Introduction
Defining Equity
Equity is a body of law in its own right.
• Includes not only trusts but also equitable remedies such as injunctions, dealings
with land and mortgages, the administration of deceased persons, partnerships
and the setting aside of written instruments.
• Property: If someone is an absolute owner, they have both the legal and
equitable ownership and can do whatever they like with the property.
Maxims of Equity:
a) He who comes to equity must come with clean hands.
b) Equity will not assist a volunteer.
Defining Trusts
‘A trust is the relationship which arises wherever a person called the trustee is
compelled in equity to hold property for the benefit of some persons (beneficiaries)
or for some object permitted by law, in such a way that the real benefit of the property
accrues, not to the trustee, but to the beneficiaries or other objects of the trust
(Keeting and Sheridan, The Law of Trust)
A trust involves:
• A duty imposed on a trustee.
• To deal with property over which the trustee has control.
• For the benefit of beneficiaries who can enforce the duty.
Express Trusts:
• A settlor can expressly and intentionally create a trust.
• A settlor (the person who creates the trust) can either select a third party to be a
trustee or they can select themselves to be a trustee.
• They define the benefit the beneficiaries are to receive from the property.
• They lay down the terms of the trust and must ensure that the trustees gets legal
title to the trust property.
• Once everything happened, the trust is complete, and the settlor is no longer
involved in the trust as the settlor.
Trust Property
Property held on trust is referred to as trust property, trust fund, or trust capital.
A trust allows the separation of control of property from its enjoyment and use.
• The trustee has management and control of the property subject to the trust.
• But the beneficiary is the ‘real’ owner, and they enjoy the benefit of the property.
• Equity recognises that when a trust is created:
o The trustees hold the legal title or interest in the trust property. They look
like the absolute owner (e.g., name of trustee on bank account or shares).
o The beneficiary has an equitable interest in the trust property (a beneficial
interest)
,Legal Interests held by the Trustees
• The trustee holds the legal title, allowing them to manage the trust property.
• But in contrast to an outright owner, trustees are obliged to hold the property for
the benefit of those possessing the equitable title.
• The beneficiaries get the benefits indirectly by enforcing the trust obligation
against the trustee.
• Equity imposes onerous duties on trustees to stop the trustees from misusing
trust property.
Equitable Interests held by the Beneficiaries
The equitable interests give beneficiaries two rights:
a) Personal: They have a personal right to enforce the trustee’s duties and seek
compensation for breaches i.e., enforceable against the trustee, personally.
b) Proprietary: They have an ownership interest in the trust property itself
a. Can be enforced against the trustee and successors in title.
i. If trustee goes bankrupt, trust fund is not shared out amongst the trustees’
creditors but is preserved for the beneficiaries.
ii. If the trustee wrongly gives trust property to someone who is not a
beneficiary, the rightful beneficiaries can recover that property back.
b. Only a bona fide purchaser for value who has no notice of the beneficiaries’
rights is not bound. Beneficiaries would instead sue the trustees for any loss.
c. The proprietary nature means that beneficiaries can sell or gift their
interests in the trust property, in the same way that any property owner
can sell or give their property away.
Types of Trust
A trust can be created either during the settlor’s lifetime or on their death in
their will. NB. residuary estate and rules of intestacy.
, Express Trusts: Declaration of Trust
Types of Trusts
Fixed Trusts
The terms of the trust define the share of the trust property which the beneficiary
will receive and who the beneficiaries or the class of beneficiaries are.:
• The trustees have no discretion as to how the trust property is to be allocated
between the beneficiaries
Examples:
‘On trust for X for life, remainder to Y’:
• X is the life tenant, who has a life interest. Llimited trust as only receives the
income from the trust, not the capital.
• Y is the remainderman, who has an ‘interest in remainder’
• Creates a successive interest.
o When X dies, the trustees will transfer the trust property itself to Y and the
trust will come to an end.
On trust for A if A attains 21 but if A dies before then, for B:
• A’s interest is conditional on A attaining 21. Trustee will look after trust property
for A until then.
• If A dies before turning 21, A’s interest fails, and B becomes entitled.
On trust for Z where Z is an infant or cannot manage their affairs for some
other reason.
• Trust is used to ensure that the property is managed by trustees for the benefit
of Z.
On trust for C where C is an adult with full mental capacity.
• Bare trust: Trustees hold on trust for a sole adult beneficiary possessing full
mental capacity absolutely.
• Unusual type of trust as the trustee must handle the trust property as the
beneficiary dictates.
• The beneficiary can end the trust at any time and become the legal owner
(Saunders v Vautier).
• The above trusts can convert into a bare trust once the person becomes an adult
with full mental capacity.
