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Equity and Trusts

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Equity and Trusts

Topic 3: Formalities

1. Introduction

In general, equity permitted great freedom in the creation of trusts and in the dispositions of interests arising under trusts. However, statute has long required the observance of certain formalities in many cases. The formalities required depend on whether the trust is testamentary or inter-vivos.

2. Testamentary Trusts

All trusts intended to take effect on the death of the testator must comply with this section which requires the will to be in writing, signed and witnessed. (Note, however, the so-called ‘secret trust’ which does not comply with this section. This will be discussed in the next topic).

3. Inter-vivos Trusts

A. Declaration or creation of a trust

An inter-vivos declaration of trust of personalty need not comply with any formality. It is, therefore, possible to create a trust of personalty without any writing.

A declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by the person who is able to declare such trust or by his will’

Note: This section does not require the actual trust to be declared in writing. It is sufficient if it can be proved by some writing signed by the proper party. The rule is one of evidence.

What is the effect of non-compliance with s53?

Is the trust void or unenforceable?

The equitable maxim: ‘Equity will not allow a statute to be used as an instrument for fraud’ operates here.

What is the position in so far as the fraudulent trustee is concerned?

a)Express trust.

b)Constructive trust.

B. Disposition of an equitable interest

A disposition of an equitable interest or trust subsisting at the time of the disposition must be in writing, signed by the person disposing of the same, or by his agent, thereunto lawfully authorised in writing or by will’.

This section is wider that s53(1(b) in that the actual disposition must be in writing and not merely evidenced in writing.

When does this section apply?

In the diagram below a settlor has declared a trust in favour of B and the trustees is T. Let us suppose that the subject matter of the trust is 2000 shares in a certain company. It is clear that B has an equitable interest in the 2000 shares. Let us suppose that B wants to give her equitable interest in the shares to C. To do so would amount to a disposition of her equitable interest thereby requiring the observance of S53(1)(c).

The s53(1)(c) case law:

‘The subsection...is certainly not easy to apply to the various transactions in equitable interests which now occur’. Lord Wilberforce in Vandervell v. IRC

[1967] 2 A.C. 291 at 329. The reason for this is the interplay of tax considerations with the movement of proprietary rights.

We have seen the basic situation in which s53(1)(c) applies. In practice, the types of situation giving rise to the application of the section can be very complex. The modern litigation has provided the following rules:

A. Direction to trustees to hold on trust for another:

The section clearly applies in this case.

B. Conveyance of the legal estate by trustee at request of beneficiary.

The section has no application here since the trust is effectively ‘destroyed’ by the vesting of the legal and equitable title in the transferee.

C. Declaration of trust with the consent of the beneficial owner.

Vandervell’s problems did not stop in 1967. It will be recalled that the option was still held for him under a resulting trust. In the next case the question arose as to the effect of exercising the option in favour of his children. Was Vandervell disposing of his interest under the option or was he declaring new trusts for his children? This question was more difficult and the reasoning of the Court of

Appeal has left many problems:

E. Declaration by equitable owner of himself as trustee.

This is a much more difficult situation. In effect it amounts to creating a sub- trust. The potential problem is whether the equitable owner should simply fall out of the picture. (E.g. arguing that he has disposed of his interest in favour of the new beneficiary s53(1)(c) applying in this case). On the other hand, whether he holds on sub-trust for the sub-trust beneficiary (arguing that he has only declared a new trust out of his own equitable interest: s53(1)(c) not applying in this case. Thus:

The answer seems to depend on the duties which the original beneficiary takes on once he has declared a trust in favour of thesub trustbeneficiary.

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