Law of Equity and Trusts - Case Study Example

Law of Equity and Trusts Assignment This assignment looks at the provisions of the will of Lady Penelope and advises the potential beneficiaries of each provision of their legal position. I will deal with each provision of the will separately. To my trustees to hold in trust for my three children Jake, Jessica and Madonna, all my houses until the youngest child reaches the age of 25 years. It seems clear that the testator here is expressly stating her intention to create a trust. The trust property is to be 'all my houses' and the beneficiaries are to be 'my three children.' Since the trust property is heritable, the formalities of the Law of Property Act 19251 will also have to be followed. The vesting date has been postponed until the youngest child reaches the age of 25. As was stated in Knight v Knight2 by Lord Langdale MR, there are three certainties that must be present in order to constitute a valid express trust, they are certainty of words, certainty of subject matter and certainty of objects.3 The certainty of words requirement was described in Re Kayford Ltd.4 as being akin to a certainty of intention. The intention is to impose a mandatory obligation on the trustees of how the trust property is to be dealt with. As was stated in Banks v Goodfellow5 the testator does not need to have the understanding of a lawyer as to the contents of the document but a clear intention to trust, must be present. It seems clear that this provision meets the necessary requirement for certainty with regards intention. The certainty of subject matter relates to the trust property. The trust property must be clearly defined and identified. Otherwise the trust must fail as who is to decide which assets are to form the basis of the trust. The case law has established that uncertainty as to the subject matter can either be conceptual or evidential. By conceptual uncertainty is meant that it is impossible to ascertain what the intention of the testator was. For example, in Palmer v Simmonds6 Kindersley V-C said that a trust could not be created, as a 'definite, clear and certain part' of the estate had not been identified. The court is willing to exert effort in ascertaining the trust property as Ungoed-Thomas did in Re Golay7 where he found that a 'reasonable income' was capable of ascertainment by the court, but if there is no clear property, there can be no trust. What's more, the allocation of property must be specific. In Hemmens v Wilson Browne (a firm)8 it was held that a right to payment of 110,000 at any time could not form a trust as the sum was unspecific, or in the words of Judge Moseley QC, 'there was no identifiable fund to which any trust could attach.'9 I think it is fair to say that 'my houses' is sufficiently specific to allow for ascertainment. To my stepdaughter Analise the home of my parents with instructions that the property is held within the family in perpetuity. This provision raises two concerns. The first is that there is a good chance that Lady Penelope does not presently own the house of her parents. While there are tax and other reasons why she may own it, we are informed that her parents were still alive at the time of her death. If Lady Penelope does not presently own the house of her parents, then it is impossible for her to create a valid trust over it. While she may have been due to inherit the house, we are told that her parents are still alive and this would therefore not occur. It is a fact of law that it is not possible to create a trust for property that the testator does not own yet, but hopes to own in the future. This has been expressly stated in the case of future inheritance under a will or intestacy.10 In Re Ellenborough11 the settlor granted in 1893 to trustees, any property she may become entitled to in the future on the deaths of her brother or sister. When her brother died nine years later, she decided not to give the property to the trustees, and Buckley J upheld her decision on the ground that no trust could have been created in 1893 over property that the settlor did not then own. Similarly, in Re Brook's Settlement Trusts12 the settlor assigned to trustees in 1929, very specifically, property which he might receive, under a power of appointment by his mother, held on her marriage settlement, and Farwell J held it was impossible for a trust to be created in 1929 for property he would not own until in 1939. The property was a 'mere expectancy' in the words of Farwell J. As regards the condition that the property be held within the family in perpetuity, there are public policy rules that may disallow this clause. The public policy at stake in this instance is that restrictions on alienability are seen as economically undesirable as they take property out of the market, potentially for ever. What this comes down to in practice is that restrictions on alienability that last beyond the period of a life plus twenty-one years will not be enforceable.13 In Re Brown14 it was held that a condition whereby a father left his property to his three sons so long as they only sold it to each other was invalid as it amounted to an undue restriction on the alienability of the property. Therefore, either because of the inability to create a trust over property not currently owned by the testator, or because of the public policy against perpetuities, this provision is likely to fail. To my best friend Emma, such of my collection of antiques as she shall wish and the remainder of such antiques to my two daughters Madonna and Jessica providing they shall survive me. Regarding certainty of subject matter, allowing Emma to select from the collection of antiques the objects she wants may raise difficulty. The subject matter is not evidentially certain so to speak. The trust does provide for the means of ascertaining the subject matter, that is by allowing Emma to make a selection, and this follows the case of Re Golay15. However, the case of Sprange v Barnard16 shows the difficulty with such a provision. In that case, no trust could arise in similar circumstances and the prevailing belief now is that if property is left to one person, and the remainder to a second on the death of the first, such provision would fail and the whole would be given to the first absolutely.17 Also, because trust property must always be possible to identify, if Emma were unable to make the selection, the provision may fail, and this could potentially deprive Madonna and Jessica from their shares also. This is because conceptually certain property may be impossible to identify in practice. In Boyce v Boyce18 the testator bequeathed two houses to his daughters Maria and Charlotte. Maria was to choose which one she wanted and Charlotte was to get the other. As it happened, Maria had predeceased the testator and the court held the trust in favor of Charlotte failed as it was impossible to ascertain in practice what the property was to be. To my grandchildren as shall survive me I leave the funds in my Natwest Bank Account to be distributed on the youngest child's eighteenth birthday. This provision seems, on the face of it, to be clear and precise. If the trust is discretionary, the trustees are allowed to use their own judgment in allocating the trust property to the class of beneficiaries. In this case, the House of Lords stated19 that it must be possible to determine whether any individual is within the class of beneficiaries or not, with absolute certainty. The Court of Appeal further clarified this requirement by stating20 that what was required with a discretionary trust was 'conceptual certainty' of the class. 