelter trees for Wemmegil Estate) the court interpreted the owners of the estate as the beneficiary of the trust and gave them the discretion to use the money as they saw fit. In re Andrew's Trusts, a trust for children's education was interpreted to mean the general use of the childred since their education has been provided for.


EXCEPTIONS TO PURPOSE TRUSTS


Anomalous Purposes Trusts - These trusts are created by accidents of legal history and they are:

 

a)    Trusts to look after or provide for certain animals - Re Dean (Trust for the maintenance of testator horses and hounds

b)   Trust for the construction and or maintenance of graves and funeral monuments - Re Hooper

c)     Trust for saying or private masses - Bourne v Keane.


A second exception is found in Re Denley's Trust Deed provided that the carrying out of the purpose must benefit an individual in a way which is not to remote or indirect; and it must be possible to identify all those who would benefit.


Other requirements of purpose trusts are that it must be defined with sufficient certainty for the courts to be able to enforce it - Morice v Bishop of Durham; Re. Astor's Settlement Trusts. Secondly, where the purpose is regarded as capricious or unlawful a clearly defined purpose trust will fail e.g. Brown v Burdett (1882), a trust to block up the rooms of a house for 20 years. Finally purpose trust will fail if they do not satisfy the rule against perpetuities (there must be time limit).

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