Discretionary Trusts
Gives the trustees a discretion as to:
a) The amounts any beneficiary may receive. AND/OR
b) Whether particular beneficiaries receive anything at all (Mettoy Pension
Trustees Ltd v Evans [1990])
, E.g., Where a settlor gives property to the trustees ‘to hold on trust for such of my
children and in such shares as my trustees think fit’.
• No individual has an equitable interest under a discretionary trust until the
trustees exercise their discretion in that individual’s favour.
• Until then, they are called ‘objects’ rather than beneficiaries
Creation of Trust
For a declaration of trust to be valid (Knight v Knight), it must comply with the 3
certainties:
a) Certainty of intention: It must be clear that the person making the declaration
intended to create a trust.
b) Certainty of Subject Matter: It must be clear what property is being held on
trust and what the individual interests of beneficiaries are.
c) Certainty of Object: It must be clear who the beneficiaries are.
Must also:
• Comply with the beneficiary principle.
• Satisfy the rules against perpetuity.
• Completes any formalities for express declarations of trust.
Certainty of Intention
Must be an intention on the part of the settlor or testator to create a trust.
• It is necessary to examine the words used by the owner.
• The rule requires the settlor to use words that impose a duty on someone to
act as a trustee.
• If they wanted to impose a legally binding obligation on the holder of the property
to deal with the property in a certain way for the benefit of someone else, then it
is a trust.
Although it is desirable to use the word ‘trust’ to make it clear. ‘Equity looks to
intent rather than form’. It is more concerned with the substance of the
transaction, than the form it takes i.e., conduct can infer intent.
• Paul v Constance [1977]:
o Constance lived with but not married to Mrs Paul. After Mr Constance
received compensation for an injury, he deposited the money in a bank
account in his sole name. Their joint bingo winning is also in that account.
o He always told Mrs Paul that ‘the money is as much yours as mine’.
o Court accepted that these words and the course of conduct were
sufficient to demonstrate certainty of intention with regards to creation
of trust over the bank account and half share of the bank account was
awarded Mrs Paul.
Precatory Words:
• Precatory words will not suffice to demonstrate certainty of intention. E.g.,
‘In full confidence, hoping that, trusting that, believing that, expecting, I know
that, I would like, or in hope that’ (Re Adams and Kensington Vestry (1884)).
Defining Equity
Equity is a body of law in its own right.
• Includes not only trusts but also equitable remedies such as injunctions, dealings
with land and mortgages, the administration of deceased persons, partnerships
and the setting aside of written instruments.
• Property: If someone is an absolute owner, they have both the legal and
equitable ownership and can do whatever they like with the property.
Maxims of Equity:
a) He who comes to equity must come with clean hands.
b) Equity will not assist a volunteer.
Defining Trusts
‘A trust is the relationship which arises wherever a person called the trustee is
compelled in equity to hold property for the benefit of some persons (beneficiaries)
or for some object permitted by law, in such a way that the real benefit of the property
accrues, not to the trustee, but to the beneficiaries or other objects of the trust
(Keeting and Sheridan, The Law of Trust)
A trust involves:
• A duty imposed on a trustee.
• To deal with property over which the trustee has control.
• For the benefit of beneficiaries who can enforce the duty.
Express Trusts:
• A settlor can expressly and intentionally create a trust.
• A settlor (the person who creates the trust) can either select a third party to be a
trustee or they can select themselves to be a trustee.
• They define the benefit the beneficiaries are to receive from the property.
• They lay down the terms of the trust and must ensure that the trustees gets legal
title to the trust property.
• Once everything happened, the trust is complete, and the settlor is no longer
involved in the trust as the settlor.
Trust Property
Property held on trust is referred to as trust property, trust fund, or trust capital.
A trust allows the separation of control of property from its enjoyment and use.
• The trustee has management and control of the property subject to the trust.
• But the beneficiary is the ‘real’ owner, and they enjoy the benefit of the property.
• Equity recognises that when a trust is created:
o The trustees hold the legal title or interest in the trust property. They look
like the absolute owner (e.g., name of trustee on bank account or shares).
o The beneficiary has an equitable interest in the trust property (a beneficial
interest)
,Legal Interests held by the Trustees
• The trustee holds the legal title, allowing them to manage the trust property.
• But in contrast to an outright owner, trustees are obliged to hold the property for
the benefit of those possessing the equitable title.
• The beneficiaries get the benefits indirectly by enforcing the trust obligation
against the trustee.
• Equity imposes onerous duties on trustees to stop the trustees from misusing
trust property.
