Equity and Trust - Gift to Pamela for the Children - Essay Example

?Equity and Trusts Question Part A a. Gift to Pamela for the Children The gift to Pamela is a valid trust if it meets the requisite three certainties. The first of the three certainties is the settlor’s intention to establish a trust. The second of the three certainties is the subject which refers to the trust property The objects is the third requirement of a trust and it refers to beneficiaries.1 Together these three requirements of a trust are referred to as the “three certainties”.2 Certainty of intention can be inferred from the words used in the trust settlement or the gift settlement. This is usually inferred from words such as “trust” and “confidence”.3 However, Mergarry J stated that specific words such “trust” and “confidence” are not necessary, provided there is “in substance a sufficient intention to create a trust”.4 The gift to Pamela is stated in uncertain terms in that the settlor specifically he expresses his desire that the gift of 500,000 pounds to Pamela will be held upon trust for their children’s future. The settlor also uses the word “confidence” in that he was confident that Pamela will carry out his express wishes with advice from his solicitor. However, taken together the words expressing the trust may be interpreted as precatory as it is not altogether clear what the settlor’s intention are in terms of securing the kid’s future.5 However, since the settlor used the word trust in referring to the specific terms of the gift, there is no doubt that he intended to create a trust for the benefit of the children and intended that his wife determine how best to secure his children’s future as their trustee. Thus the certainty of intention has been satisfied in respect of the gift to Pamela. The requirement of certainty of subject and object will give effect to the settlor’s intention if sufficiently identifiable.6 Thus the certainty of subject matter is satisfied if the property to be transferred to the trust is identifiable and administratively possible.7 The settlor transferred 500,000 pounds to his wife Pamela with the specific instructions that the funds were to be held by her upon trust for their children. Thus there is no uncertainty relative to the subject matter of the trust and as such it is administratively possible. Therefore certainty of subject matter is sufficiently made out to constitute a valid declaration of trust. Certainty of objects is satisfied if the words used to create the trust identifies beneficiaries or a class of beneficiaries with sufficient clarity that the trustees or the courts can identify the beneficiaries.8 The gift to Pamela refers to their children and thus there can be no doubt that all children shared by Pamela and her husband are the beneficiaries of the trust and can be easily identified. It therefore follows that each of the three certainties are satisfied in the gift to Pamela and a valid, enforceable trust was created. b. The Gift for the Settlor’s Best Friends and their Relatives The gift of 100,000 pounds for the settlor’s best friends and their relatives must meet the certainty of objects requirement if it is to be a valid, enforceable trust. Essentially, when the settlor refers to a class of beneficiaries and does not specifically identify the members of the class, the courts require that there must be a conceptual certainty as to who makes up the members of the class of beneficiaries.9 The class of beneficiaries must be of sufficient certainty so that the trust itself is administratively possible. The trustees must be in a position to identify those who make up the members of the group forming the beneficiaries of the trust so that at some later time, otherwise, trustees may find themselves confronting a number of claims for breach of trust. For instance a trust for the residents of a specific community would be administratively impossible since the trustees would have an onerous task of having to identify those who are residents and whether or not present or future residents fall within the class of beneficiaries.10 Certainty of object would be satisfied if the breadth of beneficiaries can be narrowed down. The question at the end of the day is whether or not the trustees are selecting from a handful of potential beneficiaries as opposed to thousands or even millions. 11 The court must be in a position to construct an order that would satisfy the trust’s terms.12 As a discretionary trust, the trustees have powers of distribution and as such, should not be subjected to inflexible rules relative to certainty of objects. In Re Baden’s Deed Trusts (no.1) [1971] AC 424 a similar discretionary trust was declared in that the settlor transferred trust property to held upon trust for a far broader class of beneficiaries than the settlement on the facts of the case for discussion. The class of beneficiaries in Re Baden’s Deed Trusts included officers, employers (past and present) and their relatives and dependents. Yet the court ruled that such a trust was administratively workable since the class of beneficiaries with due diligence could be ascertained.13 It therefore follows that the gift for the settlor’s best friends and their relatives are conceptually certain