Creation of Express Trusts Assoc Prof Cameron Stewart

Creation of Express TrustsCreation of Express Trusts

Assoc Prof Cameron StewartAssoc Prof Cameron Stewart

Ways to create a trustWays to create a trust

1. by 1. by declarationdeclaration, where a titleholder expresses , where a titleholder expresses his or her intention to hold their property on trust his or her intention to hold their property on trust for another;for another;2.2. by by transfertransfer, where title is transferred to a , where title is transferred to a person with instructions that it be held on trust person with instructions that it be held on trust for another; the transfer can occur either via an for another; the transfer can occur either via an inter vivos inter vivos transaction (which is generally transaction (which is generally referred to as a ‘settlement’) or referred to as a ‘settlement’) or post mortempost mortem (by (by will); andwill); and3.3. by by directiondirection, where the beneficiary of an , where the beneficiary of an existing trust directs the trustee to hold his or her existing trust directs the trustee to hold his or her interest on trust for another.interest on trust for another.

The three certaintiesThe three certainties

IntentionIntention

Subject matter/PropertySubject matter/Property

Beneficiaries/ObjectsBeneficiaries/Objects

Without all three the trust will failWithout all three the trust will fail

Certainty of intentionCertainty of intention

An express trust will not be valid unless it is An express trust will not be valid unless it is clear that the creator has intended to create a clear that the creator has intended to create a trust.trust. NB: NB: resulting and constructive trusts do not have resulting and constructive trusts do not have to satisfy certainty of intention.to satisfy certainty of intention.

The requirement of certainty of intention does The requirement of certainty of intention does not mean that the creator has to be fully aware not mean that the creator has to be fully aware of the law of trusts before they can be found to of the law of trusts before they can be found to have intended to create a trusthave intended to create a trust


Because of the focus on the creator’s Because of the focus on the creator’s intention it is possible to create a trust without intention it is possible to create a trust without using the words ‘trust’ or ‘trustee’using the words ‘trust’ or ‘trustee’The intention to create a trust can also be The intention to create a trust can also be inferred from conductinferred from conduct Commissioner of Stamp Duties v JoliffeCommissioner of Stamp Duties v Joliffe (1920) 28 CLR 178(1920) 28 CLR 178 the trust was not valid the trust was not valid even though express words of trust were even though express words of trust were usedused Foley v Foley Foley v Foley [2006] QSC 347[2006] QSC 347La Housse v CounselLa Housse v Counsel [2008] WASCA 207 [2008] WASCA 207


Must be an intention to create a trust at that timeMust be an intention to create a trust at that timeIn In Harpur v LevyHarpur v Levy (2007) 16 VR 587, a deceased (2007) 16 VR 587, a deceased person had attempted to create a trust prior to death, person had attempted to create a trust prior to death, but the trust was not intended to commence until a but the trust was not intended to commence until a later time. Death unkindly intervened. The Victorian later time. Death unkindly intervened. The Victorian Court of Appeal found that the deceased’s intentions Court of Appeal found that the deceased’s intentions meant that the trust had never been constituted. meant that the trust had never been constituted. Re Armstrong (dec’d)Re Armstrong (dec’d) two investment accounts had two investment accounts had been deposited by the settlor in a bank for 2 years. been deposited by the settlor in a bank for 2 years. The bank manager was instructed to give the principal The bank manager was instructed to give the principal sums to the settlor’s sons when the investments sums to the settlor’s sons when the investments matured. Interest was to be paid to the creator. The matured. Interest was to be paid to the creator. The court found that there was an intention to create a trust court found that there was an intention to create a trust for the sons over the capital amounts, even though for the sons over the capital amounts, even though those beneficial rights were postponed until the those beneficial rights were postponed until the investments matured.investments matured.