'Evidential certainty' would then only be required for the members of the class that were actually to benefit, and the rest of the class, or the 'complete list' of beneficiaries need not be defined. However there is a problem with this analysis. The trustees are only authorized to pay out, upon the eighteenth birthday of the youngest member of the class. This removes discretion from the trustees in this regard at least. At the time of her death Lady Penelope had two grandchildren but we have already seen that one has been born since her death. Because of the theoretical possibility of future grandchildren being born for as long as any of her children are alive, it seems as if the clause could be frustrated because of the impossibility of ever deciding when the youngest grandchild has turned 18. Certainty of objects requires that you be able to identify with certainty the beneficiaries of the trust. If this were to be viewed as a fixed trust, what is known as 'complete list' certainty is required21. This means that there must be 'conceptual certainty' regarding who is or can be a beneficiary. As well as this, there must be 'evidential certainty' identifying clearly, every single member of the class. Only if full certainty is present in both of these senses, will the trust be upheld as certain of objects. To my sister Emily, my gold antique jewelry that she wishes to select and the remainder to be sold and the proceeds to be held for the benefit of children attending the local special needs school in Compton. The problem with this provision is the possibility that it is overlapping with the prior provision that left the antiques to Emma and the remainder of such jewelry to the testator's daughters. This is an example of overlapping provisions and it is likely to make both provisions invalid unless they can be reconciled between them in a way that allows for certainty of object. This goes back to the holding of Kindersley V-C in Palmer v Simmonds22 where it was held that a trust could not be created out of part of an unidentified group of assets. The only reconciliation I can see here is that this clause specifies gold jewelry whereas the other was simply jewelry. If the court was willing to adopt the approach of Ungoed-Thomas in Re Golay23 it is possible that the ambiguity could be clarified by reference to this fact. Providing the children attending the school in Compton are definable and not so numerous as to make the provision impracticable, there is no difficulty with this. The beneficiary principle was set out in Morice v Bishop of Durham24 which states that a trust must be for the benefit of people. In Re Denley's Trust Deed25 it was held that employees of a company were valid beneficiaries. The property known as the 'Lodge' to my youngest daughter Jessica. This is a valid fixed trust. Assuming that there is no problem identifying the Lodge, then there is certainty of subjects. If Jessica can be identified then we have certainty of objects. And the intention seems certain and unambiguous. My business "Penelope Designs" to my four children in equal shares. There is a slight ambiguity here as it is clear from the preceding information that Lady Penelope has three children and one stepchild. This relates to certainty of objects. Following from McPhail v Doulton26 and Re Baden's Deed Trusts27 it must be certain in this provision, who is meant by my children. Then it must further be evident if each of the four potential beneficiaries, Jake, Jessica, Madonna and Analise all fall within that class. I think it is safe to assume that this description of four children is sufficiently clear in covering the four of them and would therefore be applied. Regarding the subjects, this is a fixed trust over the business Penelope Design. My trustees shall allow my Personal Assistant to select which cottage on the estate she shall desire, with instructions that my trustees shall maintain the remaining properties and shall not permit there to be a sale of any of the properties to any person who is not related to the Grantham family. It is legitimate to allow the testator's assistant to select a cottage, providing she is able to do so. As we see from Boyce v Boyce28, if the personal assistant were unable to select which cottage, for whatever reason, then it we be impossible to give any effect to this provision and it would fail. Following Re Brown29 it is not possible for the testator to restrict the alienability of the property and thus the statement that the property remain within the family would not be upheld. My residuary estate to my daughter Madonna. It is thankful that the testator has kept her residue clause simple. If there are any uncertainties surrounding the above provisions, then at least the residue will catch any failed provisions and stop the property falling to intestacy. The residue is a clear subject and as far as object is concerned, it looks clearly to fall to Madonna. Bibliography Books: Snell, Principles of Equity, 29th ed. 1990 Pearce and Stevens, The Law of Trusts and Equitable Obligations, 2nd ed. Butterworths, 1998 Hayton D J, Commentary and cases on the law of trust and equitable remedies, Sweet and Maxwell, 2000 Moffat, G. Trusts Law: Text and Materials, 3rd ed. Butterworths, 1999 Legislation: Trustee Act 1925 Perpetuities and Accumulations Act 1964 Law of Property Act 1925, s. 53 Cases: Banks v Goodfellow (1870) 5 QB Harwood v Baker (1840) 3 Moo PC 282 Knight v Knight (1840) 3 Beav 148 Wright v Atkyns (1832) Turn & R 143 Re Kayford Ltd. [1975] Palmer v Simmonds (1854) 2 Drew 221 Re Golay [1965] 2 All ER 660 Boyce v Boyce (1849) 16 Sim 476 IRC v Broadway Cottages Trust [1955] Ch 20, CA McPhail v Doulton [1971] AC 424 Re Baden's Deed Trusts (No. 2) [1972] Ch 607 Morice v Bishop of Durham (1804) 9 Ves 399 Hemmens v Wilson Browne (a firm) [1995] Ch 223 Re Lind [1915] 2 Ch 345 Re Ellenborough [1903] 1 Ch 697 Re Brooke's Settlement Trusts [1939] Ch 993 Re Brown [1954] Ch 39 McPhail v Doulton [1971] AC 424 Re Baden's Deed Trusts (No. 2) [1972] Ch 607 Sprange v Barnard (1789) 2 Bro CC 585 Read More