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Equity and Trusts Problem Question
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Introduction
The presented submission outlines the various requirements for a valid trust under the United Kingdom trust law. It has been provided under the law that for a valid trust it is required that the intention of the party for creating be clear and also there should be a clear mention of the subject of the trust. The submission identified three issues where the first issue is regarding the holding of real estate property in the trust. The second issue deals with holding shares in the trust and the third issue discusses the requirements of a valid charitable trust.
Issue 1
The first issue as per the facts is that whether the disposition of property by Stella Gibson in the hand of Paul, the trustee in favour of her husband and two children is valid under the United Kingdom trust law and that whether the three certainties test for a valid trust has been satisfied.
Definition
As per the identified issue, the law concerning, in this case, is the trust laws enacted under the United Kingdom. The trust law in the United Kingdom is defined as law that is concerning the protection of assets especially when the property is being held by one person as trustee for another person as beneficiary. In this case, the matter is regarding the creation of an express trust where the settlor named Stella Gibson has disposed of her property in trust to Paul for the benefit of her husband and two children.
Reference of the English case Paul v. Constance[1]where it was held by the court that to prove that a person has created trust, it shall be sufficient to prove one of the essentials out of the three essentials. It shall also be sufficient to prove that the settlor had the intention to create trust either by words or by action and it shall also be sufficient to prove that the trust has been created for the benefit of another person.[2]
Moreover, a landmark judgment in the case of Knight v. Knight[3]can be taken where the three certainties of creating a trust was laid down. These are certainty of words, certainty of subject matter and certainty of object. Hence, for the creation of a valid trust these three essentials are required. Discussing the definition of each certainty, it was stated by the court that the first certainty that is of words denote the intention of the settlor to create a valid trust. Moreover, certainty of subject matter is the property in respect of which the trust has been created for the beneficiary. And lastly, the certainty of object denotes the competency of the beneficiary for the trust except for the case in charitable trusts.
[1] [1976] EWCA Civ 2
[2] Shakeel Ahmed, ‘A study on trust restoration efforts in the UK retail banking industry’ (2020) 52 The British Accounting Review
[3](1840) 49 ER 58
Explanation
Discussing the meaning of trust, the law relating to trust applies when one person holds the property for another person for his benefit. The primary circumstance when a trust is created is when the settlor of the property gives the property in trust to another person called the trustee for the benefit of another person. And shows an express intention of creating trust. In other words, the settlor shall give the property to another person (the trustee) for using it for another person for his benefit (the beneficiary). The basic requirement under the United Kingdom trust law is that there was a clear intention of creating the trust by the settlor and that the trust is different from agency, bailment or a gift.[4]It has also been provided that the settlor must have clearly stated that the concerned property is for trust for the benefit of another person. Further, it has also been stated that trust has been created for people and not for purpose. It has also been explained that the trust for the benefit of the person is not for charity and that charitable trusts are a different type of trust that is regulated by the Charities Act 2006.[5]
Application
On applying the above-mentioned trust law that is enacted in the United Kingdom on the facts of the instant case, it has been clear that the settlor, in this case, is Stella Gibson who has given her property in trust to Paul who is the trustee for the benefit of her husband and the two children named Matt and Archie who are the beneficiaries. Further, it has also been noted that the settlor Stella has clearly expressed her intention of creating the trust as she has expressly mentioned that Paul the trustee shall hold the property in trust for her husband after her husband, for their children Matt and Archie. The settlor Stella has also given a clear expression of the property for which she is creating the trust by mentioning the name of the property that is Brompton Heights and Belfast House. Hence, the requirement for a valid trust under the United Kingdom Trust law that is the express intention of creating the trust has been fulfilled in this case as Stella Gibson has given a clear description of the property as well the intention of creating the trust.[6] This satisfies the first essential provided under the certainty test which requires the certainty of intention while creating a valid trust. Further, the second essential of subject matter has also been satisfied as Stella has made clear the property by names that she is willing to give in trust that is Brompton Heights and Belfast House. Hence, the second certainty has also been fulfilled. Lastly, the third essential under the certainty test that is certainty of object and competency of beneficiary states that the beneficiaries should be certain while creating the test. In this case Stella has made clear the beneficiaries that is her husband and two children by giving their names.[7] Hence, the third essential of the three-certainty test has been fulfilled in this case.