The burden of proof in cases where the The burden of proof in cases where the intention of the creator is questioned, lies intention of the creator is questioned, lies on the person who alleges that a trust was on the person who alleges that a trust was intendedintended

Inter vivos: oral and written evidence Inter vivos: oral and written evidence allowedallowed


Parol evidence rule will Parol evidence rule will not not apply in situations where:apply in situations where:1.1. The disposition of the property that constitutes the trust The disposition of the property that constitutes the trust

is not required to be in writing (eg the disposition was of is not required to be in writing (eg the disposition was of personal property): personal property): Boccalatte v BushelleBoccalatte v Bushelle [1980] Qd R [1980] Qd R 180;180;

2.2. The document was not intended to be a complete The document was not intended to be a complete expression of the transferor’s intention: expression of the transferor’s intention: Star v StarStar v Star [1935] SASR 263; or[1935] SASR 263; or

3.3. The document is ambiguous, The document is ambiguous, Lutheran Church of Lutheran Church of Australia v Farmers Cooperative Executors & Trustees Australia v Farmers Cooperative Executors & Trustees Ltd Ltd (1970) 121 CLR 628; (1970) 121 CLR 628; Boranga v Flintoff Boranga v Flintoff (1997) 19 (1997) 19 WAR 1, or created in circumstances of fraud, duress or WAR 1, or created in circumstances of fraud, duress or mistake.mistake.


In cases of post mortem trusts, the law In cases of post mortem trusts, the law restricting extrinsic evi¬dence in the restricting extrinsic evi¬dence in the interpretation of a will also applies in addition to interpretation of a will also applies in addition to the parol evidence rulethe parol evidence rule

if the creator transfers property and expresses a if the creator transfers property and expresses a motive, hope or expectation that the property will motive, hope or expectation that the property will be used in a particular way, the condition will be be used in a particular way, the condition will be viewed as precatory and impose no obligation. A viewed as precatory and impose no obligation. A mere intention to create a trust which is not mere intention to create a trust which is not acted upon will not satisfy the requirement of acted upon will not satisfy the requirement of certain intention: certain intention: Chang v TjiongChang v Tjiong [2009] NSWSC [2009] NSWSC 122122

Quistclose Quistclose truststrusts

Trusts and debtTrusts and debt

Mutual intention of settlor and trustee?Mutual intention of settlor and trustee?

Barclays Bank Ltd v Quistclose Investments Barclays Bank Ltd v Quistclose Investments LtdLtd [1970] AC 567; [1968] 3 All ER 651[1970] AC 567; [1968] 3 All ER 651

The mutual intention of the parties can be The mutual intention of the parties can be discerned from the language employed by the discerned from the language employed by the parties, the nature of the transaction and the rele parties, the nature of the transaction and the rele vant circumstances attending the relationship vant circumstances attending the relationship between thembetween them

Quistclose Quistclose truststrusts

Sole intention of trusee?Sole intention of trusee?

Re Kayford LtdRe Kayford Ltd (in liq) (in liq) [1975] 1 All ER 604[1975] 1 All ER 604

Stephens Travel Service International Pty Stephens Travel Service International Pty Ltd (receivers and managers appointed) v Ltd (receivers and managers appointed) v Qantas Airways LtdQantas Airways Ltd (1988) 13 NSWLR (1988) 13 NSWLR 331331

Beneficiaries of life insurance Beneficiaries of life insurance policiespolicies

In the Matter of An Application By Police In the Matter of An Application By Police Association of South AustraliaAssociation of South Australia [2008] [2008] SASC 299SASC 299

Certainty of subject matterCertainty of subject matter

An express trust cannot exist without trust An express trust cannot exist without trust property. The trust property must therefore property. The trust property must therefore be reasonably identifiable or ascertainable be reasonably identifiable or ascertainable at the time the trust is created. This at the time the trust is created. This requirement of identifiability is known as requirement of identifiability is known as ‘certainty of subject matter’‘certainty of subject matter’