since the settlor’s wife purportedly knows who they are. Thus the trust is administratively workable and will be deemed a valid and enforceable trust. b. The gift to Usman The gift to Usman, the settlor’s son is a gift for future property is for property that the settlor expects to inherit from his parents at their death. It is a general principle of trust laws that certainty of subject matter is satisfied if the trust property can be unambiguously identified (Palmer v Simmonds [1854] 2 Drew 221). In other words, if the property cannot be clearly identified the trust is void ab initio. In this regard, the settling of a trust on property that is to be acquired in the future is problematic because at the time the trust comes into effect, the property should be ascertainable. For instance in Re Goldcorp Exchange Ltd. [1995] 1 AC 74, it was held that even where specific property is transferred to a trust with instructions to segregate the property for division among beneficiaries and there are no specific instructions as to what property is to be transferred into each group, the trust will fail for uncertainty of subject matter.14 If however, the property to be segregated is identical in nature, certainty would not be problematic.15 The idea is that the trust property must not only not only be capable of identification, but administratively possible at the exact time that the trust takes effect. The trust property is required to be transferred to the trust and if the trust property is not yet in existence, a trust cannot be created.16 The settlor must therefore have possession of the property at the time of creation of the trust and must be in a position to effectively transfer title to the trustees and thus transfer property into the trust at the time of creating the trust. Moreover, it was established in Re Ellenborough [1902] 1 Ch. 697 that a trust may not be established for future property or the expectation of property such as an inheritance in a will or otherwise.17 The rationale for such a rule is that in circumstances where the property does not exist at the time of creating a trust, there is no property to which the rules and principles of equity can attach or apply.18 Thus the gift to Usman will fail on the basis of uncertainty of subject matter. The gift is based solely on an expectancy and future acquired property none of which can be ascertained at the time of the creation of the trust. Moreover, the trust property existing at some future time cannot be identified for the purposes of a trust. In addition it cannot be said with any degree of certainty what that property is or will be. As such the trust is void and should the settlor inherit property upon the death of this parents that property will be administered pursuant to the Administration of Estates Act 1925 governing the rules of intestacy unless the settlor creates a will and specifically distributes his current and future assets.19 Part B, 2. a. Anna’s Gift to Her 2 Dogs Anna’s gift to her two dogs is for a specific purpose rather than for specific individual beneficiaries as it does not identify human beneficiaries as the objects of the trust. Therefore that only way that Anna can get around the uncertainty of objects is to meet the requirements of a charitable trust. The general rule is found in the ruling by Lord Parker in Bowman v Secular Society Limited [1916] AC 406. Lord Parker, ruled that in order for a gift to be qualified as a charitable trust, it is required to be for public benefit and recognizable as a charity in legal terms and not in some “popular sense”20 Further guidance is found in the case of Commissioners for Special Purposes of the Income Tax v Pemsel [1891] AC 531. In this case it was determined that in order for a charitable trust to be legally binding and enforceable it must be for at least one of four specific purposes. The purposes are for the “relief of poverty; advancement of education; advancement of religion; and for other purposes beneficial to the community”.21 The gift to Anna’s dogs does not appear to be for any of the specific purposes. It is difficult to construe the gift as beneficial to the community as a whole since the number of dogs involved are only two and cannot benefit a sufficient number of persons to qualify as beneficial to the community as a whole.22 Anna’s gift will therefore fail as both an ordinary private trust and a charitable gift. b. Anna’s Monument to the Park as a Memorial to Herself Anna’s desire to set up a trust for the construction and maintenance of a monument at a local part in memory of her will fail as an ordinary private trust because it does not identify beneficiaries and would thus fail for uncertainty of objects.23 In order for such a gift to be a valid trust it must meet the criteria for a charitable purpose. Charitable purpose trust falls into four distinct categories: poverty, religion, education and community/public benefit.24 The only category of charitable purposes that might apply to the gift intended by Anna is the community/public charity. In this regard, the trust must be capable of benefiting a significant part of the public in order to qualify as a charitable purpose trust. However, the trust is not required to benefit all the members of