The Law of Trusts and Equitable Remedies - Assignment Example

174829 Consider whether enforceable trusts have been created by the following terms contained in a will: (a) “the residue of my e to my husbandParwinder in full confidence that he will respect the complete trust that I have in him and use the estate for his own needs in his lifetime, and after his death divide what remains between our daughters Surjit and Meera, either equally, or in such proportions as he sees fit.” (b) “the sum of £200,000 for the first 100 people who write in to my Trustees in response to an advertisement in the Oxford Gazette inviting applicants to make a moral claim for a share in the money.” (c) “I give my collection of vintage cars to my trustees upon trust for them to allow my nephew Charles to choose one, the remainder to be held on trust for the Oxford Motor Museum.” On the testator’s death, Charles has been in a coma for three months, and his doctors say that he is unlikely to come out of it. In order to be able to work out which of the trusts are enforceable it is necessary to establish whether the three certainties are present. For a trust to be valid there must be certainty of intention1, certainty of beneficiary2 and certainty of property3. Starting with the first section involving the residue of the estate being bequeathed to Parwinder in full confidence that he will respect the complete trust that the testator has in him and that he will use the estate for his own needs in his lifetime it is likely that this bequest might cause the trust to fail4. In Re Adams and the Kensington Vestry (1884) 27 Ch D 394 the wording of the trust was similar to the present case. In this case it was held that the trust was not enforceable because the wording only placed a moral obligation on the beneficiary and not a legal obligation5. Using this case as a guideline it is likely that the court would make a similar finding in respect of the enforceability of the trust. Often in cases where the trustee attempts to leave a bequest to a beneficiary by relying on the moral obligation of another beneficiary the trusts are likely to fail. The reliance on another to uphold the trust is not legally enforceable. In many cases such beneficiaries do not apply any moral obligation in the distribution of the estate and frequently use the whole of the bequest for their own benefit. When looking at the second bequest involving the distribution of the money to the first 100 people that write to the trustees in response to the advert in the paper it is likely that this trust would fail due to lack of certainty with regards to the beneficiaries6. In Gold v Hill [1999] 1 FLR 54 the wording of the will stated an oral direction for the plaintiff to look after Carol and the kids. It was held in this case that the beneficiaries had to be able to be specifically identified. It is obvious in this particular case that it would not be possible to identify the beneficiaries as the will states that the money is to be awarded to the first 100 people that respond to the advert. In IRC v Broadway Cottages Trust 1955 Ch 678 the courts held that it was necessary to be able to compile a complete list of beneficiaries in order for the trust to be enforceable. This was relaxed to a large extent in McPhail v Doulton [1971] AC 424 where the courts allowed the trust to succeed despite the lack of certainty with regard to the beneficiaries. In the case of the vintage cars there may be difficulty with regard to the certainty of the property as Charles is allowed to select which of the cars he wants with the remainder being given to the museum7. In Sprange v Barnard (1789) 2 Bro CC 585 the trust failed as the wording stated that the remainder of the property was to go to the respondent. Similarly in Boyce v Boyce (1849) 16 Sim 476 the court found that the wording of the will stating ‘ all of my other houses’ was uncertain and as such had to fail to be enforceable. The conclusion that can be drawn from all of the above situations is that they are all likely to fail due to lack of certainty. Each of them would fail for slightly different reasons. The way to avoid these failures would be for the testator to ensure that their intentions are clear. They would also need to ensure that the person entitled to benefit are correctly named in the will. Where there is more than one item to be bequeathed the testator should list each beneficiary and make sure that the will deals specifically with the distribution of the estate in the terms accepted. In order for any of the above bequests to succeed the testator would have to remove the uncertainty on the subject matter or the uncertainty of the beneficiaries. In this particular case as the testator is already deceased the certainty cannot be corrected which could mean that none of the intended beneficiaries inherit the items bequeathed to them. 2. (c. 750 words - 25% of marks for the assignment) Olwen holds a family party to mark her 70th birthday to which all her family are invited. She is a wealthy woman and feels she should give some of her property away in order to reduce the Inheritance Tax that will be payable on her estate on her death. During the course of the evening: (a) she declares that she gives her cottage in Rhyl to her cousin Bill; (b) she declares that she holds her seaside house near Barry in trust for her son Harry; (c) she declares that she holds her controlling shareholding in Greymists Ltd, a family company that owns and runs a hotel in Aberystwyth, in trust for her daughter Davina; and (d) she declares that she is giving her half-share in the freehold of a shop in Frinton-on-Sea (which she owns jointly with her sister) to her son Clinton. Unfortunately Olwen puts off taking any further legal action