Equitable Interests held by the Beneficiaries
The equitable interests give beneficiaries two rights:
a) Personal: They have a personal right to enforce the trustee’s duties and seek
compensation for breaches i.e., enforceable against the trustee, personally.
b) Proprietary: They have an ownership interest in the trust property itself
a. Can be enforced against the trustee and successors in title.
i. If trustee goes bankrupt, trust fund is not shared out amongst the trustees’
creditors but is preserved for the beneficiaries.
ii. If the trustee wrongly gives trust property to someone who is not a
beneficiary, the rightful beneficiaries can recover that property back.
b. Only a bona fide purchaser for value who has no notice of the beneficiaries’
rights is not bound. Beneficiaries would instead sue the trustees for any loss.
c. The proprietary nature means that beneficiaries can sell or gift their
interests in the trust property, in the same way that any property owner
can sell or give their property away.
Types of Trust
A trust can be created either during the settlor’s lifetime or on their death in
their will. NB. residuary estate and rules of intestacy.
, Express Trusts: Declaration of Trust
Types of Trusts
Fixed Trusts
The terms of the trust define the share of the trust property which the beneficiary
will receive and who the beneficiaries or the class of beneficiaries are.:
• The trustees have no discretion as to how the trust property is to be allocated
between the beneficiaries
Examples:
‘On trust for X for life, remainder to Y’:
• X is the life tenant, who has a life interest. Llimited trust as only receives the
income from the trust, not the capital.
• Y is the remainderman, who has an ‘interest in remainder’
• Creates a successive interest.
o When X dies, the trustees will transfer the trust property itself to Y and the
trust will come to an end.
On trust for A if A attains 21 but if A dies before then, for B:
• A’s interest is conditional on A attaining 21. Trustee will look after trust property
for A until then.
• If A dies before turning 21, A’s interest fails, and B becomes entitled.
On trust for Z where Z is an infant or cannot manage their affairs for some
other reason.
• Trust is used to ensure that the property is managed by trustees for the benefit
of Z.
On trust for C where C is an adult with full mental capacity.
• Bare trust: Trustees hold on trust for a sole adult beneficiary possessing full
mental capacity absolutely.
• Unusual type of trust as the trustee must handle the trust property as the
beneficiary dictates.
• The beneficiary can end the trust at any time and become the legal owner
(Saunders v Vautier).
• The above trusts can convert into a bare trust once the person becomes an adult
with full mental capacity.
Discretionary Trusts
Gives the trustees a discretion as to:
a) The amounts any beneficiary may receive. AND/OR
b) Whether particular beneficiaries receive anything at all (Mettoy Pension
Trustees Ltd v Evans [1990])
, E.g., Where a settlor gives property to the trustees ‘to hold on trust for such of my
children and in such shares as my trustees think fit’.
• No individual has an equitable interest under a discretionary trust until the
trustees exercise their discretion in that individual’s favour.
• Until then, they are called ‘objects’ rather than beneficiaries
Creation of Trust
For a declaration of trust to be valid (Knight v Knight), it must comply with the 3
certainties:
a) Certainty of intention: It must be clear that the person making the declaration
intended to create a trust.
b) Certainty of Subject Matter: It must be clear what property is being held on
trust and what the individual interests of beneficiaries are.
c) Certainty of Object: It must be clear who the beneficiaries are.
Must also:
• Comply with the beneficiary principle.
• Satisfy the rules against perpetuity.
• Completes any formalities for express declarations of trust.
Certainty of Intention
Must be an intention on the part of the settlor or testator to create a trust.
• It is necessary to examine the words used by the owner.
• The rule requires the settlor to use words that impose a duty on someone to
act as a trustee.
• If they wanted to impose a legally binding obligation on the holder of the property
to deal with the property in a certain way for the benefit of someone else, then it
is a trust.
Although it is desirable to use the word ‘trust’ to make it clear. ‘Equity looks to
intent rather than form’. It is more concerned with the substance of the
transaction, than the form it takes i.e., conduct can infer intent.
• Paul v Constance [1977]:
o Constance lived with but not married to Mrs Paul. After Mr Constance
received compensation for an injury, he deposited the money in a bank
account in his sole name. Their joint bingo winning is also in that account.
o He always told Mrs Paul that ‘the money is as much yours as mine’.
o Court accepted that these words and the course of conduct were
sufficient to demonstrate certainty of intention with regards to creation
of trust over the bank account and half share of the bank account was
awarded Mrs Paul.
Precatory Words:
• Precatory words will not suffice to demonstrate certainty of intention. E.g.,
‘In full confidence, hoping that, trusting that, believing that, expecting, I know
that, I would like, or in hope that’ (Re Adams and Kensington Vestry (1884)).
