Constitution
An express trust is completely constituted either by an effective transfer of the trust property to
trustees or by an effective declaration of trust
Implications brought out by Turner LJ in Milroy v Lord
“Settlor must have done everything which according to the nature of the property comprised in the
settlement was necessary to be done in order to render the settlement binding upon him. He may do
this by
● Actually transferring the property to the persons for whom he intends to provide
● If he transfers it to a trustee for the purposes of a settlement
● Declares that he holds it on trust
If the property is personal the trust may be declared in writing or on parol, but there is no equity to
perfect an imperfect gift”
Difference between a completely and an incompletely constituted trust = only when constituted is
it binding on settlor
Trusts completely constituted are divided into executed and executory trusts
Executed trust arises when settlor has defined in the trust instrument precisely what interests are to
be taken by the beneficiaries,
Executory trust arises when instrument or declaration requires subsequent execution of further
instrument
When trust not properly constituted, beneficiaries have no equitable proprietary interest whatever;
position often illustrated by reference to equitable maxims
In such circumstances, the trust can be enforced under contract, but in the absence of this they are
“volunteers”
Three questions:
1. When is trust properly constituted?
2. What is difference between executed and executory trusts?
3. When will beneficiaries have contractual remedy?
1. When is a trust properly constituted?
a) by transfer of trust property to trustees
- if the subject matter is a legal estate or interest, transfer of trust property must be effective to
vest that estate in the trustees
- Settlor must comply with all of the formalities requires for a complete transfer of property in
order to give trustees full legal title thereto
,I.e:
- Gift of land = deed
- Registered land = registration of transfer on land register
- Copyright = writing signed by or on behalf of assignor
- Shares = correct form of transfer plus registration of transfer in Share Register of company in
question
Etc
In Milroy, intending settlor had covenanted to transfer bank shares to D on trust for C
D already had general power of attorney to transfer the shares in his own name, but did not do so
before Settlor’s death
This revoked power of attorney – shares therefore remained settlor’s property, and as such were part
of the residuary estate and could not be claimed by C
This decision and Re Fry, establish that so long as something remains to be done by a settlor in
order to render a voluntary transfer effective, that transfer will remain abortive
But some more recent decisions seem to have created limited exceptions to this rule; Oakley says
that they are “extremely questionable”
In re Vandervell’s trusts (No2) Denning held in the alternative ground to the view that the shares in
the company were held on trust for the children’s settlement that:
V had made a perfect gift to the trust company of the dividends of the shares “so far as they were
handed over or treated by him as belonging to the trust company for the benefit of the children”
Purported to follow Milroy, but in the latter case, the settlor has given the intended trustee the power
of attorney to collect the dividends and so must inevitably have intended them to be held for the
beneficiary, whereas V had not even been aware that he still retained an equitable interest in the
option relating to the shares at the time when he had made the supposedly perfect gift
O therefore says the two decisions are readily distinguishable
- Equitable interests
A perfect assignment of the transferor’s interest must be made, universally required to be in writing
by virtue of s53(1)(c) of LPA 1925
This assignment will be followed by a direction to the trustees to hold for the future its subject
matter on trust for the assignee
This at least must be done: Re McArdle
b) By declaration of trust
The above method is by far the most common
However, alternatively, the settlor can unilaterally make a declaration of trust
,Any words which clearly express the intention to create a present and irrevocable trust will give rise
to the creation of a completely constituted trust
But necessary intention must still be shown:
Jones v Lock (father put cheque into hands of infant son and said “I give this to baby; it is for
himself”
● Cranworth LC held that this was neither transfer by way of gift nor trust – the theatrical
exercise of the father could not be taken as a valid transfer of the moneys represented by
cheque
● He should have paid the cheque into a bank account in the name of the son, or in the name of
trustees on behalf of the son
● No inference that he had made himself a trustee could be deduced from his words or actions
Construction of the words is used, taking into account surrounding circumstances (i.e. Paul v
Constance): “the money is as much yours as it is mine” was held to be enforceable – although
acknowledged to be a borderline case (emphasis on the use made of the account during deceased’s
lifetime)
But the requirements seem to have been relaxed materially by Vandervell’s Trusts (no2):
CA managed to find an effective declaration of trust of the shares in question by the trust company
in favour of a settlement for the benefit of V’s children from the following facts
● Trust had used £5,000 from children’s settlement for the purpose of exercising an option to
re-purchase the shares
● Thereafter all the dividends received by the trust company had been paid into the bank accounts
of the children’s settlement, and subsequently treated as part of the settlement
● Solicitors for the trustee company had written to the IRC stating that the shares would be held
on the trusts of the settlement
None of these facts, least of all the third seems to be a present, irrevocable declaration of trust
It is hard to see how a limited company could have declared a trust by parol or conduct, or indeed
without a resolution of its board of directors
It should be recalled that, if the subject matter of a declaration of trust is land, then the requirements
of s53(1) will need to be complied with
This certainly requires evidentiary writing in accordance with (b), in default of which the trust will
be unenforceable, or under (a), void
c) By an ineffective transfer taking effect in equity
- the general rule
Where it is clear that the settlor intended to create a trust by transfer but has used an ineffectual
method of transfer, the general rule is that this ineffectual transfer will not be interpreted as taking
effect in equity as an effectual declaration of trust
This principle was applied in Richards v Delbridge
, ● Deceased, owner of several leasehold premises, indorsed and signed on the lease the following
memorandum: “this deed and all thereto I give to [the intended transferee] from this time forth,
with stock-in-trade”
● CA held that there was no perfected transfer, since the indorsement had not been made with the
formalities necessary for a deed and so was ineffective to transfer a leasehold interest
This does not mean that a settlor who intends to create a trust by transfer cannot expressly declare
himself to be trustee of the subject matter pending that transfer.
