Living and Testamentary Trusts

Answer The subject matter contained in this question emanates from the study of living and testamentary trusts. A living trust or trust inter vivos trust can be defined as a declaration made by a Settlor, during his/her life-time, to transfer some interest in real or personal property to a trustee to hold in favour of a beneficiary or beneficiaries[1]. A will on the other hand is primarily a document, legal in nature, which purports to speak from the death of the Testator, through which he/she transfers an interest in their real or personal property to persons named as trustees, to hold in favour of a singular or multiple beneficiaries[2]. Due to the unique nature of trusts and the gravity of the obligations they can confer on an individual, there are elements to which a trust must conform to be validly constituted. Firstly, there must be certainty of subject matter which includes certainty of the trust property and certainty of the beneficial interest[3] In general, the trust must allow for the property to be properly identified and must also be clear on how the property should be distributed among the beneficiaries of the trust. Secondly, there must be a clear intention on the part of the Settlor to vest an interest in property in favour of the beneficiary through the creation of the trust[4]. This may be evidenced by some express or manifested act by which he/she shows that there is an irrevocable intention to create a trust such as the execution of a will or deed of gift transferring the property to their trustees to hold in favour of the beneficiary. However, the Settlor does not always need to transfer any interest in the property for a trust to be validly constituted this is especially so in the case of an inter vivos trust where the Settlor can maintain and enjoy the benefits of the property for their lifetime and even nominate themselves as trustees. These principles also apply generally to all express trusts including trusts inter vivos although less rigidly so. It is from this general background in the foregoing that we can look at the dispositions made in the case above and further discuss their validity in light of the Law in force, recent legal decisions and the merits contained in the facts of each case.

1. A£60,000 to my trustees to be distributed at their unfettered discretion amongst such of my good friends and colleagues who I have known at the various universities that I have worked for.

The issues identified in this question is whether Aveline has created a valid inter vivos trust through a document executed under her hand purporting to transfer A£60,000 to her trustees for distribution to her good friends and colleagues who she had worked with at various universities. It is trite Law that for a trust to be validly constituted, it must be created with certainty of intention, have certainty of subject-matter and certainty of objects[5]. The subject matter of the trust must be property which is capable of being transferred. There is also a requirement that the subject matter of the trust must be something capable of being distributed among the beneficiaries and there should be no confusion as to how to distribute the trust property or who should benefit from its distribution. Finally, there must be an express act which shows that the Settlor intends to create an unconditional release by the Settlor of all future dominion and control over the property. On application of the general principles regarding trusts above, we can see in this case that the subject-matter of the trust is certain and that the execution of the inter vivos document is a clear act which shows that Aveline intends to create a trust in favour of the beneficiaries named in the trust. For example, in the case Pennington v Waine (2002), the Court of Appeal held inter alia that the execution and delivery of share transfer forms to an intermediary for the purpose of registering a new owner created a valid transfer of an equitable interest. However, it is unclear from the wording of the trust document who her good friends and colleagues are or how much each should get as a share in the A£60,000 which is the subject matter of the trust. Legal decisions have confirmed that objects (beneficiaries) to a trust should not be vague and even though the Law will always try to give effect to the Settlor’s wishes, Aveline’s description of who is to be the beneficiary of the trust is too vague too to constitute a valid disposition[6]. Even if there was any way to decide who her good friends and colleagues are, there is still a problem with how much each of the beneficiaries should get as shares in the money. This is an invalid disposition in the trust and would be incapable of execution by the trustees without further direction Re Baden[7].

2. One flat in London to be selected by Aveline’s daughter as an absolute gift for herself and the remaining flats to be sold and the proceeds of sale to be invested for a period of 21 years in order to provide a reasonable income for my two nieces.

The main elements of a valid gift inter vivos are that there must be a valid intention to create a trust in favour of the beneficiary, there must be an actual delivery of the gift or subject matter to the beneficiary and finally, that the beneficiary must accept the gift as it was given. Although the element of delivery is less strictly applied in cases where the gift is made as part of transactions between families, there must be some overt act through which the intention to create the trust is shown. In this case Aveline’s execution of an inter vivos document satisfies the requirement for an overt act showing the intention to create the trust. The trust however starts to falter when Aveline’s daughter fails to select any of her flats in London before her death thereby making it impossible for her to have accepted the trust. Failure to accept the trust has the effect of causing the failure of this disposition to Aveline’s daughter. The remaining flats in London were to be sold and the proceeds from such sale are to be used to fund a trust to be held for 21 years to provide an income for Aveline’s two nieces. The size of this disposition is subject to any previous selection from Aveline’s daughter and since she made none, all the flats would now be sold under the operation of the inter vivos document. The rule perpetuities which seeks to limit the possibilities of Settlor continuing to exert too much influence over property after their death would not apply in this case as the trust was created in favour of Aveline’s nieces who are were alive at the same time as Aveline and her daughter and therefore able to enjoy the property without running foul of the rule[8]. The limitation in duration of this gift would therefore make the disposition valid[9]. The words, “a reasonable income” also denotes a certainty in the subject matter of the trust and that further validates this disposition Re Golay Morris v Bridgewater and Others[10].