Reference of the case Saunders v. Vautier[8]can be taken where it was held by the court that for a valid trust it shall be important that the settlor creates the trust for the person and not for purpose and if the trust has been created for a purpose, it shall be a different type of trust. Hence, it shall be required for a valid trust that it be created for people. In this case, Stella the settlor has created a trust for the benefit of her husband and her two children Matt and Archie after her husband.[9]
Further, on applying the rule of three certainties it has been made clear that the creation of trust in this case is valid as the three requirements of intention, subject matter and object has been met.[10]
Summary
Thus, to summarise it can be stated that the legal requirement for a valid trust under the United Kingdom trust law has been met in this circumstance and the disposition of property by Stella in trust stands valid. It has also been concluded that the tree certainties of a valid trust under the UK trust law have been fulfilled in this case.
Issue 2
The second issue identified as per the facts of the case is that whether the holding of shares by Paul as trustee in the company Private Detectives Ltd for Stella’s niece Cary and two nephews is valid under the United Kingdom trust law.
Definition
As already mentioned above, trust is a fiduciary relationship where the settlor appoints a trustee for holding his assets for the benefit of a person called the beneficiary. Although it has been provided that people are the holders of shares in any company but there are instances when a trust can also be a shareholder. Hence, the answer to the common question of what property can be held in trust is that shares can also be held in trust. But there is a specific requirement for holding shares in the trust and that is the holding of shares should not be for the benefit of the trustee solely but the benefit of some other beneficiaries. This is because trustees and trusts are not separate legal entities but it is a fiduciary relationship.[11]
Further, the holding of shares in trust is a kind of express trust where the settlor of property expressly makes clear the description of the property that is to be held in trust. As mentioned above, it is one of the requirements to express the intention of creating trust and in the same way, another requirement of a valid trust is a clear description of the subject that is to be held. In this case, the subject is the 50 shares out of 950 shares in the company Private Detectives Ltd.
Reference of the case Herdegen v. Federal Commissioner of Taxation[12]can be taken where it was held by the court that the property that is to be held in trust should be ascertainable at the time when the trust was created.[13]
Explanation
Further explaining the holding of shares in the trust, there are certain duties of the trustees while holding the shares in trust which the trustee is required to abide by. These duties are first, the trustee shall not be the sole beneficiary of the trust property that is shared. Secondly, it shall be the duty of the trustee to preserve the trust property whether it is shares or any other kind of property. Thirdly, the trustee shall act in good faith and shall give the benefit to the beneficiary from the shares. In addition to this, the trustee shall also be under a duty of keeping proper and accurate records of the shares and the benefits that he has received.
Technically, trusts cannot hold shares in the company as the trusts are not a separate legal entity and trust is a fiduciary relationship. But under the United Kingdom trust laws, trusts can hold shares in the company for the benefit of the beneficiaries.it is also been provided that the trustee cannot be a sole beneficiary of the shares in the company.[14]
Application
On applying the above law on the facts of the case, it is clear that the 50 shares out of the 950 shares in the Private Detectives Ltd are the subject of the trust and the property that is to be held. As per the United Kingdom trust law, shares cannot be held in trust as trust is not a separate legal entity and it is a fiduciary relation but if the shares are to be held for the benefit of beneficiaries, then shares can also be held in trust. Hence, Stella Gibson has created an express trust by appointing Paul as her trustee for holding 50 shares out of 950 shares that she has in the company Private Detectives Ltd for her niece until she attains the age of 21. Moreover, Stella has also created an express trust by stating that the remaining trust shall be equally distributed between her nephews when they shall attain the age of 18.
Further, Stella has also made clear that the income of the shares until that time shall be given to the residents of Brompton and shall be distributed as Paul the trustee deems fit. Hence, Stella has given the power of distributing the income of the shares to Paul and has given him the discretion of distributing the income as he deems fit. It has further been observed that the three certainties test has been fulfilled in this case also as the three certainties being certainty of intention, certainty of subject matter and certainty of object has been met in this case. Stella while creating the trust has been clear in her intention of giving her 50 out of 950 shares in the company Private Detectives Ltd. moreover, she has also stated the subject matter that is shares in this case. And lastly, she has made clear in respect of the beneficiaries that is her niece and nephews and the time of trust that is until the beneficiaries attain the age of majority.[15] Thus, the three essential under the certainty test has been met in this case.
