Define: Constitution Of Trusts

Constitution Of Trusts
Constitution Of Trusts
Quick Summary of Constitution Of Trusts

The constitution of trusts refers to the creation and establishment of a trust arrangement, where one party (the settlor) transfers legal ownership of assets to another party (the trustee) to hold and manage for the benefit of one or more beneficiaries. This process typically involves the settlor executing a trust deed or agreement outlining the terms and conditions of the trust, including the identity of the trustee, beneficiaries, and the purpose or objectives of the trust. The constitution of trusts also involves the transfer of the trust property to the trustee and the acceptance of the trusteeship by the appointed trustee. Additionally, the trust instrument may specify the powers and duties of the trustee, the rights and interests of the beneficiaries, and the rules governing the administration and distribution of trust assets. The constitution of trusts lays the foundation for the legal structure and operation of the trust, defining the rights, duties, and relationships of the parties involved in the trust arrangement.

What is the dictionary definition of Constitution Of Trusts?
Dictionary Definition of Constitution Of Trusts

Constitution refers to the transfer of legal title. When property is disposed of upon death, a valid will constitutes the trust and legal title vests in the trustees. When making a lifetime disposition, Turner LJ in Milroy v Lord set out three ways of transferring property:

  • Outright transfer of gift
  • declaration of trust with a separate trustee to hold property for a beneficiary
  • Self-declaration of trust to hold property for a beneficiary

It is important that the correct method be used for transferring legal title. For an outright gift of a chattel, this is simply intention and delivery, such as when I give you a birthday present and say, ‘Hey, this is for you. A trust of land, however, must be evidenced in a signed writing in accordance with section 53(1)(b) of the LPA 1925. A disposition of an existing equitable interest must be made in writing, signed by the person disposing of the same (section 53(1)(c) of the LPA 1925).

Where the correct method of transferring legal title has not been used, equity will not perfect an imperfect gift, assist a volunteer, or treat a failed gift or transfer as a self-declaration of trust (Milroy v. Lord). However, there are some exceptions to this:

  • Where the settlor has done everything in his power
  • Valid death-bed gift
  • Proprietary estoppel
  • The rule in Strong v Bird
  • Where there is an effective self-declaration of trust as one of several intended trustees
Full Definition Of Constitution Of Trusts

Trusts are a cornerstone of English property law, serving as versatile instruments for managing and protecting assets. The constitution of trusts is a critical aspect that determines whether a trust is validly created. This legal overview aims to explore the principles governing the constitution of trusts, addressing the formalities, types of trusts, and key judicial interpretations in British law.

Definition and Elements of Trusts

A trust is a legal arrangement where one party (the settlor) transfers property to another party (the trustee) to hold for the benefit of a third party (the beneficiary). The essential elements of a trust include:

  1. Intention: The settlor must have a clear intention to create a trust.
  2. Subject Matter: There must be specific property subject to the trust.
  3. Objects: The beneficiaries of the trust must be identifiable.
  4. Formalities: Certain formal requirements must be met for the trust to be valid.

Types of Trusts

Trusts can be broadly categorised into express trusts, resulting trusts, and constructive trusts.

  1. Express Trusts: These are created intentionally by the settlor, usually through a written document such as a will or a trust deed.
  2. Resulting Trusts: These arise by operation of law where the intention to create a trust is implied, typically when a trust fails or when property is transferred without adequate consideration.
  3. Constructive Trusts: These are imposed by law to rectify wrongdoing or prevent unjust enrichment, often in cases of fraud or breach of fiduciary duty.

The Formalities for the Constitution of Trusts

The formalities required for the constitution of a trust depend on the type of property involved and the nature of the trust.

Inter Vivos Trusts

For inter vivos trusts (trusts created during the settlor’s lifetime), the primary formalities are as follows:

  • Declaration of Trust: The settlor must clearly declare the trust, either orally or in writing, although certain types of property require written evidence.
  • Transfer of Property: The settlor must transfer the legal title of the property to the trustee. This transfer must comply with the legal requirements for the specific type of property.

For example, the transfer of land requires compliance with the Law of Property Act 1925, which mandates that transfers be made by deed. Personal property, such as shares, requires registration of the transfer with the relevant company.

Testamentary Trusts

Trusts created by a will (testamentary trusts) must comply with the Wills Act 1837. This requires:

  • Written Will: The will must be in writing.
  • Signature: The will must be signed by the testator (the person making the will).
  • Witnesses: The will must be witnessed by at least two witnesses who are present at the same time.

Constitution of Trusts: Key Principles

The constitution of a trust involves ensuring that the trust is properly established and that the trust property is vested in the trustees. The maxim “equity will not assist a volunteer” plays a significant role here, meaning that equity (the body of law that addresses fairness) will not enforce incomplete gifts.

Milroy v Lord (1862)

A pivotal case in this context is Milroy v Lord. The court held that for a trust to be properly constituted, the settlor must do everything necessary to transfer the property to the trustee. If the settlor fails to complete the transfer, the trust is not valid, and equity will not perfect an imperfect gift.

The case established three ways in which a settlor can effectively constitute a trust:

  • Transfer of Legal Title: The settlor transfers the legal title to the trustee.
  • Declaration of Trust: The settlor declares himself as trustee.
  • Assignment: The settlor assigns the property to the trustee.

Re Rose (1952)

In Re Rose, the court introduced a more lenient approach, establishing the “every effort” rule. The court held that if the settlor has done everything within their power to transfer the property, the trust is constituted, even if some formalities remain incomplete. This principle ensures that technicalities do not defeat the settlor’s intention.

Choithram v Pagarani (2001)

The Choithram v Pagarani case further softened the strict approach of Milroy v Lord. Here, the Privy Council held that if a settlor declares themselves as one of the trustees and does not complete the transfer of property, the trust can still be valid. This decision acknowledges that the settlor’s intention to create a trust should be given effect, provided there is sufficient evidence of this intention.

Exceptions to the Rule: Donatio Mortis Causa

An exception to the requirement for strict formalities in the constitution of trusts is the doctrine of donatio mortis causa (DMC). This allows for the transfer of property in contemplation of imminent death. For a DMC to be valid, the following conditions must be met:

  • Contemplation of Death: The donor must be contemplating their impending death.
  • Conditional Gift: The gift is conditional upon the donor’s death.
  • Delivery: There must be some form of delivery or transfer of the property to the donee.

Rectification and Proprietary Estoppel

In some cases, equity may intervene to rectify an imperfect trust or to enforce promises through the doctrine of proprietary estoppel.

Rectification

Rectification allows the court to amend a trust document to reflect the settlor’s true intention if there has been a mistake in its drafting. This ensures that the trust operates as intended by the settlor.

Proprietary Estoppel

Proprietary estoppel can arise where a person has been led to believe they will receive an interest in property and acts to their detriment based on that belief. In such cases, the court may enforce the promise or provide compensation.

Conclusion

The constitution of trusts in British law involves ensuring that a trust is validly created and that the trust property is properly vested in the trustees. While the traditional approach, as established in Milroy v Lord, requires strict compliance with formalities, subsequent cases such as Re Rose and Choithram v Pagarani demonstrate a more flexible approach that prioritizes the settlor’s intention.

Understanding these principles is crucial for legal practitioners and individuals involved in trust creation. Ensuring that the formalities are correctly followed can prevent disputes and ensure that the settlor’s wishes are honored. The doctrines of rectification and proprietary estoppel provide additional safeguards to uphold fairness and justice in the administration of trusts.

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Disclaimer

This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

This glossary post was last updated: 6th June 2024.

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