One of the equitable maxims that is used here is ‘that One of the equitable maxims that is used here is ‘that which is not certain is capable of being rendered which is not certain is capable of being rendered certain’. As long as it is possible to piece together the certain’. As long as it is possible to piece together the clues to determine the identity and quantum of the clues to determine the identity and quantum of the prop erty it will be sufficiently certainprop erty it will be sufficiently certain Re Golay’s Will Trusts Re Golay’s Will Trusts [1965] 2 All ER 660, a gift of [1965] 2 All ER 660, a gift of ‘reasonable income’ was upheld because the words ‘reasonable income’ was upheld because the words ‘reasonable income’ were, in the circumstances, ‘reasonable income’ were, in the circumstances, capable of objective determination. In capable of objective determination. In Estate of Chau Estate of Chau (dec’d)(dec’d) [2008] QSC 156, ‘a trust over any money that I [2008] QSC 156, ‘a trust over any money that I may have including any bank accounts’ was said to may have including any bank accounts’ was said to include a wealth management account which include a wealth management account which contained units in a unit trust with a bank.contained units in a unit trust with a bank.


Problems can occur when the trust property Problems can occur when the trust property is part of a number of identical items, for is part of a number of identical items, for example, ‘5% of 950 shares’. If the subject example, ‘5% of 950 shares’. If the subject matter has not been specifically identified the matter has not been specifically identified the trust is uncertain: trust is uncertain: Herdegen v Federal Herdegen v Federal Commissioner of Taxation Commissioner of Taxation (1988) 84 ALR (1988) 84 ALR 271271White v ShortallWhite v Shortall [2006] NSWSC 1379 [2006] NSWSC 1379

Future property cannot be held on trust: Future property cannot be held on trust: Re Re Rule’s SettlementRule’s Settlement [1915] VLR 670. [1915] VLR 670.

Certainty of objectsCertainty of objects

A trust will fail if the beneficiaries are not A trust will fail if the beneficiaries are not identified with sufficient certainty.identified with sufficient certainty. This is This is sometimes known as ‘the beneficiary principle’sometimes known as ‘the beneficiary principle’ There are two exceptions to this rule. The first There are two exceptions to this rule. The first exception is charitable trusts. The second exception is charitable trusts. The second exception is a particular anomalous group of exception is a particular anomalous group of trusts for animals trusts for animals The level of certainty required by the beneficiary The level of certainty required by the beneficiary principle changes subject to whether the trust is principle changes subject to whether the trust is a fixed trust or a discretionary trusta fixed trust or a discretionary trust

Fixed trusts and certaintyFixed trusts and certainty

In a fixed trust the beneficiaries must be identifiable In a fixed trust the beneficiaries must be identifiable in such a way as to allow the court to draw up a in such a way as to allow the court to draw up a complete list of the beneficiaries at the time their complete list of the beneficiaries at the time their ben eficial interests come into effectben eficial interests come into effect : : Re Re Gulbenkian's SettlementsGulbenkian's Settlements [1970] AC 508; [1970] AC 508; Lempens Lempens v Reid v Reid [2009] SASC 179; [2009] SASC 179; Prosper v WojtowiczProsper v Wojtowicz [2005] QSC 177[2005] QSC 177Problems can occur when the list of possible Problems can occur when the list of possible beneficiaries is extremely long and the job of beneficiaries is extremely long and the job of discerning the identity of the beneficiaries cannot be discerning the identity of the beneficiaries cannot be completed at the time the trust comes into effectcompleted at the time the trust comes into effect: : West v WestonWest v Weston (1998) 44 NSWLR 657 (1998) 44 NSWLR 657

Fixed trusts and certaintyFixed trusts and certainty

Once the identity of the beneficiaries has Once the identity of the beneficiaries has been ascertained the fact that it is difficult been ascertained the fact that it is difficult to find the whereabouts or continued to find the whereabouts or continued existence of the beneficiaries does not existence of the beneficiaries does not affect the certainty of the disposition. affect the certainty of the disposition. Trustees can always apply to the court for Trustees can always apply to the court for directions or pay the missing beneficiary’s directions or pay the missing beneficiary’s share into courtshare into court

Certainty of beneficiaries in Certainty of beneficiaries in discretionary trustsdiscretionary trusts

