CONSTITUTION
The four requirements for the creation of a trust are (1) capacity, (2) certainty, (3) formality and (4)
constitution
Formality
There are no required formalities for the creation of a trust, except for
Express trusts of land (excluding constructive and resulting trusts)- must be in writing
(s53(1)(b))
Trusts in a will- must comply with the general formalities for the creation of a will (eg.
signed in writing with two witnesses)
Constitution
Constitution means the complete setting up of a trust and requires (1) a valid declaration of trust
(following the other requirements) and (2) vesting of a legal title of the trust property in the trustee(s)
(2) is only required where the settlor is not also going to be the trustee and so excludes self-
declarations of trust
Effectively means getting the legal title to the trustees and may require formalities, depending
on the type of property being transferred
However, if those formalities are not satisfied, the trust will not work (as the trustee does not
have legal title) and equity may have to step in to make the transfer effective
Fuller in ‘Consideration and Form’ highlights the purpose of formalities as being three-pronged
Evidentiary function- provides evidence for the existence of the gift
Cautionary function- forces donor to consider their actions
Channelling function- choice of one form over another tells us what exactly was intended
by the donor
Gifts
‘Gift’ itself is a vague term where a person wants a recipient to have a piece of property
May be achieved by (1) inter vivos outright (absolute) gift, (2) inter vivos declaration of trust
with third party as trustee, (3) inter vivos declaration of trust with self as trustee or (4)
testamentary gift via will (either outright or under a trust)
The ‘bright line’ rule
Milroy v Lord [1862]- if you intend (and fail) to make an outright transfer of legal title as either a
gift or a trust, a court will not construe this as an intention to create a trust in order to effect the
transfer
Attempted trust with Mr Lord as trustee, but failed transfer of legal title to Mr Lord
Ruled on the basis of two equitable maxims that (1) equity will not perfect an imperfect
gift and (2) equity will not assist a volunteer
The case laid down the general principle that there is no equity to perfect an imperfect
gift and the courts should not imply a self-declaration of trust simply because an
intended gift was not completed
If the intended trustee had provided consideration, a constructive trust would be found
Strictness of this rule was applied in Jones v Lock [1865]
However, where the settlor has done everything in his power to effect the transfer, equity may be
willing to step in
, Re Rose [1952]- a gift is perfected when the donor has done everything in his power to make
the transfer, upon which the beneficial interest passes and a constructive trust is created until
the legal title is also transferred
Settlor had properly executed the required documents to transfer shares on March 30,
1943 and the company registered share transfer on the Land Registry June 30, 1943
However, depending on when the beneficial interest was transferred affected whether
inheritance tax had to be paid (from April onwards)
Court ruled that inheritance tax would not be paid as settlor had done everything he
needed to do prior to this date
Re Rose represents an attempt bypass Milroy by focusing on the transferor’s personal actions
Also concerns a constructive trust, rather than taking an absolute gift and attributing it
as a self-declaration of trust
Common sense and practical approach
However, the case failed to address the issue of, once equity has stepped in and created a
constructive trust, if the company rejected registering the share transfer
Criticism that this undermines one of the required formalities in terms of the company’s
consent
Re Fry [1946], with similar material facts, would likely have been decided differently following
Re Rose and in other circumstances
Did not impose a constructive trust as, despite completing the required forms, the settlor
died before the treasury gave him permission
Potential rationale that, given it was a transfer abroad during WWII, the treasury
operated more stringent requirements (more factual than legal basis)
Mascall v Mascall [1985]- ‘the basic principle underlying all the cases is that equity will not come
to the aid of a volunteer’
Father sent off required documents to effect the transfer to his son, but fell out and
sought to take this back whilst awaiting the registration of the transfer
Applied Re Rose and equity did not intervene as the father had done everything in his
power to complete the gift, for a constructive trust to be imposed and equity to perfect
the imperfect gift
Hybrid cases of self-declaration and transfer on trust
T Choithram International SA v Pagarani [2001]- on appeal at the Privy Council, a valid trust was
found despite not technically being fully constituted
The four requirements for the creation of a trust are (1) capacity, (2) certainty, (3) formality and (4)
constitution
Formality
There are no required formalities for the creation of a trust, except for
Express trusts of land (excluding constructive and resulting trusts)- must be in writing
(s53(1)(b))
Trusts in a will- must comply with the general formalities for the creation of a will (eg.
