Note: Substitute ‘Settlor/Testator’, ‘Beneficiary’, ‘Trustee’ etc. for the names given in the fact pattern
DISCRETIONARY TRUSTS
PART I: DECLARATION OF TRUST
For the intended trust to be valid, it must have been created by a valid declaration of trust:
Settlor/Testator must have possessed the requisite mental capacity and the 'three certainties' of
intention, subject-matter and objects (Knight v Knight) must be satisfied. Additionally, the trusts must
comply with the beneficiary principle and adhere to the rules against perpetuities. Under s.1 Mental
Capacity Act 2005, a person is 'assumed to have mental capacity unless it is established that they lack
capacity'. As Settlor/Testator’s capacity is not in dispute here, the following analysis will therefore
address whether the remaining certainties and formalities have been met to constitute a valid trust.
Here Settlor/Testator was seeking to create a discretionary trust over [property] in favour of
Beneficiary.
Certainty of Intention
EITHER: There is an express intention to create a trust (state wording/conduct).
OR: There is insufficient certainty of intention to create a discretionary trust: "[phrase]" is a precatory
phrase (Re Adams v Kensington Vestry) and does not impose an obligation on Trustee to distribute the
fund – it will simply be transferred as a gift.
Certainty of Subject-matter – Trust Property
*Consider which of the below are relevant and apply to the facts*
Scenario Legal Principle
Shares According to Hunter v Moss, where shares are of the same class and in
the same company, there will be no need to specify exactly which
shares are to be held on trust.
Specific Asset A specific asset must be clearly segregated from the general collection
for the subject-matter to be certain (Re London Wine Company
(Shippers) Ltd).
Money Money must be placed in a separate account for the subject-matter to be
certain (Re Lewis’ of Leicester Ltd; Mac-Jordan Construction Ltd v
Brookmount Erostin Ltd)
Certainty of Subject-matter – Beneficial Interest
As this is a discretionary trust, the general rule that it is necessary to specify the exact, respective
shares of a beneficiary does not apply (Boyce v Boyce).
Certainty of Objects
CLEAR:
¨ The intended beneficiaries (named) are clear; OR
, ¨ As it can be said with certainty whether any given postulant is or isn’t a member of the class
of objects, there is no issue here (Re Gestetner’s Settlement). Trustee is able to identify the
sort of people that fall in the description of objects based on donor's description and the class
of potential beneficiaries is not hopelessly wide as to make the trust administratively
unworkable (McPhail v Doulton).
UNCLEAR:
¨ As it cannot be said with certainty whether any given postulant is or isn’t a member of the
class of objects, there is insufficient certainty of objects here (Re Gestetner’s Settlement).
Trustee is unable to identify the sort of people that fall in the description of objects based on
donor's description; OR
¨ The class of potential beneficiaries is hopelessly wide as to make the trust administratively
unworkable (McPhail v Doulton; R v District Auditor, ex p West Yorkshire Metropolitan CC);
OR
¨ As the terms require the trustees to consider only an accidental conglomeration of persons
who have no discernible link with the settlor, the trust may be void for capriciousness (Re
Manisty’s Settlement).
Beneficiary Principle
Does the trust have ascertainable human beneficiaries to ensure trustee deals with the trust property
properly? – If no, see purpose trusts structure.
Formalities
*Consider which of the below are relevant and apply to the facts*
Scenario Legal Principle
Personalty (i.e. not No written formalities required.
land)
Land (realty) If a lifetime trust, not a will: In order to create a valid lifetime express
trust over land, Settlor must first satisfy the requirements for a valid
declaration of trust under s.53(1)(b) Law of Property Act 1925:
a. The declaration of trust must be evidenced in writing;
b. The written evidence must contain the terms of the trust;
c. The written evidence must be signed by the settlor (i.e. Name).
Although there is no indication in the statue as to the consequences of
non-compliance, it is presumed that the trust will be unenforceable if
Settlor does not follow the above. A declaration via email is fine if the
above are satisfied (Hudson v Hathway).
PART II: CONSTITUTION OF TRUST (LIFETIME TRUSTS ONLY)
If Settlor is Trustee:
As the settlor is the trustee, the trust is automatically constituted once there has been a valid
declaration of trust; they will retain legal interest in a trustee capacity and the equitable interest will
pass to the beneficiary.