It should be recalled that discretionary trusts, or trust It should be recalled that discretionary trusts, or trust powers, are forms of trust whereby the trustee is given powers, are forms of trust whereby the trustee is given the discretion to choose the beneficiaries.In cases where the discretion to choose the beneficiaries.In cases where the trustee’s discretion is unfettered the power of the the trustee’s discretion is unfettered the power of the trustee is called a general power. Note, however, that in trustee is called a general power. Note, however, that in such circumstances the trustee will be unable to use the such circumstances the trustee will be unable to use the power for his or her benefit. If the trustee is permitted to power for his or her benefit. If the trustee is permitted to appoint themselves under a general power then there appoint themselves under a general power then there will be no trust as such a power is tantamount to will be no trust as such a power is tantamount to ownership. Where the trustee is allowed to choose from ownership. Where the trustee is allowed to choose from beneficiaries of a particular class, the power is referred beneficiaries of a particular class, the power is referred to as a special power. The trustee’s power might also be to as a special power. The trustee’s power might also be an intermediate or hybrid power where the trustee is an intermediate or hybrid power where the trustee is allowed to choose beneficiaries as long as they are not allowed to choose beneficiaries as long as they are not part of a particular classpart of a particular class


In Re Baden’s Deed Trusts; McPhail v In Re Baden’s Deed Trusts; McPhail v Doulton Doulton [1971] AC 424[1971] AC 424

‘‘criterion certainty’criterion certainty’


Unincorporated associationsUnincorporated associations

Radmanovich v Nedeljkovic Radmanovich v Nedeljkovic (2001) 52 NSWLR (2001) 52 NSWLR 641; 641; Leahy v Attorney General (NSW)Leahy v Attorney General (NSW) [1959] [1959] AC 457AC 457;; In The Estate of Dulcie Edna Rand In The Estate of Dulcie Edna Rand (dec'd) (dec'd) [2009] NSWSC 48[2009] NSWSC 48; ; Hanchett-Stamford Hanchett-Stamford v Attorney-Generalv Attorney-General [2008] EWHC 330 [2008] EWHC 330

The rule against delegation of testamentary The rule against delegation of testamentary popower: wer: Tatham v Huxtable Tatham v Huxtable (1950) 81 CLR 639(1950) 81 CLR 639

Complete constitution of an Complete constitution of an express trustexpress trust

‘‘Complete constitution’ generally refers to Complete constitution’ generally refers to the irrevocable transfer of the trust the irrevocable transfer of the trust property and the crea tion of the beneficial property and the crea tion of the beneficial interest. interest.

executedexecuted trust which has been completely trust which has been completely constituted constituted

executoryexecutory trust, which is merely an trust, which is merely an uncompleted agreement to create a trustuncompleted agreement to create a trust


An executory trust that is not supported by An executory trust that is not supported by consideration cannot be specifically performed, consideration cannot be specifically performed, nor can there be an order of part performance in nor can there be an order of part performance in relation to it. This is because equity will not relation to it. This is because equity will not assist a volunteer. However, this maxim does assist a volunteer. However, this maxim does not apply once the trust is executed. An not apply once the trust is executed. An executed trust is enforceable, even at the suit of executed trust is enforceable, even at the suit of a volunteer, because the trus tee has been fully a volunteer, because the trus tee has been fully burdened with fiduciary responsibilitiesburdened with fiduciary responsibilities


Declarations of trustDeclarations of trustLegal personal property - no writingLegal personal property - no writingEquitable personal property – writing - Equitable personal property – writing - Adamson v Hayes Adamson v Hayes (1973) 130 CLR 276(1973) 130 CLR 276Land – writingLand – writing

Wratten v Hunter Wratten v Hunter [1978] 2 NSWLR 367, a son was given [1978] 2 NSWLR 367, a son was given land by his dying father. At the funeral of the father the land by his dying father. At the funeral of the father the son declared that he was going to hold the land on trust son declared that he was going to hold the land on trust for the other members of the family. However, his for the other members of the family. However, his brother and sister later were unsuccessful in enforcing brother and sister later were unsuccessful in enforcing the trust as the trust was not evidenced in writing. Nor the trust as the trust was not evidenced in writing. Nor could they seek remedies in part performance as they could they seek remedies in part performance as they were volunteers. were volunteers.