Summary
Thus, it can be concluded that the trust created by Stella by appointing Paul as her trustee for holding the shares for her niece and nephews is valid until the trust has been created for the benefit of beneficiaries. The justification of this statement has been seen in the judgment given in the case of Wright v. Atkyns[16]where the court held that certainty of words is construed as certainty of intention while creating trust and it must be imperative. Hence, Stella ahs been certain in her intention of giving shares in trust for her niece and nephews and thus, the trust stands valid in this case.
Issue 3
The third issue identified in this case is that whether the trust created by Stella by appointing Danielle her friend as a trustee for the rest of her property is valid or not.
Definition
In this circumstance, it has been seen that Stella has created a trust by appointing her friend Danielle as her trustee for the rest of her property and has stated that the income of the property shall be utilised for the maintenance of her horse and hound until they shall live. But it is also noted that Stella has also stated that after that the property shall be utilised for some worthy cause which makes clear that she has impliedly created a charitable trust for animals and also by stating the word worthy cause.
Charitable trusts are the trusts that are created for some charitable purpose whether it be education, poverty, religion or any other purpose. But for a charitable trust to be valid, Danielle the trustee in this case shall be required to establish a charitable purpose and a public for the benefit.[17]Further, Danielle shall also be required to run the charitable trust for non-profit purposes and shall also refrain from supporting political agendas, legal changes or any political issues. A charitable trust that is created for animals falls under the fourth category of charitable trust where the benefit is for animals and to protect them from molestation, attacks and also regarding maintenance. Reference of the case Re Grove Grady[18]can be taken where it was held by the court that creating a trust for benefit of animals falls within the category of charitable trust where the aim is to protect the animals from attacks and molestation and also includes the creation of sanctuaries for them and provide them comfort. Hence, it is clear that the intention of Stella by appointing her friend Danielle as the trustee for the rest of her property is for charitable purpose where he shall maintain her horse and hound until they shall live and after that utilize the amount for some worthy cause as he deems fit.[19]
Explanation
For creating charitable trusts, two main requirements are to be fulfilled and that is the purpose of creating the trust is for charity and the benefit should be for the benefit of the public. The trust created for the welfare of animals also falls within the category of a charitable trust. Though there is no specific definition of the word charity under any statute the Charities Act 2006 under Section 1(1) states that-
"For law in England in Wales, the meaning of charity shall be an institution that is created for-
- The purpose of charity
- And falls within the control of the high court while exercising jurisdiction in respect of charities.[20]
Further, reference of the case IRC v. Pemsel[21]can be taken where it was held by the court that when a trust is created for the purpose of charity, it comprises of four distinct concepts that are poverty relief, advanced education, advancement of religion and other purpose for the benefit of the community. Thought this categorisation has been enacted in the Section 2(2) of the Charities Act 2006 but in practical application the scope of charitable trust is very wide.
Application
Hence, the creation of trust by Stella for the maintenance of her horse and hounds falls within the category of charitable trust as she has created the trust for the benefit of her animals and their maintenance. Further, she has also made clear that the income from her property shall be utilised for the maintenance of her animals until they are alive and after that the trustee Danielle her friend shall utilise the income of the property for some worthy cause. Thus, it is clear that she has further empowered Danielle to use the income for some charitable cause and hence, the trust is a charitable trust in this circumstance.
But it is important to note that Stella has also expressly stated that if Danielle fails to utilise the money for some worthy cause within 10 years, the money shall go to Horse Hotel Rescue Centre which is again a charitable organisation for the maintenance of animals. Hence, the charitable trust is for a limited time with Danielle as a trustee this is for 10 years and after that, the money shall vest with another organisation as Stella has expressly provided.[22]
Summary
Thus, it is clear that in this case, the trust is a charitable trust that has been created for the benefit of her animals and after that for some noble and worthy cause. Further, it has also been provided that if Danielle is unable to vest money for some charitable purpose the money shall vest with Horse Hotel Rescue Centre which is also a charitable organisation.
Thus, to conclude it can be stated that in all the three issues mentioned above, the creation of trust by Stella Gibson is valid as all the legal requirements of valid trusts under the United Kingdom trust law are met. In the first case, Stella has appointed Paul as her trustee for two of her property with her husband as the beneficiary. Moreover, the two properties are properly described by Stella with names and also who shall hold each property after her husband. In the second case also, the trustee is Paul who shall hold 50 out of 950 shares in the company Private Detectives Ltd for Stella’s niece and nephews until they attain the age of majority. Moreover, she has also been given the discretion of distributing the income from the shares as per the discretion of the trustee Paul. In the third case, the trustee is Stell's friend Danielle and the trust is a charitable trust which is created for the benefits of Stella's horse and hound until they are alive and after that for some worthy cause.
