LSS Trusts Revision Seminar Jules Marshall

1. LSS Trusts Revision Seminar Jules Marshall

2. Express Trust: By Declaration or By Transfer Private or Public (charitable) Fixed or Discretionary

3. Requirements: 1. The three certainties: Certainty of intention (to create the trust by the settlor) Certainty of subject matter (must be trust property) Certainty of objects (must be identifiable beneficiaries or a valid purpose) 2. Statutory formalities 3. No illegality (not covered in this course) Creating a Valid Trust

4. Importance of Intention (Mallot v Wilson) Whether 'in the circumstances of the case and on the true construction of what was said and written, a sufficient intention to create a true trust has been manifested': Megarry VC in Tito v Waddell (No 2) Creating a Valid Trust: Certainty of Intention

5. Subjective or Objective Intention? Subjective intention(HC majority in Joliffe) Isaacs J in dissent: concerned about parol evidence rule. Joliffe followed countless times (Star v Star) Not restricted to bank accounts (Hyhonie Holdings) Creating a valid trust: Certainty of Intention

6. Onus of Proof: Ultimate burden on person asserting the trust Where trust involves a contractual or bilateral arrangement an objective test will be applied (What did both parties think was happening?) - (per Shortall v White) Creating a valid trust: certainty of intention

7. Intention must be immediate (where no consideration) per Harpur v Levy Creating a valid trust - certainty of intention

8. No particular words needed (Re Armstrong, Paul v Constance) Factors indicating intention: Bank accounts in a third parties name – Re Armstrong Communications of intention with third party – Re Armstrong Subsequent Conduct: 'It's as much yours as it is mine'; depositing shared income; etc – Paul v Constance (bearing in mind his unsophistication) Clear words declaring trust – Hyhonie, Owens v Lofthouse Factors against intention: Conduct – treating property as one's own – Hyhonie Listing property as income for tax purposes – Hyhonie Other considerations: Compare clause to others in the instrument – context of the whole instrument Creating a valid trust – certainty of intention

9. The clause should be constructed having regard to the words used, the entire document and surrounding circumstances (per Dixon J in Countess) Two step process (Dixon J in Countess): Did the testator intend the donee to be under any obligation to confer a benefit on a third party? If so, did they intend a trust obligation or some other form of obligation? Certainty of intention – testamentary trusts

10. Did the testator intend the donee to be under any obligation to confer a benefit on a third party? 1. Look at words used (strong words or precatory words?) 2. Compare words used in different clauses within the will (Re Williams) 3. Look at outcome (did testatory truly intend that outcome) 4. Look at contextual factors Conclude – does the clause contain an obligation (ie, more than just an expression of wishes? If yes, next question) Certainty of intention – testamentary trusts

11. If so, did they intend a trust obligation or some other form of obligation? Possibilities: 1. Gift subject to a condition (Gill v Gill/Re Gardener) 2. Gift subject to a charge 3. A trust (Chang v Tijong) Certainty of Intention – Testamentary Trusts

12. There must be trust property (cannot have a trust over nothing) Trust will fail if property is: future property uncertain property (unascertainable) or there has been a failed transfer by the settlor to the trustee (constitution) Creating a Valid Trust: Certainty of Subject Matter

13. Problem with Future prop/mere expectancy or inalienable rights Mere expectancies - examples: A person named in a will of a person who has not yet died or an interest in an object of a discretionary trust before a decision is made to distribute to that person (Kennon v Spry, Howard-Smith) Future property cf. Underlying to future property (revise Equity) Inalienable rights Certainty of Subject Matter:

14. Problem with Ascertainability It may be argued that the property is not ascertainable as: 1. Amount of the interest held on behalf of each B is unable to be specified (fixed interest trust) 2. Vague 'Bulk of my estate', 'my favourite books' 3. Instrument allows T to determine the trust property (Musoorie) Shares cases – Hunter v Moss and Shortall v White Certainty of Subject Matter:

15. Problem with Constitution No issues will arise with trusts by declaration If the trust is a trust by transfer this requirement means that at minimum the equitable interest in the subject property must be properly assigned to the trustee. REVISE EQUITY Consideration? Legal property – transfer rules – Corin v Patton (Mason CJ & McHugh J cf. Deane J) Equitable property (or partial chose) – Manifest an intention to immediately and irrevocable pass the interest NB: Ttrust may still fail due to the operation of S 53 PLA Certainty of Subject matter: Situations

16. A trust must have certainty of object by being in favour of one or more identifiable beneficiaries or for a valid purpose (such as a Charitable purpose) (per Morice v Bishop of Durham, Re Shaw) Why do we need certainty of object? Certainty of Object

17. Tests for certainty of object are different depending on what trust structure was intended by the settlor Two step test to determine trust structure: 1. Obligation to distribute the trust fund? Compare clauses Strong language – similar to law under 'certainty of intention' Time limit to appoint (not conclusive) (Re Hay's) Gift over in default – indicates a mere power (Re Hay's) Absence of gift over (not conclusive) If no obligation – mere power If obligation – then fixed interest trust or discretionary trust Certainty of Object: Determining trust structure