‘‘Manifested and proved in Manifested and proved in writing’?writing’?

Pascoe v BenschPascoe v Bensch (2008) 250 ALR 24 (2008) 250 ALR 24Department of Social Security v James Department of Social Security v James (1990) 95 ALR 615(1990) 95 ALR 615Marchesi v Apostoulou Marchesi v Apostoulou [2006] FCA 1122[2006] FCA 1122


Creation by transferCreation by transfer

Trusts created by transfer will be executed Trusts created by transfer will be executed when the title of the trust property has when the title of the trust property has been completely and irrevocably been completely and irrevocably transferred to the trusteetransferred to the trustee

Inter vivos – perhaps writing or Inter vivos – perhaps writing or MilroyMilroy

Post mortem - willsPost mortem - wills


Creation by directionCreation by direction

A trust is created when the beneficiary of A trust is created when the beneficiary of an existing trust directs the trustee to hold an existing trust directs the trustee to hold his or her interest on trust for another. This his or her interest on trust for another. This is a dis position of an existing equitable is a dis position of an existing equitable interest and, as such, needs to be interest and, as such, needs to be evidenced in writingevidenced in writing

An agreement to create a An agreement to create a trust at a later timetrust at a later time

In Queensland the Court of Appeal has held that executory contracts for interests in In Queensland the Court of Appeal has held that executory contracts for interests in land are covered by the requirements for writing in the land are covered by the requirements for writing in the Property Law Act 1974 Property Law Act 1974 (Qld), s (Qld), s 11(1)(b): 11(1)(b): Riches v HogbenRiches v Hogben [1986] 1 Qd R 315; ; Theodore v MistfordTheodore v Mistford. .

ISPT Nominees Pty Ltd v Chief Commissioner of State RevenueISPT Nominees Pty Ltd v Chief Commissioner of State Revenue (2003) 12 BPR (2003) 12 BPR 22, 22, 941941

Halloran v Minister Administering National Parks and Wildlife Act 1974 Halloran v Minister Administering National Parks and Wildlife Act 1974 (2006) 229 (2006) 229 CLR 545; 224 ALR 79CLR 545; 224 ALR 79

Sorna Pty Ltd v Flint Sorna Pty Ltd v Flint [2000] WASCA 22 at [7][2000] WASCA 22 at [7]

Abjornson v Urban Newspapers Ltd Abjornson v Urban Newspapers Ltd [1989] WAR 191 at 200. [1989] WAR 191 at 200.

Thompson v WhiteThompson v White a joint venture agreement involved the purchase of property in the a joint venture agreement involved the purchase of property in the name of one of the parties with a view to renovating it and selling it. The profits were name of one of the parties with a view to renovating it and selling it. The profits were to be split between the parties. The agreement did not purport to immediately create to be split between the parties. The agreement did not purport to immediately create any legal or equitable interest in the property in favour of the other parties to the joint any legal or equitable interest in the property in favour of the other parties to the joint venture. On that basis, the New South Wales Court of Appeal found that there was no venture. On that basis, the New South Wales Court of Appeal found that there was no requirement of the agreement to be in writing. requirement of the agreement to be in writing.

Baloglow v Konstanidis Baloglow v Konstanidis [2001] NSWCA 451 [2001] NSWCA 451

Khoury v KhouriKhoury v Khouri (2006) 66 NSWLR 241 (2006) 66 NSWLR 241

Secret trustsSecret trusts

Form of testamentary trustForm of testamentary trustfully secret trustsfully secret trusts where there is no record where there is no record of the testator’s intention to create a trust of the testator’s intention to create a trust in the willin the willhalf secret trustshalf secret trusts, where the testator , where the testator indicates his or her intention that the gift is indicates his or her intention that the gift is not to be held benefi cially, but is held not to be held benefi cially, but is held subject to some private instruction that has subject to some private instruction that has been communicated by the testatorbeen communicated by the testator


1.1. the testator must intend to subject the the testator must intend to subject the donee to an obligation of trust;donee to an obligation of trust;

2.2. the testator must communicate the the testator must communicate the intention to the donee; andintention to the donee; and

3.3. the donee must accept the obligation the donee must accept the obligation before the testator’s death.before the testator’s death.


