Beginning Equity and Trusts

Mohamed Ramjohn

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781136696961
• Edition: 1
• Topic: Law
• Subtopic: Law Theory & Practice
• Index: Law

Whether you're new to higher education, coming to legal study for the first time or just wondering what Equity and Trusts is all about, Beginning Equity and Trusts is the ideal introduction to help you hit the ground running. Starting with the basics and an overview of each topic, it will help you come to terms with the structure, themes and issues of the subject so that you can begin your Equity and Trusts module with confidence.

Adopting a clear and simple approach with legal vocabulary explained in a detailed glossary, Mohamed Ramjohn breaks the subject of Equity and Trusts down using practical everyday examples to make it understandable for anyone, whatever their background. Diagrams and flowcharts simplify complex issues, important cases are identified and explained and on-the- spot questions help you recognise potential issues or debates within the law so that you can contribute in classes with confidence.

Beginning Equity and Trusts is an ideal first introduction to the subject for LLB, GDL or ILEX and especially international students, those enrolled on distance learning courses or on other degree programmes.

Chapter 1
Introduction to the law of trusts

Introduction

This book introduces you to the law of equity and trusts. The study of the subject at undergraduate, postgraduate or professional levels can be a daunting prospect. The purpose of this book is to introduce you to the subject and simplify it to such an extent that you may feel confident to progress further and embark on a more detailed examination of the subject. The book is written in plain, simple and user-friendly language with key definitions, bullet point analyses of key cases, diagrams, ‘on-the-spot’ questions and chapter summaries in an effort to promote a quick understanding of the subject.

This chapter will comprise a summary of the component elements of trusts law. These elements will be covered in more detail in subsequent chapters. The subject is essentially based on case law developed from the fourteenth century, but tempered occasionally by statutory intervention. Throughout this book, reference will be made to key definitions of concepts, key cases including the underlying reasons for the decisions, and relevant statutory provisions. Finally, in this chapter advice will be given on basic study skills and the technique of optimising your performance in examinations.

Trust Concept

The subject will be analysed by reference to the following elements:

Origin of the trust

The trust under the broad jurisdiction of equity owes its origin to the bold steps taken initially by the Lord Chancellor in the fourteenth century and subsequently by the Court of Chancery. The origin of the trust is intertwined with the intervention of equity as a means of preventing a person who has control of property from abusing his position by taking an unfair advantage.

Example

Selwyn wishes to benefit Bertrand and conveys a plot of land, known as Blackacre, to Thomas to hold on trust for Bertrand absolutely. This illustration is intended as an example of an express trust. Selwyn is treated as a settlor, Thomas acquires the legal title to Blackacre and is treated as a trustee, and Bertrand is called a beneficiary or cestui que trust and acquires an equitable interest in the same property.

The trust institution (its predecessor was the ‘use’) was developed by equity as a means of addressing some of the grievances felt by disappointed litigants. By the thirteenth century, the King’s courts applied principles of law on a strict basis. The only interest that was recognised as subsisting in property was the legal title.

If this example had taken place in the thirteenth century, transferring title to Thomas on the understanding that he would use the property for the benefit of Bertrand would have meant that, if Thomas neglected his moral duties towards Bertrand, there was very little that the latter could do about it at law. The common law courts would have recognised Thomas as the legal owner and he would have been entitled to do as he pleased with the property. The understanding or assurance made to Selwyn to provide for Bertrand was at that time not recognised at law. The effect was that injustice to Bertrand and Selwyn was, in effect, condoned by the courts.

This situation was not rectified until about the fourteenth century with the introduction of equity. From that time, Bertrand and/or Selwyn could petition the Chancellor and subsequently the Court of Chancery in order to compel Thomas to carry out his moral obligations and recognise Bertrand’s interest in the property. As a result, Bertrand would acquire an equitable interest in the property.

A broad understanding of how the rules of equity and trusts developed will assist in appreciating the nature of the modern law of trusts. This process will be considered further in Chapter 2.

Key Definitions

Equity comprised a distinct and separate body of rules that owed its origin to the intransigence of the common law. The rigidity and practice of the common law created enormous injustices for subjects, which were mainly alleviated by principles of equity. The institution of the trust was created exclusively by equity.

The Chancellor (later referred to as Lord Chancellor) was the King’s leading minister. He headed the ‘Chancery’ (which was responsible for the issue of writs) and was an important member of the King’s Council whose duties included consideration and adjudication of petitions addressed to the Council by aggrieved subjects who sought justice.

The Court of Chancery, headed by the Lord Chancellor, was set up to deal with the surfeit of petitions by aggrieved litigants. These petitions were originally dealt with by the Chancellor, but by the fifteenth century the petitions became so numerous that the Chancellor adapted the Chancery to constitute a special court to adjudicate on the petitions. This court remained distinct from the Courts of Common Law (King’s Courts) until the Judicature Acts 1873–75, when the administration of law and equity was fused. The principles laid down by the Court of Chancery were referred to as ‘equity’.