to put these provisions into effect. She dies unexpectedly two months later, intestate. A dispute arises between Olwen’s second husband Cyril on the one hand, and Bill, Harry, Davina and Clinton on the other, as to the ownership of the four properties. Nothing can be found to confirm the disputed dispositions, except that some letters written by Olwen after the party to members of the family are found to contain some poems written in Olwen’s own handwriting (Olwen is well known among the family for her appalling verse). One poem begins: “Sweet cottage on the hill at Rhyl Which I have given to cousin Bill” Another poem contains the immortal couplet: “Dear homestead on the coast near Barry Which now I hold in trust for Harry”. A third poem contains the lines: “O happy hours spent in the shop in sunny Frinton! - My share in which I’ve given to my son Clinton.” Davina looks for some reference among the poems to the hotel in Aberystwyth, but cannot find anything. (She puts it down to the difficulty that Olwen would have had in finding a suitable rhyme for it). Advise Cyril whether (a) the cottage, (b) the seaside house, (c) the shareholding and (d) the share in the shop form part of Olwen’s estate or whether Olwen validly disposed of them before her death. In this particular situation the problem centres on the formalities of the creation of the trust. When dealing with the transfer of property via a trust there needs to be a formal transfer of the deeds before the content of the trust is legally binding. In some instances where the legal interest has not been transferred an equitable interest can be inferred so as to make the trust succeed. When dealing with property or shares this is not the case as there needs to be a formal transfer for the trust to succeed. Under s.2, Law of Property (Miscellaneous Provisions) Act 1989 it states that “2(1) A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each8. (2) The terms may be incorporated in a document either by being set out in it or by reference to some other document. (3) The document incorporating the terms or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) must be signed by or on behalf of each party to the contract. With certain transfers of property such as paintings or cars the trust can be deemed to be valid by the mere exchange of the item to the person concerned. However with land the courts will only class the transfer as valid if the deed is transferred to the beneficiary as required by s52 of the Law of Property Act 1925. 52 (1) All conveyances of land or of any interest therein are void for the purpose of conveying or creating a legal estate unless made by deed.” Under s53 of the LPA equity might be able to assist if there is evidence in writing of the testator’s intention to transfer the property to the beneficiaries. The poems might be able to be classed as such evidence though they would have to be signed by the testator in order for equity to be able to assist9. The document signed does not have to be in any specific format10 but it must be signed for it to create a valid equitable interest. In this particular case this could mean that transfers to Bill and Barry might be able to succeed. When dealing with the shares it is a formal requirement that the title of the shares be registered with the new owner for the transfer to be legal11 and the law requires the recipient to have completed the necessary paperwork to register the shares with the new owner12. The rules regarding the transfer of shares by trust differ if the shares are in a private company rather than a public company13. In Oughtred v IRC [1960] AC 206 the court allowed equity to intervene as the shares were in a private company. Generally speaking the courts will take into account whether any tax will be involved in the transfer in order to decide whether such dispositions can be treated as valid14. In the case of Clinton this could mean that the courts would hold that the shares have been validly transferred provided that the poem written by the testator was signed. With Davina it is likely that the courts will not uphold the transfer of the shares as there is nothing in writing in respect of this. If the testator had put the transfer of the shares in the will rather than just by an oral declaration at the dinner then the courts would have been able to declare the trust valid as it would be possible to prove the intention of the testator. If the shares were held in a public company then in order for the trust to succeed the testator would have had to complete the proper transfer document to register the shares as transferred to the new owner. My advice to Cyril would be that it is likely that the courts might decide that the transfer of the land to Bill and Barry is valid provided that the poems had been signed by the testator. Similarly with the shares to Clinton, these could also be viewed as valid if the poem was signed. With Davina it is likely that the courts will declare the transfer invalid as there is nothing in writing to prove the intention of the testator. The declaration by Olwen at the party would be insufficient as proof of the intention of Olwen to leave the property to any of the parties. Such declarations can be valid if the items bequeathed in the trust do not require anything to be signed by the testator to affect transfer. Compare the proposals in the Law Commission Consultation Paper No 179 “Cohabitation: the financial consequences of relationship breakdown” with any previous proposal for reform. Evaluate which do you think better deals with the difficulties presented by the current law In general there are more disadvantages for the cohabiting couple mostly of a financial nature but these only become apparent when the couple are