the public or a specific community.25 The question therefore turns on whether or not the monument will benefit significant members of the public, if not all members of the public. It would appear that the only persons who would benefit from a monument constructed in memory of Anna would be her close friends and family members. Unless Anna’s family and close friends make up a significant portion of the general public it is difficult to imagine how the construction and maintenance of a monument at a local park in memory of Anna would serve to benefit a significant portion of the public. Assuming that Anna’s family and friends are not of extraordinary numbers and are therefore not a significant portion of the community/public, the gift will fail as a charitable trust on the grounds that it does not serve as benefit to the public. c. Anna’s Recreational Trust of Land to Her Employees Anna’s trust for a parcel of land for recreational purposes for her employees at her software company and for any other persons that the trustees may determine should use the land raises questions relative to certainty of objects. The trust is a discretionary trusts as the trustees have wide discretionary powers.26 To begin with, in order to satisfy the requirement of certainty of objects it is not necessary that the trustees or the court be put in a position where they can construct a complete list of beneficiaries. A in or out test was devised by the courts.27 By virtue of the in or out test, the trustees must be in a position to ascertain whether or not an individual claiming to be entitled to the trust property is a person contemplated by the settlor. In other words, the trust settlement must be of sufficient clarity and certainty to permit the trustees to make this determination. Thus far, the trust is valid in terms of certainty of objects. However, there is a problem with respect to the trustee’s discretion to allow any other person that they may deem appropriate to benefit from the recreational property. Despite the flexibility accorded the rules applicable to certainty of object, the law requires that the trustees are put in a position to identify the beneficiaries and thus should be able to, if they put their minds to it, rule potential beneficiaries in or out.28 Thus a discretionary trust is much different from a fixed trust where the trustees are required to be in a position to draw up a complete list of the beneficiaries under a trust.29 The discretion to allow any other persons whom the trustees deem appropriate to use the trust property does not accord with the rules relative to certainty of object, as there is no criteria by which the trustees are required to identify the beneficiaries. Thus it is administratively impossible for the in or out test to be applied and thus this portion of the trust is not administratively possible.30 It therefore follows that since one part of the trust is presented with uncertainty of objects, it is impossible to realistically identify and give effect to the settlor’s intention. Therefore Anna’s gift of the land and the 200,000 pounds for maintaining the trust and the land for recreational purposes will fail. Even if the gift succeeded as a trust, questions relative to the proper disposition of real property. In order for the gift to be transferred to a trust it must comply with the formal requirements for the disposition of an equitable interest in real property pursuant to the Law of Property Act 1925. Such a disposition must be evidenced in writing.31 Part C Equity will not Perfect an Imperfect Gift The equitable principle stating the equity will not perfect an imperfect gift is based on the principle that “equity will not assist a volunteer.32 When it can be determined that the donor of the power intended to “make a gift”, the determining factor is “whether or not a gift was validly made”.33 The exceptions to the equitable rule is the doctrine of donatio mortis causa which refers to cases where the gift was made in contemplation of death; the doctrine of proprietary estoppel to ensure fairness and reduce harm; and fraudulent cases.34 The equitable principle stating that equity will not prefect an imperfect gift and its exceptions speak to the rationale for the rule. To begin with, it was held in Re Brooks’ ST [1930] 1 Ch 993 that a trust confers upon an individual a gift from which he or she has not provided consideration and thus is a voluntary gift. Unless the gift is transferred pursuant to the rules applicable to the three certainties, the courts will not intervene to perfect that gift.35 In other words, the donor of the trust property or any other property for that matter expresses an intention to create a gift of that property by following a specific criterion for ensuring that the property is properly and legally transferred to the done. Since the donor does not owe the done a fiduciary duty as would be the case in ordinary cases, the donee will not acquire the property or any interest in it if the property transfer is not executed in accordance with the legal criteria for doing so.36 Moreover, a promise to transfer property or to make a gift is merely a promise until it is perfected in accordance with the law. The fact is, the person making the promise is