,If a Third-Party is Trustee:
*Consider which of the below are relevant and apply to the facts*
Scenario Legal Principle
Land In order for there to be a valid transfer of land, Settlor must:
1) Execute a deed (form TR1 – s.52 LPA 1925) in favour of Trustee,
complying with s.1 LP(MP)A 1989 (i.e. the document makes it clear on its
face that it is intended to be a deed and is signed, witnessed and delivered);
2) Send the deed to the Land Registry to register Trustee as the new legal
owner.
Shares Private (outside crest system) - In order for there to be a valid transfer of shares,
Settlor must sign a stock transfer form, prescribed by s.1 Stock Transfer Act 1963.
This will be sent to the company along with the existing share certificate; the legal
title will pass to the new shareholder once they are registered in the Register of
Members and sent a certificate in their name.
Public (crest system) – The shares will be transferred electronically on the
instructions of the settlor.
Money Settlor merely need deliver the bank note, cheque, transfer the money electronically.
Chattels In order for the trust to take effect, the chattel would have needed to be transferred to
Trustee, either by physical delivery or by deed (Jaffa v Taylor Gallery Ltd).
EXCEPTIONS (WHEN ABOVE FAILS)
*Consider if any of the below are relevant and, if so, apply to the facts*
Exception Legal Principle
Every Effort Test If the only outstanding requirement is for…
• the Land Registry to register Trustee as the new legal owner
• the company to register Trustee as the new shareholder
• Trustee to collect the chattel
…the trust may be saved by the ‘every effort’ test (as Settlor would have put
the property beyond their recall - Re Rose).
Strong v Bird Given Trustee is named as one of Testator’s executors, the rule in Strong v
(Settlor has died) Bird may apply. Under this rule:
1) The settlor must have had an intention to create an immediate trust of
specific property;
2) That intention must have remained unchanged up to death;
3) The property must vest in the recipient as personal representative
upon the donor’s death.
, If the above are satisfied, the property will have vested in Trustee and they
will be able to give effect to the trust. Trustee will be the legal owner of the
property and Beneficiary will be the beneficial owner.
Unconscionability As Settlor is one of the trustees, they cannot go back on the trust once it has
(when Settlor is a been validly declared (Choithram (T) International SA v Pagarani) or else it
trustee) will be unconscionable. They will be under a duty to transfer [state].
DISCRETIONARY TRUSTS
PART I: DECLARATION OF TRUST
For the intended trust to be valid, it must have been created by a valid declaration of trust:
Settlor/Testator must have possessed the requisite mental capacity and the 'three certainties' of
intention, subject-matter and objects (Knight v Knight) must be satisfied. Additionally, the trusts must
comply with the beneficiary principle and adhere to the rules against perpetuities. Under s.1 Mental
Capacity Act 2005, a person is 'assumed to have mental capacity unless it is established that they lack
capacity'. As Settlor/Testator’s capacity is not in dispute here, the following analysis will therefore
address whether the remaining certainties and formalities have been met to constitute a valid trust.
Here Settlor/Testator was seeking to create a discretionary trust over [property] in favour of
Beneficiary.
Certainty of Intention
EITHER: There is an express intention to create a trust (state wording/conduct).
OR: There is insufficient certainty of intention to create a discretionary trust: "[phrase]" is a precatory
phrase (Re Adams v Kensington Vestry) and does not impose an obligation on Trustee to distribute the
fund – it will simply be transferred as a gift.
Certainty of Subject-matter – Trust Property
*Consider which of the below are relevant and apply to the facts*
Scenario Legal Principle
Shares According to Hunter v Moss, where shares are of the same class and in
the same company, there will be no need to specify exactly which
shares are to be held on trust.
Specific Asset A specific asset must be clearly segregated from the general collection
for the subject-matter to be certain (Re London Wine Company
(Shippers) Ltd).
Money Money must be placed in a separate account for the subject-matter to be
certain (Re Lewis’ of Leicester Ltd; Mac-Jordan Construction Ltd v
Brookmount Erostin Ltd)
Certainty of Subject-matter – Beneficial Interest
As this is a discretionary trust, the general rule that it is necessary to specify the exact, respective
shares of a beneficiary does not apply (Boyce v Boyce).
Certainty of Objects
CLEAR:
¨ The intended beneficiaries (named) are clear; OR
, ¨ As it can be said with certainty whether any given postulant is or isn’t a member of the class
of objects, there is no issue here (Re Gestetner’s Settlement). Trustee is able to identify the
sort of people that fall in the description of objects based on donor's description and the class
of potential beneficiaries is not hopelessly wide as to make the trust administratively
unworkable (McPhail v Doulton).
