This article looks at the requirements and formalities for a valid trust. In UK law, a trust is an arrangement involving three classes of people; a Settlor, Trustees and Beneficiaries. The Settlor is the person who transfers property to the Trust. The Trustees are people who legally own the Trust Property and administer it for the Beneficiaries. The Trustees’ powers are determined by law and may be defined by a trust agreement. The Beneficiaries are the people for whose benefit the trust property is held, and may receive income or capital from the Trust.
“No particular form of expression is necessary for the creation of a trust, if on the whole it can be gathered that a trust was intended”. This statement gives the impression that no formalities are needed, and could be misleading. Although equity generally does look to intent rather than form, mere intention in the mind of the property owner is not enough. For a valid trust to exist, the Settlor must have the capacity to create a trust. He must validly transfer the trust property to a third party trustee or declare himself trustee. Further, he must intend to create a trust, and must define the trust property and beneficiaries clearly. This is known as the ‘three certainties’; certainty of subject matter, certainty of objects and certainty of intention.
Certainty of intention refers to a specific intention by a person to create a trust arrangement whereby Trustees (which may include himself) hold property, not for their own benefit but for the benefit of another person.
It is clear when trusts are created in writing and on the advice of legal professionals that intention is present [Re Steele’s Will Trusts 1948]. However, no particular form of words is needed for the creation of a trust and here the equitable maxim, “Equity looks to intent rather than form”, applies. It is therefore sometimes necessary for the Courts to examine the words used by the owner of the Property, and what obligations if any the Owner intended to impose upon those receiving the Property.
It is not necessary that the Owner expressly calls the arrangement a trust, or declares himself a trustee. He must however by his conduct demonstrate this intention, and use words which are to the same effect [Richards v Delbridge 1874]. For example, in Paul v Constance 1977, Mr Constance did not expressly declare a trust for himself and his wife, but he did assure his wife that the money was “as much yours as mine”. Additionally, their joint bingo winnings were paid into the account and withdrawals were regarded as their joint money. The Court therefore found from Mr Constance’s words and conduct that he intended a trust.
Certainty of intention is also known as certainty of words, although it has been suggested a trust may be inferred just from conduct. Looking at Re Kayford 1975 1All ER 604, Megarry J says of certainty of words, “the question is whether in substance a sufficient intention to create a trust has been manifested”. In this case, Kayford Ltd deposited customer’s money into a separate bank account and this was held to be a “useful” indication of an intention to create a trust, although not conclusive. There was held to be a trust on the basis of conversations between the Company’s managing director, accountant and manager so words were necessary for the conclusion.
In contrast, where the word ‘trust’ is expressly used, this is not conclusive evidence of the existence of a Trust – the arrangement may in fact constitute something very different [Stamp Duties Comr (Queensland) v Jolliffe (1920)]. For example, the deed may contain wording such as “On trust, with power to appoint my nephews in such shares as my Trustee, Wilfred, shall in his absolute discretion decide, and in default of appointment, to my friend George”. Although professing to be a trust, Wilfred is not under an obligation to appoint the nephews and provision is made for the property to pass to George if he does not. This is therefore a power of appointment, not a trust [eg. Re Leek (deceased) Darwen v Leek and Others [1968] 1 All ER 793].
Sometimes in a will, the owner of Property will use ‘precatory’ words such as expressing a ‘wish, hope, belief or desire’ that the receiver of property will handle it a certain way. For example, in Re Adams and Kensington Vestry 1884, a husband gave all of his property to his wife, “in full confidence that she will do what is right as to the disposal thereof between my children… “. The Court held that the wife may have been under a moral obligation to treat the Property a certain way but this was not sufficient to create a binding trust. Precatory words can still sometimes create a trust. In Comiskey v Bowring-Hanbury 1905, the words ‘in full confidence’ were again used, but the will also included further clauses, which were interpreted to create a trust. The Court will look at the whole of the document to ascertain the testator’s intention, rather than dismissing the trust because of individual clauses.
There are further formalities required for certain types of trust property, and for a trust to be valid, title to the trust property must vest in the Trustees, or, the trust must be “constituted”. This might be done for example, by delivery for chattels or by deed for land. If the trust is not properly constituted, the supposed beneficiaries have no right to compel the Settlor to properly transfer the Property, as ‘equity will not assist a volunteer’. The exception to this is where the beneficiary has provided consideration (including marriage) for the Settlor’s promise, in which case, there would be a valid contract and the Beneficiary could sue for breach.
Where a testamentary trust of land or personalty is purported, the will in which it is contained must be in writing and executed in accordance with Section 9 of the Wills Act 1837, which means the Will must be signed by the Testator in the joint presence of two witnesses, and then signed by the two witnesses in the presence of the Testator.
Where a Settlor wishes to create an inter vivos trust of personalty, the formalities are minimal. Besides the usual requirements for a trust (capacity, the three certainties e.t.c), the Settlor must observe any formalities required to properly transfer the Property to the trustees – for example, the execution and delivery of a stock transfer form for shares.
To create an inter vivos trust of land or of an equitable interest in land, in addition to the formalities of transferring the land, the declaration of trust must be in writing and must be signed by the person able to create the trust – i.e., the Settlor or his attorney [S.53(1)(b) Law Property Act 1925]. Where this formality is not complied, the Trustee would hold the land on trust for the Settlor rather than the Beneficiary. The exception is where the rule in Strong v Bird 1874 applies – the Settlor intended to make an immediate unconditional transfer to the Trustees, the intention to do this was unchanged until the Settlor’s death, and at least one of the Trustees is the Settlor’s administrator or executor. In this case, as the property is automatically vested in the Settlor’s personal representatives and the trust is constituted.
It is sometimes stated that no particular form of expression is necessary to create a trust if intention was present. Clearly this is not the case. There are formalities for creating inter vivos land trusts and testamentary trusts and if these are not followed, the trust will fail unless consideration has been provided or the rule in Strong v Bird 1874 applies, even if the Trustee had the best intentions. Further, the form of words used in those formalities must be clear and unambiguous, or they may not amount to a trust. He goes on to say that ‘a trust may be created without using the word “trust”‘ and this is true in that other words and conduct to that effect are sufficient. However, the Court does not just regard the ‘substance’ of the words. If the wording used does not meet the ‘three certainties’ or, for example, the person making the declaration does not have the capacity to make a trust, the trust will fail. This is clearly not the desired ‘effect’ and not the owner’s intention.