at liberty to have a change of heart and may very well withdraw the promise. Therefore until such time as the transfer is perfected, the donor will not be held to a voluntary promise.37 Thus the effect of the maxim equity will not prefect an imperfect gift is that a person making a mere promise to donate a gift will not be forced to make that gift should he/she have a change of heart and decides against making that gift. Further clarification for the rationale and functions of the maxim, equity will not perfect an imperfect gift is found in the words of Lord Jessel in Richards v Delbridge [1874] LR 18 Eq. Lord Jessel state that: The settlor need not use the words ‘I declare myself a trust’ but he must do something which is equivalent to it and use expressions which have meaning; for however anxious the court may be to carry out a man’s intention, it is not at liberty to construe words other than according to their proper meaning.38 In other words, the words used in the transfer of property must be such that they reflect a specific intention to transfer the property and anything short of that will cast doubt on the settlor’s intention. In such a case, the courts will not give effect to the gift if it is uncertain that the settlor fully intended to make the gift and this must be manifested by a prescribed set of rules intended give effect to the settlor’s true intentions. Although courts will as far as possible attempt to determine the donor’s intention to establish a trust in a number of scenarios, the courts will not imply that intention in cases where it is clear that the donor intended to transfer the property as an absolute gift. It was held in Milroy v Lord [1862] 4 De GF & J 264 with respect to the transfer of property: To render the settlement binding, one or other of these modes of transferring property to the tustee must, as I understand the law of this court, be resorted to, for there is no equity in this court to perfect an imperfect gift.39 To demonstrate the point, in Milroy v Lord, Lord, acting under a power of attorney made a gift of shares to be held upon trust for Milroy’s benefit and for the remainder to be held for the benefit of named relatives. However, as it turned out, the shares had not actually been transferred pursuant to the formal requirements for doing so. As a result, the legal title had not been transferred to Lord and as such he could not make the transfer so that Milroy retained the legal title to the shares and Lord therefore could not have created a valid and legally binding trust.40 Thus the maxim equity will not perfect an imperfect gift is particularly important for safeguarding against the fraudulent transfer or forced transfer of property. The maxim therefore finds currency in the formal requirements for the transfer of property, particularly real property. For instance Section 53(1)(c) of the Law of Property Act 1925 requires that in order for the equitable interest in realty or personal property to be transferred to another, it must be evidenced in writing.41 These laws together with the maxim, equity will not perfect an imperfect gift ensures that the intentions of the donor are manifested not merely by words, but also by deed in appropriate cases. In the final analysis, the maxim equity will not perfect an imperfect gift is based on the voluntary nature of the gift. The person transferring the gift is doing so voluntarily and the person receiving the gift is receiving it without a benefit. The doctrine of proprietary estoppel will function to protect the interest of an individual who takes steps to his or her own detriment in contemplation of receiving that gift if it is reasonable for him/her to expect that gift.42 Likewise, the courts will take into account the impracticality of the donor perfecting the gift in circumstances where the gift was made in contemplation of death under the doctrine of donatio causa. The court will also perfect a gift where failure to perfect it was fraudulent.43 Thus like any other equitable principle the purpose is to ensure fairness between the parties. Bibliography 1. Administration of Estates Act 1925. 2. Attorney-General v National Provincial and Union Bank of England [1924] AC 262. 3. Bowman v Secular Society Limited [1916] AC 406, 441. 4. Commissioners for Special Purposes of the Income Tax v Pemsel [1891] AC 531, 583. 5. Hudson, A. (2007). Understanding Equity & Trusts. Oxon, UK: Routledge-Cavendish. 6. Hudson, A. (2008). Equity and Trusts. Oxon, UK: Routeldege-Cavendish. 7. Hunter v Moss [1994] 1 WLR 452. 8. IRC v Broadway Cottages Trust [1955] Ch 20. 9. Knight v Knight [1840] 3 Beav 148. 10. Law of Property Act 1925. 11. Milroy v Lord [1862] 4 De GF & J 264. 12. Mussoorie Bank Ltd. v Raynor [1882] 7 App. Cas. 321. 13. Palmer v Simmonds [1854] 2 Drew 221. 14. Re Baden’s Deed Trusts (no.1) [1971] AC 424. 15. Re Brooks’ ST [1930] 1 Ch 993. 16. Re Ellenborough [1902] 1 Ch. 697. 17. Re Goldcorp Exchange Ltd. [1995] 1 AC 74. 18. Re Gulbenkian [1968] Ch. 785. 19. Re Hay’s Settlement Trusts [1982] 1 WLR 202. 20. Re Kayford Ltd. [1975[ 1 WLR 279. 21. Richards v Delbridge [1874] LR 18 Eq. 22. Webb, C. and Akkouh, T. (2011). Trust Law. London, UK: Palgrave MacMillan. 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