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Formalities

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kazzasingh's version from 2018-04-24 08:03

TRUST PROPERTY MUST BE VESTED IN THE TRUSTEE

Question Answer
LPA 1925 s53(1)(c)Disposition on a subsisting equitable interest must be transferred by signed writing
Grey v IRC (1960)Mr Hunter wanted to set up some trusts for his grandchildren. He wanted, once he had set the trust up, to add some of his company shares to the trust property. What he also wanted to do was transfer the shares to the grandchildren's trusts in such a way that he avoided paying stamp duty. So instead of just transferring shares to the trustees, he went about a more convoluted transaction. Stamp duty was a tax payable on any written document that transferred a beneficial interest in property. The tax was on the basis of a proportion of the value the property. The bigger the beneficial interest you were transferring, the more stamp duty that you would have to pay. It was the DOCUMENT (not the transaction) that attracted the tax. Therefore, if you gave effect to a transaction orally, you would not have to pay any stamp duty. Only applied to transfers of beneficial title. If you were transferring the bare legal title, you would only have to pay a nominal 50p stamp duty. In this case, Hunter transferred the legal title to his trustees and keeps the newly created equitable title for himself. He then orally orders his trustees to stop holding the shares on trust for him and instead hold them on trust for the grandchildren. A few months down the line, this new trust in favour of the grandchildren was formalised by the trustees because they put in writing a statment of what had already had happened. The hope was, at this stage, was that all that they were putting in writing was a statment confirming what had already happened orally, no stamp duty would need to be paid. The document itself was not giving effect to a transfer, it was just confirming an earlier transaction. HELD: this was a disposition of a subsisting equitable interest because Mr Hunter's direction led to a transfer of the ownership from himself to the grandchildren. The word disposition should just be given its natural meaning. Hence, the oral declaration failed. In both Grey and Vanderwell, the beneficiaries were volunteers. There are cases that say this would be different if the would be beneficiaries of the trust had given some consideration.
Vandervell v IRC (1967)The National Provincial Bank was holding 100,000 shares for Mr V. They were holding it as bare trustee for him. Mr V decides to sponser a scholarship in Pharmacology for the Royal College of Surgeons. He is going to give the college £150,000 in order to set up a professorship. But he was not going to give them this in cash. In order to reduce his tax liability, he told the Bank to transfer his shares to the RCoS and he will then arrange for dividends to be paid out. The college can receive the dividends and use these in order to fund the professorship. This was really beneficial from Mr V's tax planning point of view as if he just kept the shares for himself, and then transferred the shares to the college, then he would have had to pay income tax on the dividends. If the college were the shareholder, he would not have to pay any taxes. The college is a charity so is exempt from income tax. Mr V gives the bank an oral instruction to transfer the shares to the college. HOWEVER, the college now had his shares. Hence, there was an extra bit to the transaction --> part of the arrangement, because he wanted to get those shares back and use them for his own purposes later, the transfer to the college included an option to purchase the shares back. This option was granted to the trustees of Mr V's family trust. The college gets the shares but those shares are subject to the option whereby Mr V's family trust can buy them back for £5000. His desire was to transfer absolute ownership of his shares to the RCoS. House of Lords HELD: if the legal and the equitable title merge together as a result of your transaction, then this does not count as a disposition of a subsisting equitable interest and does not fall under the s53 (1) (3) LPA 1925 and does not need to be in signed writing. Hence, he got away with not having to pay tax. HOWEVER, (regarding the clause) the option to buy back shares is itself a piece of property. It has to be held on trust because if you give an option to buy something to a trust company, you cannot intend that the trust company takes it for its own benefit. So Mr V set up this trust but did not state who the beneficiaries were. As a result, the option to buy back the shares was held by the trust company on resulting trust for Mr V. This meant that he had to pay tax on the dividends that went to the college. So Mr V wins the point on whether on not it was a disposition of a subsisting equitable interest, but loses the bit about the clause. RATIO: if you have a bare trust to start with, and then the beneficiary of that trust tells the trustee to transfer legal and equitable title together, then that merging is not a disposition. In both Grey and Vanderwell, the beneficiaries were volunteers. There are cases that say this would be different if the would-be beneficiaries of the trust had given some consideration.
Oughtred v IRC (1960)Obiter minority House of Lords authority which was subsequntly approved by the Court of Appeal in Neville v Wilson. This promise becomes enforceable because the recipient provides consideration in return. Hence, a constructive trust will arise and because constructive trusts arise by operation of law, it does not need to be in signed writing.
Vandervell (No2) (1974)The trust company takes £5000 from his children's settlement and buys the shares back. The idea was then that the shares would be held as part of the children's trust. Mr V writes to the IRC to tell them that this has happened. He says that he has finally got rid of his interest in the shares as they now belong to his children's trust. Over the next three years, he declares (as MD of his company) about £2m worth of dividends which the trustees then received and invested for the benefit of the children. HOWEVER, the IRC still believe he has interests in the shares. They claim that he is still liable to pay the surtax. To put the revenue's claim to rest, in a deed (just to be on the safe side) he formally assigns, to the trust company, any rightful interest that he has in the company. Two years later, after his new marriage, he makes a new will. Because his children had been well catered for under these trusts (shares and £2m worth of dividends) he did not make any provision for them in his will. 6months after making this will, he dies. Between 1961-65, before he finally executed the deed, the IRC had been claiming surtax from him even though he was not enjoying the shares. His executors (when they are administering his estate) notice that his children have money in their trust account but Mr V was the one who had to pay all the surtax on it. So his executors, thinking that this was not right, claimed the money back from the children's trust. They said that those dividends should have been held for Mr V, not the children. HELD: the family trust should not have been holding the shares for the children's trust. The option to purchase was held on trust for Mr V. Once they buy back the shares from the college, they've got to hold them on trust for Mr V too. In order for that to stop, he'd have had to transfer his subsisting equitable interest. He did not do that until 1965 when he finally put everything in this deed and that was the point at which he did cease to have interest in the property. HOWEVER, in the Court of Appeal, Lord Denning held that when the trust company took the £5000 from the children's trust and exercised the option to purchase, that extinguished the resulting trust from Mr V and created a brand new trust and a brand new equitable interest for the children. Hence, no disposition of a subsisting equitable interest and no need for it to be done in signed writing. The oral instruction was valid. RATIO: in the rare situation where your trustee has the power to declare that he holds trust property on a brand new trust, this just extinguishes a previous equitable interest, creates a brand new one and is not a disposition.
Re Kayford (1975)Company received customers' money for goods not yet in stock. Put the customers money into a separate account rather than the general account. Its intention was that it was keeping it on trust for the customers until such time as the goods arrived and they would be sent out. HELD: no need to be put in writing as it did not involve land.
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SETTLOR MUST DECLARE HIS INTENTION TO CREATE A TRUST (Inter Vivos Declarations)