separating15 or upon the death of one of the parties. The areas in which differences occur are in inheritance tax16, capital gains tax17, wills18, pensions19 and issues surrounding any children either from previous relationships or from this relationship20. The Consultation paper aimed to address the unfairness that exists within the realms of cohabitation and the financial consequences of the breakdown of the relationship. Under the existing rules when a relationship breaks down and the couple have not been married the courts do not usually regard the cohabiting partner in the same way as they would a spouse when it comes to financial support. The paper itself was designed to seek the views of the public as a whole towards the issue of cohabitation. This review was ordered in response to previous papers on the subject by the Law Commission such as the one conducted in 2002 entitled Sharing Homes21. The 2002 paper looked at the property rights of those who share homes. The paper was not limited to couples bit also extended to friends or relatives or other groups of people who have chosen to share a home together. This paper did not consider those who are married or in a long term relationship who has decided to buy a house together as in general terms such couples are likely to register the title to the property in joint names. The paper was designed to look at those situations where the property is only registered in one name but where other parties have contributed to the purchase price either by work done to the property or in monetary amounts. It was hoped when the paper was commissioned that those conducting the enquiry would be able to come up with recommendations for amending the present system so that there could be an easy formula for the division of property when the cohabitants had decided to live separately. The Commission unfortunately reached the conclusion that it was impossible to devise such a formula. The recommendation to come out of the 2002 paper was that cohabitants should be encouraged to investigate the legal outcome of what might happen with property should they decide to no longer cohabit. The difficulty with implementing such a policy is in educating people on the subject of cohabitation. Many of those who have chosen to cohabit mistakenly believe that they have the same rights as a married couple when it comes to division of the family home. In 2004 the Government passed the Civil Partnership Act which was aimed at giving cohabiting couples similar rights to married couples. Although this Act assists those who have chosen to register their civil partnership there remains no protection for those who have not entered into a civil partnership agreement. Lord Filkin attempted to address this imbalance by asking the Law Commission to consider a review of the law of cohabitation in the Ninth Programme of Law Reform. The aim of this review was for the Commission to look at capital provision after relationship breakdown, financial assistance for dependent children, intestate succession and the Inheritance (Provision for Family and Dependents) Act 1975. The recommendations to emerge from consultation paper 179 looked at the previous recommendations that were made by the Commission in respect of amendments to the 1975 Act such as the Law Reform (Succession) Act 1995. This Act added cohabitants to the list of persons entitled to claim inheritance rights where the cohabiting partner died after January 1 1996. The Commission found that although the Act to a large degree did offer some financial protection for cohabitants there were still a number of areas that were not addressed by the reform. Before making any recommendations for the ways in which the law in this area should be changed the Commission looked at the reasons why such reform might be necessary. They examined the unfairness that exists between those who are formally married to those who are cohabiting and challenged whether there should be any difference between the ways the law treats both parties when it comes to separation. Following the review on the present situation with regard to financial provision for cohabitants the Commission proposed that new statutory remedies should be introduced especially when dealing with cohabitants who have children. They had no difficulty in holding that when the cohabitants are both the legal parents of the children that financial support should be automatic. They also considered what relief if any should be provided for cohabitants were there were no children. The commission looked at whether financial provision would be best provided using fixed rules or whether there is a need for flexibility when assessing the needs of the parties. They reached the conclusion in this aspect that fixed rules might be inadequate as they can be too complicated and there could be too many exceptions added to the rule which might deny a genuine applicant the access they need to financial relief. The conclusion reached by the commission in this area was that any new scheme should exercise discretion when deciding which property should be considered in the allocation of financial relief. The commission recommended that claims by cohabitants should be restricted to circumstances where the applicant is able to prove that the economic effects of the relationship are not fairly shared between the parties on separation. The main proposal to come out of the consultation paper was that a partner who had enjoyed an economic advantage as a result of cohabitation would have to compensate the disadvantaged party. In essence this would mean that an unmarried man would have to continue to pay for the upbringing of his children of during the course of their cohabitation he had continued in his employment whilst