Conclusion
Thus, to conclude it can be stated that under the United Kingdom law of trust and equity, there are certain requirements to be fulfilled for a valid trust and hence, in the above case scenario all the requirements of a valid trust has been met by the settlor and the trustees.
References
Books
Aristi RS and Imbernón NM, ‘Property and Trust Law in Spain’ (2019) Kluwer Law International BV
Bove Jr AA, ‘International Trust Laws’ (2017)
Pistor K, ‘The code of capital’ (2019) Princeton University Press
Sparkes P, ‘Property and Trust Law in England and Wales’ (2019) Kluwer Law International BV
Williams RH and Wood B, ‘Urban land and property markets in the United Kingdom’ (2018) Routledge
Journals
Ahmed S, Bangassa K and Akbar S, ‘A study on trust restoration efforts in the UK retail banking industry’ (2020) 52 The British Accounting Review
Ali Z, Ibrahim N, Ghadas A, Ariff Z and Aishah Syed Nong SN, ‘Law of Trust and the Beneficial Interest in Matrimonial Property’ (2021) 29 Pertanika Journal of Social Sciences & Humanities
Elmagrhi M, Ntim C and Malagila J, ‘This is a repository copy of Trustee board diversity, governance mechanisms, capital structure and performance in UK charities’ (2018)
Oakes AR, ‘Judicial Resources and the Public Trust Doctrine: A Powerful Tool of Environmental Protection?’ (2018) 7 Transnational Environmental Law
Peredo AM, Haugh H and McLean M, ‘Common property: Uncommon forms of prosocial organizing’ (2018)
Wilde D, ‘Can arbiter resolve conceptual uncertainty regarding trust beneficiaries?’ (2020) 33 Trust Law International
Xingyu C, ‘Establishing an Independent System of Trust Registration’ (2020) 2 Academic Journal of Business & Management
[1] [1976] EWCA Civ 2
[2] Shakeel Ahmed, ‘A study on trust restoration efforts in the UK retail banking industry’ (2020) 52 The British Accounting Review
[3](1840) 49 ER 58
[4]Ali Z et. al., ‘Law of Trust and the Beneficial Interest in Matrimonial Property’ (2021) 29 Pertanika Journal of Social Sciences & Humanities
[5] Chen Xingyu, ‘Establishing an Independent System of Trust Registration’ (2020) 2 Academic Journal of Business & Management
[6] David Wilde, 'Can arbiter resolve conceptual uncertainty regarding trust beneficiaries?' (2020) 33 Trust Law International
[7]Peter Sparkes, ‘Property and Trust Law in England and Wales’ (2019) Kluwer Law International BV
[8][1841] EWHC Ch J82
[9] Anne Richardson Oakes, ‘Judicial Resources and the Public Trust Doctrine: A Powerful Tool of Environmental Protection?’ (2018) 7 Transnational Environmental Law
[10]Richard H Williams and Barry Wood, ‘Urban land and property markets in the United Kingdom’ (2018) Routledge
[11] Alexander A Bove Jr, ‘International Trust Laws’ (2017)
[12][1988] FCA 419
[13] Peter Sparkes, ‘Property and Trust Law in England and Wales’ (2019) Kluwer Law International BV
[14] Rafael Sanchez Aristi and Nieves MoralejoImbernón, ‘Property and Trust Law in Spain’ (2019) Kluwer Law International BV
[15]Anna Maria Peredo, ‘Common property: Uncommon forms of prosocial organizing’ (2018)
[16](1823) Turn & R 143, 157
[17] Anna Maria Peredo, ‘Common property: Uncommon forms of prosocial organizing’ (2018)
[18][1929] 1 Ch 557
[19] Katharina Pistor, ‘The code of capital’ (2019) Princeton University Press
[20] Richard H Williams and Barry Wood, ‘Urban land and property markets in the United Kingdom’ (2018) Routledge
[21][1891] AC 531
[22]Elmagrhi M, Ntim C and Malagila J, ‘This is a repository copy of Trustee board diversity, governance mechanisms, capital structure and performance in UK charities’ (2018)