3. A sum of A£200,000 to be distributed equally amongst my grandchildren, my nieces and nephews

The intention is definitely evident with the execution of the inter vivos document but there is a bigger question when the wording of the document itself is construed in answer to the first issue on whether the intention was to create a trust or merely an absolute gift. There seems to be no intention from the wording to hold any part of this money in trust for the beneficiaries, rather, the intent seems to be that Aveline’s grandchildren, nieces and nephews are to have the subject matter distributed amongst them in equal shares without more. There is no intention to create a trust here and none of the words of the document seeks to create one in favour of any of the objects mentioned[11].

4. Gift of residuary estate to family members who in the opinion of the trustees deserved it.

It is clear here that the executors are given the discretion to decide in whose favour to perform the trust and thereby identifying who may have recourse to the court in the event that the trustees does not fulfil the duty placed on them. Aveline's failure to define clearly the members of her family may mean that the property can only be held on trust for the Settlor or all her remaining estate McPhail v Doulton (1971). The test in the foregoing case is whether it is possible to define with any certainty whether a person belongs to a group or class mentioned in a trust as a potential beneficiary. The criteria upon which the trustees are to base their decision itself is unclear as the determination of what constitutes a deserving beneficiary in this disposition would be exceedingly difficult to define. As this concept is too imprecise to give any certainty of objects, this disposition will fail See Re Baden (No 2) (1973). Confirming this view, the courts have held in R v District Auditor ex p West Yorkshire MC (1986) that if a testator chooses a wide class of people to be beneficiaries and if the trustees cannot effectively fulfil their duties even under a discretionary trust, the trust must fail.

5. Gift to Valerie if the trustees fail to distribute trust amongst Aveline’s family

It is valid practice to name alternative beneficiaries for each gift made to a primary beneficiary. This act is considered good practice and prudence as creating a gift to an alternative beneficiary in case the primary disposition fails, leaves nothing to chance[12]. In this Will, Aveline seems to have made a gift to an alternative beneficiary in the event that any of the primary gifts to any members of her family fails. Further investigation on the construction of the words making this disposition shows that this may not be the case. The literal interpretation of the will must be ascertained from the words used in the document itself and from the context in which they are used[13]. Upon this literal construction, the trustees seem not be under any duty to actually try to distribute any of the property to her family. However, there is an implied fiduciary duty to all trustees to carry out the intentions of the Settlor. Therefore, upon failure to disburse the estate to her family, Aveline has unequivocally instructed the estate to be given to her fried Valerie. There remains some issue with this trust. The extent of Aveline’s estate may be an unknown quantity and one which the Trustees would be unable to define as at the time the Will was executed. There are doubts as to the certainty of subject matter under this, and various legal decisions would call this disposition into doubt[14]. However, the decision of the Court of Appeal in Hunter v Moss seems to point an exception to the rule of certainty in situations where the property is an intangible asset. In this exception, the courts would give effect to the disposition despite the fact that there is no certainty of subject matter. This exception would not apply if the property was land. Therefore Valerie’s gift may be valid in some cases. Aveline’s disposition to Valerie would be valid if the estate was easily determinable and also if it can be shown that any other dispositions to Aveline’s family have failed. Bibliography

1. Primary Sources

Legislation

1. Wills Act 1837 (c.26)
2. Wills Act 1968 (A.C.T)

2. Case Law
   1. MacJordan Construction v Brookmount [1992] BCLC 350.
   2. Paul v Constance (1977)
   3. Knight v Knight (1840), 3 Beav, 148, 49 ER 58 (Ch)
   4. See Palmer v Simmonds (1854) 2 Drew 221, HC
   5. Hancock v Watson [1902]AC 14, HL
   6. Re Wightwick [1950] 1 Ch 260
   7. Thynn v Thynn (1684)
   8. Pennington v Waine (2002)

Secondary Sources

1. Books
   1. Wills, Trusts, and Estates By Jesse Dukeminier, Stanley M. Johanson Published by Aspen Law & Business, 2000.
   2. Trusts and Equity By Richard Edwards, Nigel Stockwell Published by Pearson Education, 2005
   3. A Simplified Guide to Creating a Personal Will, By Deborah Herman, Deborah Levine Herman, Robin L. Bodiford Published by John Wiley and Sons, 2003.
   4. Administration of Wills, Trusts, and Estates By Gordon W. Brown Published by Cengage Learning, 2002.
   5. Equity & Trusts By Alastair Hudson Published by Routledge, 2001.

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Footnotes

[1] Wills, Trusts, and Estates By Jesse Dukeminier, Stanley M. Johanson Published by Aspen Law & Business, 2000 pg 372 [2] Trusts and Equity By Richard Edwards, Nigel Stockwell Published by Pearson Education, 2005 [3] MacJordan Construction v Brookmount [1992] BCLC 350. [4] Paul v Constance (1977) [5] Knight v Knight (1840), 3 Beav, 148, 49 ER 58 (Ch) [6] See Palmer v Simmonds (1854) 2 Drew 221, HC [7] [1973] Ch.9 [8] Hancock v Watson [1902]AC 14, HL [9] Re Wightwick [1950] 1 Ch 260 [10] [1965] 2 All ER 660, HC [11] Thynn v Thynn (1684) [12] A Simplified Guide to Creating a Personal Will, By Deborah Herman, Deborah Levine Herman, Robin L. Bodiford Published by John Wiley and Sons, 2003 page 29 [13] Administration of Wills, Trusts, and Estates By Gordon W. Brown Published by Cengage Learning, 2002 [14] Equity & Trusts By Alastair Hudson Published by Routledge, 2001 pg 75

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