18. 2. If obligation – Is there any discretion as to who to distribute to? If yes – discretionary trust If no – fixed interest trust Certainty of Object: Determining Trust Structure

19. List Certainty Trustee must be able to make a list of all the beneficiaries and their entitlements If no specification as to proportions – assume they take in equal shares (Paul v Constance) Certainty of Object: Fixed Interest Trust

20. A power to appoint property Used in discretionary trust Mere Power v Trust Power A mere power (bare power, power collateral) is power withough an obligation whereas a trust power (power coupled with a duty) gives the donee a power with an obligation Classes of Powers of Appointment: General Hybrid Special Certainty of Object: Powers of appointment

21. Criterion Certainty – Re Gulbenkian 1. Semantic/Linguistic certainty 2. Evidential certainty Certainty of Object: Discretionary Trusts & Mere Powers

22. Uncertain: Any class that is inherently subjective – ie, the best news reporter Future employees – Broadyway Cottages To improve quality of life – Re Blyth (Qld) per Thomas J Deserving members – unless do indicates how to distinguish deserving My old friends (unless instructions) – Lord Upjohn in Re Gulbenkian Any person engaged in – to what extent must you be engaged? Certain: Anything that can be objectively determined Relatives – McPhail; Near relatives – Griffiths (LJ Stamp means nearest blood relations – Aus positioN) Employers – Gulbenkian Employee, officer, former employee or officer – Gulbenkian Working to alleviate war – Re Blythe Dependents – McPhail Inhabitants of an area – District Auditor Residents - Gulbenkian Certainty of Object: Semantic Certainty

23. Evidential Certainty: Evidential certainty can be resolved by seeking a court order. Certainty of Object: Evidential Certainty

24. Discretionary Trusts & Administrative workability McPhail v Doulton, Lord Wilberforce - new requirement Rationale – if not administratively workable then court could not establish who had standing and the donee could not undertake an adquate survey of the class. Applied in R v District Auditor – administratively unworkable. Certainty of Object: Additional requirements

25. A general trust power or a hybrd trust power is invalid as fails the administrative workability requirement of criterion certainty. The reason it fails this requirement is that the class is so hopelessly wide that the court could not determine who had standing and the trustee could not undertake an adequate survey of the class (the whole world/the whole world bar one person/one group) in order to properly exercise the power (McPhail v Doulton per Lord Wilberforce and R v District Auditor) Therefore, a discretionary trust power can only be a SPECIAL trust power Certainty of Object: Administrative Workability & Classes of Powers

26. Mere power & Capriciousness Administrative unworkability does not invalidate a mere power (Re Hay's) Re Manisty and capriciousness Certainty of Object: Additional Requirements

27. S 53 (1) PLA Situations & Solutions 1. CREATION of interest IN LAND (legal or equitable NOT by trust => s 53(1)(a) – creation of the interest must be in writing by the transferor or agent 2. DISPOSITION of LEGAL interest in LAND eg legal mortgage/lease => s53(1)(a) Creating a Valid Trust: Statutory Formalities

28. 3. DISPOSITION of SUBSISTING EQUITABLE INTEREST IN LAND a) by assignment or by final direction (Howard-Smith) => must comply with s 53(1)(a) AND (c) but they have the same requirements Final Direction cf. Revocable mandate (Dixon J in Howard Smith) Creating a Valid Trust – Statutory Formalities

29. 3. DISPOSITION of SUBSISTING EQUITABLE INTEREST IN LAND b) by declaration of sub-trust Two possible approaches as to which subsection will apply Conduit v Active sub-trustee Creating a Valid Trust – Statutory Formalities

30. 4. DECLARATION OF A TRUST OVER LAND - Lee J in DSS v James interpreted ss(b) as an exception to the general rule in ss (a) – followed in Hagan v Waterhouse Consequences – trust is unenforceable until manifested and proved in writing by some person able to declare such a trust (ie, formalities in ss(b) only evidentiary function) No provision for agent Trustee in argument against T and B (Hagan) Creating a Valid Trust: Statutory Formalities

31. 5. NOT LAND SS (a) and (b) won't apply Is it subsisting equitable interest? If yes => s 53(1)(c) NOTE: CONSIDERATION Statutory Formalities

32. Specifc purpose/obligation Usually imposed on debtor creditor relationship Factors towards specific purpose: - Conditions in K such as 'exclusively' or 'only' per Gummow J in AETT cf. Precatory words - Paid into a seperate account – Quistclose, Salvo cf. AETT - X would not have transferred if they knew it would be applied for a different purpose (cf. AETT) Quistclose Trusts

33. Express Trust or Resulting Trust Intent – Dal Pont Quistclose and Salvo per Spigelman CJ & Young J- Two limbed express trust Gummow in AETT – unremarkable express trust – intention Twinsectra v Yardley – Lord Millet – resulting trust Salvo v New Tel – majority – two limbed express trust but on facts neither classification would result in different outcome No HC decision - QC: Express or Resulting Trust?