Question Answer
LPA 1925 s53(1)(b)A declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will
Gardner v Rowe (1828)C had a lease granted to somebody on oral trust so that it was held for someone else. The trustee then goes bankrupt. After his bankrupty, executed a deed stating the existence of the trust. Everything turns on when the trust was created. If it was created created before the bankruptcy, then it would take precedence over creditors. If it was not created until after the bankruptcy, then the creditors take preference. HELD: the deed arose before the bankruptcy. It was not enforceable until it was evidenced in writing but all that deed did was retrospectively validate that trust that had been created earlier. An oral trust is valid from the date it was created. But you cannot force it against anybody until it has been evidenced in signed writing. It must be signed by who looks like the beneficial owner at the time. ANY OTHER PROPERTY DOES NOT REQUIRE THIS SIGNING.
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Exceptions (formalities and imputed trusts)

Question Answer
LPA 1925 s53(2)"nothing in s53 affects the creation or operation of resulting, imputed or constructive trusts"
Rochefaucauld v Boustead (1897)The formality requirement can be disapplied where it is being used to defraud somebody.
Hodgson v Marks (1971)Mrs H executes a voluntary transfer of her house to her lodger BUT there was an oral agreement that he would hold it on trust for her. BUT he sells it to Mr M instead who takes out a mortgage with the house as security. Hence, there is an oral but unenforceable trust. HELD: the new owners of the house and the money lenders' interest could not take precedence over Mrs H's beneficial entitlement. This was either because the court's could not let a statute be used as an instrument of fraud OR there is a general principle that if you transfer property to somebody else gratuitously, there is a presumption that you did not intend to make a gift of it. Rather, in order to protect you, there is a presumption that they hold it on a resulting trust for you. The default presumption is that he holds it on resulting trust for her.
Bannister v Bannister (1948)A constructive trust analysis was used. D sells two properties to C (who orally agreed to let D live in one of those properties for the rest of her life). However, he later changes his mind and tries to turf her out. HELD: C couldn't change his mind as he held the property on a constructive trust for D.
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