UNCLEAR:
¨ As it cannot be said with certainty whether any given postulant is or isn’t a member of the
class of objects, there is insufficient certainty of objects here (Re Gestetner’s Settlement).
Trustee is unable to identify the sort of people that fall in the description of objects based on
donor's description; OR
¨ The class of potential beneficiaries is hopelessly wide as to make the trust administratively
unworkable (McPhail v Doulton; R v District Auditor, ex p West Yorkshire Metropolitan CC);
OR
¨ As the terms require the trustees to consider only an accidental conglomeration of persons
who have no discernible link with the settlor, the trust may be void for capriciousness (Re
Manisty’s Settlement).
Beneficiary Principle
Does the trust have ascertainable human beneficiaries to ensure trustee deals with the trust property
properly? – If no, see purpose trusts structure.
Formalities
*Consider which of the below are relevant and apply to the facts*
Scenario Legal Principle
Personalty (i.e. not No written formalities required.
land)
Land (realty) If a lifetime trust, not a will: In order to create a valid lifetime express
trust over land, Settlor must first satisfy the requirements for a valid
declaration of trust under s.53(1)(b) Law of Property Act 1925:
a. The declaration of trust must be evidenced in writing;
b. The written evidence must contain the terms of the trust;
c. The written evidence must be signed by the settlor (i.e. Name).
Although there is no indication in the statue as to the consequences of
non-compliance, it is presumed that the trust will be unenforceable if
Settlor does not follow the above. A declaration via email is fine if the
above are satisfied (Hudson v Hathway).
PART II: CONSTITUTION OF TRUST (LIFETIME TRUSTS ONLY)
If Settlor is Trustee:
As the settlor is the trustee, the trust is automatically constituted once there has been a valid
declaration of trust; they will retain legal interest in a trustee capacity and the equitable interest will
pass to the beneficiary.
,If a Third-Party is Trustee:
*Consider which of the below are relevant and apply to the facts*
Scenario Legal Principle
Land In order for there to be a valid transfer of land, Settlor must:
1) Execute a deed (form TR1 – s.52 LPA 1925) in favour of Trustee,
complying with s.1 LP(MP)A 1989 (i.e. the document makes it clear on its
face that it is intended to be a deed and is signed, witnessed and delivered);
2) Send the deed to the Land Registry to register Trustee as the new legal
owner.
Shares Private (outside crest system) - In order for there to be a valid transfer of shares,
Settlor must sign a stock transfer form, prescribed by s.1 Stock Transfer Act 1963.
This will be sent to the company along with the existing share certificate; the legal
title will pass to the new shareholder once they are registered in the Register of
Members and sent a certificate in their name.
Public (crest system) – The shares will be transferred electronically on the
instructions of the settlor.
Money Settlor merely need deliver the bank note, cheque, transfer the money electronically.
Chattels In order for the trust to take effect, the chattel would have needed to be transferred to
Trustee, either by physical delivery or by deed (Jaffa v Taylor Gallery Ltd).
EXCEPTIONS (WHEN ABOVE FAILS)
*Consider if any of the below are relevant and, if so, apply to the facts*
Exception Legal Principle
Every Effort Test If the only outstanding requirement is for…
• the Land Registry to register Trustee as the new legal owner
• the company to register Trustee as the new shareholder
• Trustee to collect the chattel
…the trust may be saved by the ‘every effort’ test (as Settlor would have put
the property beyond their recall - Re Rose).
Strong v Bird Given Trustee is named as one of Testator’s executors, the rule in Strong v
(Settlor has died) Bird may apply. Under this rule:
1) The settlor must have had an intention to create an immediate trust of
specific property;
2) That intention must have remained unchanged up to death;
3) The property must vest in the recipient as personal representative
upon the donor’s death.
, If the above are satisfied, the property will have vested in Trustee and they
will be able to give effect to the trust. Trustee will be the legal owner of the
property and Beneficiary will be the beneficial owner.
Unconscionability As Settlor is one of the trustees, they cannot go back on the trust once it has
(when Settlor is a been validly declared (Choithram (T) International SA v Pagarani) or else it
trustee) will be unconscionable. They will be under a duty to transfer [state].