34. THIRD PARTY HOLDING PROPERTY: Although the lendor appears to have a beneficial interest in [property] due to the operation of the QC trust, they will only be able to enforce that interest against [third party] if the [third party] can be shown to have taken the [property] with notice of the lendors interest (per Lord Wilberforce in Quistclose). Quistclose – Third Party

35. A trust for a valid charitable purpose is one of the exceptions to the rule that a trust for a purpose rather than a person will fail (Latimer v Inland Revenue) AG will have standing to enforce charitable trusts Certainty of Intention & Certainty of Subject Matter/Constitution – still require but Certainty of Object does not apply – charitable trust will depend on the purpose of the trust and whether or not it is for public benefit Charitable Trusts

36. Requirements: 1. Valid Charitable Purpose 2. Public Benefit - Public Benefit - Section of the Public Note: Not covering trusts for political purposes or Aid watch case in this seminar Charitable Trusts

37. Valid Charitable Purpose: - 'spirit and intendment' of the preamble to the Statute of Elizabeth - Pemsel's case 1. Relief of Povery 2. Advancement of Education 3. Advancement of Religion 4. Other purposes beneficial to the community Charitable Trusts: Valid Charitable Purpose

38. 1. Public Benefit Assumed for trusts for relief of poverty (Dingle) Presumed (able to be rebutted) for advancement of education and religion: - Education see Re Shaw and Re Pinion - Religion – Benefit presumed to be positive influence on human conduct Must be positively demonstrated for fourth head Charitable Trusts: Public Benefit

39. 2. Section of the public Question of fact (must be reasonable section of public) Poverty – an exception unless Saunders rule applies membership/bars The people who will benefit from the trust cannot be connected to one or a few named people (Re Compton) - The point of distinction between those who will benefit and those who won't cannot be their relationship (nexus) to a particular individual or company even if large no. (11,000) Oppenheim Charitable Trusts: Public Benefit

40. At equity, if one purpose was invalid the whole trust would fail despite there being other valid charitable purposes (McGovern) S 7M of the Charities Act operates to save some trusts Three different ways it operates per Leahy Charitable Trusts: Severance

41. Trust fails initially: S 2 Charities Act - charitable intention (Re Lysaght) Trust failes after a period of time because purpose no longer exists/illegal etc (Re Anzac Cottages) Charitable Trusts: Cy Pres

42. Holder of a mere power has no obligation to exercise the power at all - court will not intervene to force exercise Non Fiduciary Donee: No obligation to consider exercise of discretion. If there is exercise then appointment must be within limits, in good faith and for proper purpose (Megarry VC in Re Hay's) Fiduciary Donee: Broader range of responsibilities than non-fiduciary – cannot simply ignore Object of mere power – request court intervention to require T to consider exercise (Re Hay's) Court will require (per Megarry VC in Re Hay's) that the T: 1. consider periodically whether or not to exercise the power (Turner v Turner) 2. consider range of objects 3. consider appropriateness of particular appointments Duties relating to mere powers

43. The trustee is under a duty to exercise their discretion and must appoint the property to a person WHERE THERE HAS BEEN EXERCISE The power to review the exercise of discretion is limited to examining whether or not it was exercised in good faith, on real and genuine consideration and in accordance with the purpose for which the discretion was conferred except where the trustee has given reasons for the exercise of their discretion. (Karger v Paul, per McGarvie J) Duties relating to trust powers

44. WHERE THE FIDUCIARY HAS NOT YET EXERCISED POWER Objects of a trust power have standing to force the consideration of exercise (McPhail) however they have no proprietary right to the property (Kennon). Duties relating to trust powers

45. Trustees under valid express trusts and charitable trusts have same duties There are three sources of trust duties: The terms and conditions of the trust instrument itself Equitable principles Statute Trustees Duties

46. Is there a trust deed? Can alter equitable and statutory duties S 2 (3) Trustee Act Must be familiar with terms of trust deed Supremacy of Trust Deed

47. 1. Adhere to the terms of the trust deed 2. Act fairly by beneficiaries and keep proper accounts 3. Exercise prudence in conducting affairs of the trust 4. Adhere to the profits and conflicts rules 5. Disclose information to the beneficiaries. General Summary of Duties per Green v Wilden

48. Where Trustee is permitted or required (by Statute or by order of the Court) to depart from the trust deed: Court may require/permit departure where: - Circumstances require a departure in B's interests - Terms of deed unable to be carried out - Under s 63 of Trustee Act (power to authorise dealings with trust property) All sui juris beneficiaries were absolutely entitled to the fund and agreed unanimously to ratify a departure Valid Departures from Trust Deed

49. 1. Duty to 'GET IN' the trust property: Consider who has title and control of property?? Not just an initial duty (Caffrey) Recovery from previous trustee? Duty to inquire as to breaches (Permanent v Perpetual) 2. Duty to PROTECT Trust Assets Power under s 23 of the Act to insure the property No obligation Common sense Duties

50. A trustee may only invest trust property in investments authorised by the trust deed, legislation or the Court. S 5 of the Act (inserted in 1995) allows the trustee to invest in anything unless expressly prohibited by the Actor the trust deed Is there a restriction on investment power contained in the trust deed? If yes – must adhere to that restriction as part of duty to adhere to trust deed. Trust Management: Investment Duties