The nature of the secret trust has been The nature of the secret trust has been subject to long debate. On the one hand, a subject to long debate. On the one hand, a secret trust can be understood as part of secret trust can be understood as part of the will, on the other, the trust can be seen the will, on the other, the trust can be seen as an independent trust that exists as an independent trust that exists separately from the will. It is now accepted separately from the will. It is now accepted that the secret trust is the latterthat the secret trust is the latter What is the trust property of a secret trust?What is the trust property of a secret trust?Contsructive? Contsructive?

ProblemProblem

Eric was a wealthy fashion Eric was a wealthy fashion designer, and was happily designer, and was happily married to Stephanie. During married to Stephanie. During the Vietnam War, while the Vietnam War, while stationed at Darwin, Eric had stationed at Darwin, Eric had an affair with Brooke. As a an affair with Brooke. As a result of that affair Eric and result of that affair Eric and Brooke had a son named Eric Brooke had a son named Eric Jnr. Eric’s past was unknown Jnr. Eric’s past was unknown to Stephanie. Eric was to Stephanie. Eric was concerned that Brooke and concerned that Brooke and Eric Jnr were satisfacto rily Eric Jnr were satisfacto rily provided for in his will. Eric provided for in his will. Eric thus made a will, in 1980, and thus made a will, in 1980, and clause 7 of the will read as clause 7 of the will read as follows:follows:

ProblemProblem

I leave $500,000 to my son Ridge feeling I leave $500,000 to my son Ridge feeling confident that my express wishes in confident that my express wishes in relation to this money will be carried out.relation to this money will be carried out.

By clause 15 of Eric’s will, Stephanie was By clause 15 of Eric’s will, Stephanie was named as beneficiary of the residue of his named as beneficiary of the residue of his estate.estate.

ProblemProblem

On 1 April 1997 Eric showed his will to his son On 1 April 1997 Eric showed his will to his son Ridge and handed him a sealed envelope. He Ridge and handed him a sealed envelope. He said to Ridge: ‘I want you to carry out the said to Ridge: ‘I want you to carry out the instructions contained in this letter after I die. instructions contained in this letter after I die. You are not to tell your mother about it.’ Ridge You are not to tell your mother about it.’ Ridge said nothing in response but nodded to indicate said nothing in response but nodded to indicate that he agreed to abide by his father’s wishes.that he agreed to abide by his father’s wishes.On 1 May 1997, Brooke died in an automobile On 1 May 1997, Brooke died in an automobile accident. Upon hearing of the news of Brooke’s accident. Upon hearing of the news of Brooke’s death Eric suffered a heart attack and eventually death Eric suffered a heart attack and eventually died on 1 June 1997.died on 1 June 1997.

ProblemProblem

After his father’s death Ridge opened the After his father’s death Ridge opened the envelope he had been given in April 1990. In the envelope he had been given in April 1990. In the letter Eric stated that the $500,000 referred to in letter Eric stated that the $500,000 referred to in clause 7 of his will was to be held on trust for clause 7 of his will was to be held on trust for Brooke. In trying to locate Brooke, Ridge Brooke. In trying to locate Brooke, Ridge discovered that she had died and had left a will discovered that she had died and had left a will appointing her son Eric Jnr as executor and appointing her son Eric Jnr as executor and beneficiary of her entire estate.beneficiary of her entire estate.Ridge seeks your advice as to what is to happen Ridge seeks your advice as to what is to happen to the $500,000 referred to in clause 7 of Eric’s to the $500,000 referred to in clause 7 of Eric’s will.will.

Documents

Creation of Express Trusts Assoc Prof Cameron Stewart