If he does so, he will himself be the trustee of a completely constituted trust of the subject matter
unless and until he transfers that property to the intended trustees
Thus, in Re Ralli’s WT, a settlor entered into a covenant to transfer any existing or after-acquired
property to the trustees of her marriage settlement
The deed of settlement stated that it was “the intention” of the parties that all such property “shall
become subject in equity to the settlement”
Settlor failed to transfer to the trustees certain property caught by the covenant which, although
existing during the settlor’s lifetime, did not vest in possession in her until after her death
Buckley J held that, although no completely constituted trust of the property had arisen by transfer,
the settlor had declared herself to be a trustee of any such property pending transfer
Consequently this completely constituted trust arising by declaration of trust could be enforced by
the beneficiaries of the marriage settlement against settlor’s personal rep
- Where a settlor who is one of a number of trustees declares a trust
In T Choitrhram International v Pagarani, settlor knew he was dying of cancer and wished to
create a philanthropic foundation before his death
One month before his death, he arranged a ceremony where he executed the requisite deed of trust
of which he and nine other persons (three present) were to be trustees
Purported orally to make an immediate gift to the foundation of his shareholdings
The settlor did not vest those assets in the other trustees prior to his death, and it was therefore
contended that the trust was incompletely constituted
PC held that the settlor had satisfied the criteria for the creation of a trust by declaration
However, on the face of things, the settlor was purporting to create a trust of which he was one of a
number of trustees by transfer
Board held that there was in principle no distinction between a settlor declaring himself to be sole
trustee and one of a number of trustees
In both cases it would be unconscionable for him to subsequently resile from his declaration of trust
However, this has been extended in a “wholly objectionable manner” - O
- Where a Settlor has done all in his power to transfer the property
An express trust is completely constituted either by an effective transfer of the trust property to
trustees or by an effective declaration of trust
Implications brought out by Turner LJ in Milroy v Lord
“Settlor must have done everything which according to the nature of the property comprised in the
settlement was necessary to be done in order to render the settlement binding upon him. He may do
this by
● Actually transferring the property to the persons for whom he intends to provide
● If he transfers it to a trustee for the purposes of a settlement
● Declares that he holds it on trust
If the property is personal the trust may be declared in writing or on parol, but there is no equity to
perfect an imperfect gift”
Difference between a completely and an incompletely constituted trust = only when constituted is
it binding on settlor
Trusts completely constituted are divided into executed and executory trusts
Executed trust arises when settlor has defined in the trust instrument precisely what interests are to
be taken by the beneficiaries,
Executory trust arises when instrument or declaration requires subsequent execution of further
instrument
When trust not properly constituted, beneficiaries have no equitable proprietary interest whatever;
position often illustrated by reference to equitable maxims
In such circumstances, the trust can be enforced under contract, but in the absence of this they are
“volunteers”
Three questions:
1. When is trust properly constituted?
2. What is difference between executed and executory trusts?
3. When will beneficiaries have contractual remedy?
1. When is a trust properly constituted?
a) by transfer of trust property to trustees
- if the subject matter is a legal estate or interest, transfer of trust property must be effective to
vest that estate in the trustees
- Settlor must comply with all of the formalities requires for a complete transfer of property in
order to give trustees full legal title thereto
,I.e:
- Gift of land = deed
- Registered land = registration of transfer on land register
- Copyright = writing signed by or on behalf of assignor
- Shares = correct form of transfer plus registration of transfer in Share Register of company in
question
Etc
In Milroy, intending settlor had covenanted to transfer bank shares to D on trust for C
D already had general power of attorney to transfer the shares in his own name, but did not do so
before Settlor’s death
This revoked power of attorney – shares therefore remained settlor’s property, and as such were part
of the residuary estate and could not be claimed by C
This decision and Re Fry, establish that so long as something remains to be done by a settlor in
order to render a voluntary transfer effective, that transfer will remain abortive
But some more recent decisions seem to have created limited exceptions to this rule; Oakley says
that they are “extremely questionable”
In re Vandervell’s trusts (No2) Denning held in the alternative ground to the view that the shares in
the company were held on trust for the children’s settlement that:
V had made a perfect gift to the trust company of the dividends of the shares “so far as they were
handed over or treated by him as belonging to the trust company for the benefit of the children”
Purported to follow Milroy, but in the latter case, the settlor has given the intended trustee the power
of attorney to collect the dividends and so must inevitably have intended them to be held for the
beneficiary, whereas V had not even been aware that he still retained an equitable interest in the
option relating to the shares at the time when he had made the supposedly perfect gift
O therefore says the two decisions are readily distinguishable
- Equitable interests
A perfect assignment of the transferor’s interest must be made, universally required to be in writing
by virtue of s53(1)(c) of LPA 1925
This assignment will be followed by a direction to the trustees to hold for the future its subject
matter on trust for the assignee
This at least must be done: Re McArdle
b) By declaration of trust
The above method is by far the most common
However, alternatively, the settlor can unilaterally make a declaration of trust
,Any words which clearly express the intention to create a present and irrevocable trust will give rise
to the creation of a completely constituted trust
But necessary intention must still be shown:
Jones v Lock (father put cheque into hands of infant son and said “I give this to baby; it is for
himself”
● Cranworth LC held that this was neither transfer by way of gift nor trust – the theatrical
exercise of the father could not be taken as a valid transfer of the moneys represented by
cheque
● He should have paid the cheque into a bank account in the name of the son, or in the name of
trustees on behalf of the son
● No inference that he had made himself a trustee could be deduced from his words or actions
Construction of the words is used, taking into account surrounding circumstances (i.e. Paul v
Constance): “the money is as much yours as it is mine” was held to be enforceable – although
acknowledged to be a borderline case (emphasis on the use made of the account during deceased’s
lifetime)
But the requirements seem to have been relaxed materially by Vandervell’s Trusts (no2):
CA managed to find an effective declaration of trust of the shares in question by the trust company
in favour of a settlement for the benefit of V’s children from the following facts
● Trust had used £5,000 from children’s settlement for the purpose of exercising an option to
re-purchase the shares
● Thereafter all the dividends received by the trust company had been paid into the bank accounts
of the children’s settlement, and subsequently treated as part of the settlement
● Solicitors for the trustee company had written to the IRC stating that the shares would be held
on the trusts of the settlement
None of these facts, least of all the third seems to be a present, irrevocable declaration of trust
It is hard to see how a limited company could have declared a trust by parol or conduct, or indeed
without a resolution of its board of directors
It should be recalled that, if the subject matter of a declaration of trust is land, then the requirements
of s53(1) will need to be complied with
This certainly requires evidentiary writing in accordance with (b), in default of which the trust will
be unenforceable, or under (a), void
c) By an ineffective transfer taking effect in equity
- the general rule
Where it is clear that the settlor intended to create a trust by transfer but has used an ineffectual
method of transfer, the general rule is that this ineffectual transfer will not be interpreted as taking
effect in equity as an effectual declaration of trust
This principle was applied in Richards v Delbridge
, ● Deceased, owner of several leasehold premises, indorsed and signed on the lease the following
memorandum: “this deed and all thereto I give to [the intended transferee] from this time forth,
with stock-in-trade”
● CA held that there was no perfected transfer, since the indorsement had not been made with the
formalities necessary for a deed and so was ineffective to transfer a leasehold interest
This does not mean that a settlor who intends to create a trust by transfer cannot expressly declare
himself to be trustee of the subject matter pending that transfer.
If he does so, he will himself be the trustee of a completely constituted trust of the subject matter
unless and until he transfers that property to the intended trustees
Thus, in Re Ralli’s WT, a settlor entered into a covenant to transfer any existing or after-acquired
property to the trustees of her marriage settlement
The deed of settlement stated that it was “the intention” of the parties that all such property “shall
become subject in equity to the settlement”
Settlor failed to transfer to the trustees certain property caught by the covenant which, although
existing during the settlor’s lifetime, did not vest in possession in her until after her death
Buckley J held that, although no completely constituted trust of the property had arisen by transfer,
the settlor had declared herself to be a trustee of any such property pending transfer
Consequently this completely constituted trust arising by declaration of trust could be enforced by
the beneficiaries of the marriage settlement against settlor’s personal rep
- Where a settlor who is one of a number of trustees declares a trust
In T Choitrhram International v Pagarani, settlor knew he was dying of cancer and wished to
create a philanthropic foundation before his death
One month before his death, he arranged a ceremony where he executed the requisite deed of trust
of which he and nine other persons (three present) were to be trustees
Purported orally to make an immediate gift to the foundation of his shareholdings
The settlor did not vest those assets in the other trustees prior to his death, and it was therefore
contended that the trust was incompletely constituted
PC held that the settlor had satisfied the criteria for the creation of a trust by declaration
However, on the face of things, the settlor was purporting to create a trust of which he was one of a
number of trustees by transfer
Board held that there was in principle no distinction between a settlor declaring himself to be sole
trustee and one of a number of trustees
In both cases it would be unconscionable for him to subsequently resile from his declaration of trust
However, this has been extended in a “wholly objectionable manner” - O
- Where a Settlor has done all in his power to transfer the property