his partner had remained at home caring for the children. The proposal was not limited to men and was also extended to cover same sex couples who were not registered as civil partners. Under the proposal the courts would have the power to award regular maintenance payments and lump sums. The proposal did not extend to cohabitants who were relatives, lodgers or carers and was limited to intimate relationships. The proposal also suggested that a former cohabitant might be ordered to sell their homes or share their pension rights in circumstances were they could not afford to provide lump sum payments or regular financial support. The report did not reach any firm conclusions in respect of cohabitants were there were no children involved. Those applying for such assistance would have a duty to show that their earning capacity has been impaired by the financial sacrifices they made during the relationship. The Commission did not specifically recommend a minimum qualifying period for cohabitation though it would be unlikely for a couple who had lived together for a relatively short period of time to be able to prove financial loss as a result of the relationship. Previous proposals for reform suggested the use of cohabitation agreements which would deal specifically with the financial and property aspect of the relationship. The proposal by the commission did not seek to change this position and accepted that couples should still be entitled to make such agreements thereby opting out of the proposed reform in respect of entitlement. It was the opinion of the commission that the proposed changes would prevent cohabitants from being able to avoid financial responsibility for their partners by living together rather than getting married. In 2002 the Commons and the Lords proposed the registration of the status of cohabitants. They felt that registration would give cohabitants similar rights to married couples. This led to the Civil Partnership Act mentioned above and although succeeded in providing financial support to those who had registered their relationship it did not force couples to register and therefore those who chose not to register could face no assistance in the way of financial relief if the couple settled or one of the partners died. It would appear from the above that the latest proposals for reform would achieve what previous proposals have failed to achieve. There is still a void not covered by any proposals for reform where the cohabitants are not in an intimate relationship. This effectively leaves relatives who have chosen to cohabit at a distinct disadvantage financially if they do not make their own provision for each other either by joint ownership of property or by bequests in a will. Further problems might occur if the property in which the parties are living is rented as the courts do not recognise te automatic transfer of the tenancy to a cohabitant that is not included in the tenancy agreement. Having looked at the proposals suggested for reform it is my opinion that such reforms would have the desired effect of protecting the financial rights of cohabitants that have chosen not to register their relationship. There is still room for improvement especially in the area of cohabitants that are not in an intimate relationship and I feel that the proposals should have looked at ways in which to protect the rights of such individuals. Although the proposals are designed to protect cohabitants much of the proposal is centred on those who have children. In this way the proposals are not achieving much more than previous legislation as the rights of cohabitants with children have been provided for under the Children Act 198922 as well as the Inheritance (Provision for Family and Dependents) Act 1975 and the Matrimonial Causes Act 1973. Bibliography Cretney & Masson, Principles of Family Law, 6th Ed, 1997, Sweet & Maxwell Hayton, D J , Commentary and Cases on The Law of Trusts and equitable Remedies, 11th Ed, 2001, Sweet & Maxwell Inns of Court School Of Law, Family Law in Practice, 5th Ed, 2002, Oxford University Press Law Commission Consultation Paper No 179 “Cohabitation: the financial consequences of relationship breakdown Milka Oldham, Statutes on Family Law, 10th Ed, 2002, Blackstone’s Pearce, R & Stevens , J, The Law of Trusts and Equitable Obligations, 2nd Ed, 1998, Butterworths Sharing Homes: A Discussion Paper (2002) Law Com No 278 Thomas, M, Statutes on Property Law, 8th Ed, 2001, Blackstone’s http://www.oneplusone.org.uk/marriedornot/ Table of Cases Boyce v Boyce (1849) 16 Sim 476 Crake v Supplementary Benefits Commission [1982] 1 All ER 498 DHN Food Distributors Ltd v Tower Hamlets LBC [1976] 1 WLR 852 (CA) Gold v Hill [1999] 1 FLR 54 Grey v IRC [1960] AC 1. Gully v Cregore (1857) 24 Beav 185 Hemmens v Wilson Browne [1995] Ch 223; Boyce v Boyce (1849) 16 Sim 476 IRC v Broadway Cottages Trust 1955 Ch 678 Lambe v. Eames (1871) 6 Ch 597 Leadbetter v Leadbetter [1985] FLR 789 Malim v Keighley (1795) 2 Ves 529 McPhail v Doulton [1971] AC 424 Milroy v Lord (1862) 4 De GF & J 264 Oughtred v IRC [1960] AC 206 Palmer v. Simmonds (1854) 2 Drew. 221 R v District Auditor ex p West Yorkshire Metropolitan County Council [1986] R V R 24 Re Adams and the Kensington Vestry (1884) 27 Ch D 394 Re Danish Bacon Co. Staff Pension Fund Trusts [1971] 1WLR 248. Re Rose, Rose v. IRC [1952] Ch 499 (CA) Re Snowden [1979] Ch 528 Sprange v Barnard (1789) 2 Bro CC 585 Table of Statutes Children Act 1989 Civil Partnership Act 2004 Companies Act 1985 Inheritance (Provision for Family and Dependents) Act 1975. Law of Property (Miscellaneous Provisions) Act 1989 Law of Property Act 1925 Law Reform (Succession) Act 1995 Matrimonial Causes Act 1973. 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