signed in writing with two witnesses)
Constitution
Constitution means the complete setting up of a trust and requires (1) a valid declaration of trust
(following the other requirements) and (2) vesting of a legal title of the trust property in the trustee(s)
(2) is only required where the settlor is not also going to be the trustee and so excludes self-
declarations of trust
Effectively means getting the legal title to the trustees and may require formalities, depending
on the type of property being transferred
However, if those formalities are not satisfied, the trust will not work (as the trustee does not
have legal title) and equity may have to step in to make the transfer effective
Fuller in ‘Consideration and Form’ highlights the purpose of formalities as being three-pronged
Evidentiary function- provides evidence for the existence of the gift
Cautionary function- forces donor to consider their actions
Channelling function- choice of one form over another tells us what exactly was intended
by the donor
Gifts
‘Gift’ itself is a vague term where a person wants a recipient to have a piece of property
May be achieved by (1) inter vivos outright (absolute) gift, (2) inter vivos declaration of trust
with third party as trustee, (3) inter vivos declaration of trust with self as trustee or (4)
testamentary gift via will (either outright or under a trust)
The ‘bright line’ rule
Milroy v Lord [1862]- if you intend (and fail) to make an outright transfer of legal title as either a
gift or a trust, a court will not construe this as an intention to create a trust in order to effect the
transfer
Attempted trust with Mr Lord as trustee, but failed transfer of legal title to Mr Lord
Ruled on the basis of two equitable maxims that (1) equity will not perfect an imperfect
gift and (2) equity will not assist a volunteer
The case laid down the general principle that there is no equity to perfect an imperfect
gift and the courts should not imply a self-declaration of trust simply because an
intended gift was not completed
If the intended trustee had provided consideration, a constructive trust would be found
Strictness of this rule was applied in Jones v Lock [1865]
However, where the settlor has done everything in his power to effect the transfer, equity may be
willing to step in
, Re Rose [1952]- a gift is perfected when the donor has done everything in his power to make
the transfer, upon which the beneficial interest passes and a constructive trust is created until
the legal title is also transferred
Settlor had properly executed the required documents to transfer shares on March 30,
1943 and the company registered share transfer on the Land Registry June 30, 1943
However, depending on when the beneficial interest was transferred affected whether
inheritance tax had to be paid (from April onwards)
Court ruled that inheritance tax would not be paid as settlor had done everything he
needed to do prior to this date
Re Rose represents an attempt bypass Milroy by focusing on the transferor’s personal actions
Also concerns a constructive trust, rather than taking an absolute gift and attributing it
as a self-declaration of trust
Common sense and practical approach
However, the case failed to address the issue of, once equity has stepped in and created a
constructive trust, if the company rejected registering the share transfer
Criticism that this undermines one of the required formalities in terms of the company’s
consent
Re Fry [1946], with similar material facts, would likely have been decided differently following
Re Rose and in other circumstances
Did not impose a constructive trust as, despite completing the required forms, the settlor
died before the treasury gave him permission
Potential rationale that, given it was a transfer abroad during WWII, the treasury
operated more stringent requirements (more factual than legal basis)
Mascall v Mascall [1985]- ‘the basic principle underlying all the cases is that equity will not come
to the aid of a volunteer’
Father sent off required documents to effect the transfer to his son, but fell out and
sought to take this back whilst awaiting the registration of the transfer
Applied Re Rose and equity did not intervene as the father had done everything in his
power to complete the gift, for a constructive trust to be imposed and equity to perfect
the imperfect gift
Hybrid cases of self-declaration and transfer on trust
T Choithram International SA v Pagarani [2001]- on appeal at the Privy Council, a valid trust was
found despite not technically being fully constituted