The legal title is ownership of property that is recognised by the world at large. The acquisition of the legal title to property varies with the nature of that property and the particular mode of transfer.

Cestui que trust is the person for whose benefit a trust was created. This is the technical expression for a beneficiary under a trust.

Equitable interest is the interest enjoyed by a beneficiary under a trust. This interest was enforceable against third parties with the exception of a bona fide transferee of the legal estate for value without notice.

The use was the forerunner to the trust institution and was introduced into English jurisprudence by the Normans in the eleventh century. Its development was promoted as a device to avoid certain laws in feudal England.

The nature of a trust

In Chapter 3 we will consider the underlying features of a trust to enable you to readily recognise and classify this property concept. A trust is a device by which the legal ownership of property is separated from the equitable interest. The legal ownership involves the acquisition of control of the property in the hands of the trustee(s). But the equitable interest is vested in the beneficiary(ies) and in many ways this interest is associated with the ownership of the property. Thus, the beneficiary(ies) will be beneficially entitled to the income and capital of the trust and may sell or make a gift of their interest to another. The powers and duties of the trustees are exercisable in a representative capacity in order to maintain the trust property, and these are identified by reference to the terms of the trust and the law. In this chapter we will classify the various types of trusts that exist and also focus our attention on distinguishing the trust concept from a variety of similar, but distinct, property concepts.

On-the-spot question

Would you say that from the fourteenth century the Chancellor and, subsequently, the Court of Chancery had consciously set out to undermine the jurisdiction of the King’s Courts?

Key Definitions

Income: May be identified as the recurring profits derived from property, for example, dividends payable in relation to the ownership of shares in a company. Likewise, interest earned on sums paid into a building society account.

Capital: Involves the corpus of funds originally paid by the settlor to the trustees and from which income may be derived. An analogy that has been drawn by the courts is to treat capital as a tree and its fruits as equivalent to income.

The ‘three certainties’ test

The essential elements of a trust are well settled. An express trust is required to be validly declared, which will be achieved if the settlor satisfies the ‘three certainties’ test; namely certainty of intention, subject matter and objects. Certainty of intention will be manifested if the words and conduct of the settlor are construed as imposing a trust obligation on the trustees in respect of a transfer of property to them; for example, a transfer of £50,000 to Terry ‘on trust for Barry absolutely’. The subject matter or trust property is required to be sufficiently certain so that the court may identify the relevant property that will be subject to the trust. In the above example, this is £50,000. In addition, the courts are required to be able to ascertain the beneficiaries in order to prevent strangers to the trust unlawfully enjoying benefits. In the example above, Barry is the sole beneficiary. This subject will be considered in Chapter 4.

Constitution and formal requirements of a trust

In Chapter 5 we will examine the methods and consequences of creating an express trust. This overlaps with the declaration of trust or ‘three certainties’ test as stated above. An express trust is created where either a transfer of the property is made to the trustees subject to a declaration of trust, or by way of a self-declaration of trust. The first method requires the settlor to ensure that the appropriate property has been conveyed to the nominated trustee and also that a trust had been validly declared or the terms of the trust specified. The second method of creation involves the settlor declaring that he holds the relevant property on trust for the beneficiary; for example, Sam declares that he holds 5,000 shares in BP plc upon trust for Brenda absolutely. In this event the settlor makes himself a trustee. Occasionally, Parliament imposes a formal requirement of writing concerning the declaration of trust or transfer of the property. This is also included in Chapter 5.

Private purpose trusts

A private purpose trust is void for lack of a beneficiary to enforce the intended trust. Accordingly, an intended trust to board up the windows of a designated house in private ownership may be void for the beneficiary (purpose) is incapable of ensuring that the trust will be validly administered. This principle is subject to a number of exceptions that will be examined in Chapter 6.

Charitable trusts

An express trust may be created for the benefit of the public and will be treated as promoting charitable objects. The law of charities has been developed ever since the sixteenth century and the main principles were consolidated in the Charities Act 2006, the forerunner to the Charities Act 2011. There are a number of privileges that have been accorded to charities because of their public nature. Examples of charities include trusts that relieve poverty such as Oxfam, trusts that advance education such as universities, entities that advance religion such as churches, the promotion of the arts such the Royal Shakespeare Society, etc. The Charities Act 2011 lays down 13 purposes that are recognised as charitable. These will be considered in Chapter 7.

Implied trusts

Resulting and constructive trusts will be considered in Chapters 8 and 9 respectively. These are implied trusts that are created by the courts in pursuance of distinct objectives. A resulting trust arises when the transferor is treated as having impliedly retained an interest in the property in the event of the transfer failing for any reason. The resulting trust is distinct from an express trust because the transferor did not expressly state who would be entitled to the property in the event of a failure of the trust. In these circumstances the court will return the property to the transferor by implication. For example, Sunil transfers 50,000 shares in BP plc to Terry to hold ‘upon trust for Brendon for life’, but fails to make provision for what will happen when Brendon dies. In this event, the property will be held on trust but the beneficial interest wil...