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TRUSTS | Formation

Gifts & Tranfers:


Overview
Revision Note | Degree
17 FEBRUARY 2014

Introduction
depending on the intention of the transferor property may be loaned or ownership transferred
gifts can be made in a person's lifetime or on death
general rule: if an intended gift is ineffective the donee has no recourse

Benefits
there are three methods of gratuitously benefiting ('voluntary settlement') another

MILROY V LORD (1862) 4 DE GF&J 264


settlor can benefit another through:
outright gift
transfer to trustees (express trust)
declaration of self as trustee (express trust)

outright gift: donor transfers property to donee (absolute ownership & control of property)
express trust: settlor transfers property to trustee (legal title & management) on behalf of beneficiary
(equitable interest & enjoyment of benefit)
valid transfer: 'perfect gift' or 'constituting a trust'
inheritance tax advantages of lifetime gifts:
on death assets over nil rate band (325,000) subject to inheritance tax (40%)
lifetime gifts 'potentially exempt transfers' (PETs), if donor survives at least 7 yrs no inheritance tax
owed
lifetime trust inheritance tax charged at 20% if settlor survives at least 7 yrs

Validity of gifts
once a valid gift is made it cannot be revoked by the donor

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STANDING V BOWRING (1885) 31 CHD 282


an incomplete (invalid/imperfect ) gift can be revoked by the donor at any time
gift is complete/perfect: 'once the donor has put the thing given out of his power'

invalid or imperfect gift describes purported gift which fails

RICHARDS V DELBRIDGE (1874) LR 18 EQ 11


FACTS:
grandfather wrote on lease he owned: 'This deed and all thereto I give to [grandson] from
this time henceforth'
ISSUE:
was the lease validly transferred?
HELD:
Court of Appeal: not valid as failed to use correct method to transfer ownership

generally a intended recipient of an imperfect gift has no recourse


except: if there was contract between intended donee & donor,& donee could show consideration
(unlikely as gift usually gratuitous benefit)
'equity will not assist a volunteer' : volunteer is intended donee who has provided no consideration for
purported gift

Types of property
formalities required depend on whether:
is a lifetime gift ('inter vivos') or gift on death
nature of property (land, shares) & donor's interest (legal or equitable)
legal interest in land
legal interest in chattels (choses in possession): tangible moveable assets
choses in action (intangible assets) rights can be enforced through court action not taking physical
possession
equitable interests: beneficiary under trust
an expectancy: something which a person expects to own in future

Lifetime gifts
There are four conditions for a valid gift:
donor: necessary mental capacity to make gift
donor: intention, manifested in word or by conduct, to make gift
donor: ensure certainty of subject matter & objects
property: transferred in correct manner to donee

Mental capacity
donor must understand nature of transaction & implications

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degree of understanding corresponds with value of gift (smaller gift lower degree of understanding)
higher degree of understanding sometimes required

RE BEANEY [1978] 1 WLR 770


FACTS:
mother suffering from senile dementia gift her house (main asset) to one daughter
effect of gift: disinheriting her two other children
ISSUE:
did donor have sufficient mental capacity?
HELD:
insufficient mental capacity: gift void
donor did not understand the claims of all potential donees (other children)

Intention
intention of transferor at time of transfer of property
can be inferred even if not express word 'gift' if made at time gifts common (Christmas) or to friends or
relatives
if intention of donor equivocal: court determination from circumstances

Certainty
subject matter of gift must be certain
donee must also be certain

Correct transfer
if donee knows of gift he must accept
correct method depends on type of property & whether donor owns legal title or equitable interest
'every effort' test: if donor takes all required steps, equity regard gift as complete & perfect even if legal
title not yet passed
every effort test often applied if donor has taken steps but also requires third party action to effect legal
transfer (if legal owner needs to be registered)

Transfers of legal title


if donor owns legal title certain steps must be taken to transfer

Company shares
shareholders are owner of companies, same rules apply to large companies (many shareholders) & small
companies (fewer shareholders)
shareholders must be correctly registered

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COMPANIES ACT 2006


s.770: person who has legal title to shares is named as shareholder of shares in Register of
Members
s.771: companies must keep Register of Members

shareholder holds share certificate as evidence he is registered


possession of share certificate is evidence of ownership but registration constitutes legal ownership
transfers of shares are governed by legislation

STOCK TRANSFER ACT 1963


s.1: transferor signs form of transfer ('stock transfer form') to transfer shares

method to transfer shares:


transferor signs stock transfer form
transferor gives stock transfer form & share certificate to transferee
transferee sends documents to company to be registered (legal title passes once transferee is registered)
alternatively transferor can send stock transfer form & share certificate to company on transferee's behalf
if company member of CREST system (computerised share transfer system shareholders of quoted
companies): shareholders recorded electronically on instructions of shareholder & no need to sign a stock
transfer form
problems arise if company's articles of association give directors power to refuse to register a transferee

RE ROSE [1952] CH 499


FACTS:
settlor made transfer of shares on 30 March 1943
transfers not registered until 30 June 1943
settlor's death, meant date of completion had to determined to establish whether estate duty
(inheritance tax) owed
ISSUE:
when did completion take place?
HELD:
court implied a constructive trust: settlor regarded as trustee for donee in period before
registration
transfer created equitable proprietary interest even though legal title had not passed: donor
had done all he could & was relying on third party to finalise

transfer of intended gift (which was not legally effective until registration) can be validated by imposition of
a trust

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MASCALL V MASCALL (1985) 50 P & CR 119


basic principle: 'equity will not come to the aid of a volunteer'
however in equity gift is complete once settlor or donor has done everything that donor has to
do
donee has under his control everything necessary to constitute his title completely without
any further assistance from the donor, assistance from equity not needed

despite seeming inconsistencies with approach under Re Rose, as followed in Mascall v Mascall &
principle 'equity will not come to the aid of a volunteer'

MILROY V LORD [1862] EWHC J 78


an intended gift cannot become effective via a trust imposed by a court
Turner LJ: 'if the settlement is intended to be effectuated by one of the modes... the
court will not give effect to it by applying another of those mode'

Imperfect gifts and unconscionability


certain circumstances where procedure for transfer not followed may be unconscionable to allow
retraction of gift

PENNINGTON V WAINE [2002] 1 WLR 2075


FACTS:
A owned legal title to shares in company
A informed P (company auditor) to she wished to transfer 400 shares to H
H wanted to become a director in company & company articles required directors to be
shareholders
A signed stock transfer form & sent it P, P placed in company's file
P wrote to H to inform him A wanted to transfer shares & no further action was needed on H's
part
A died
ISSUE:
was gift complete in equity even though no documents were delivered to H?
HELD:
Court of Appeal: gift complete in equity
A (donor) had done all required of her
in certain circumstances delivery of documents not necessary to make perfect gift
A intended to make an immediate gift, H had been informed & after certain point would be
unconscionable for A to have recalled gift

it has been suggested Pennington v Waine decision is an example of detrimental reliance (so not
inconsistent with principles in Milroy v Lord & Re Rose)

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CURTIS V PULBROOK [2011] EWHC 167


High Court: Pennington v Waine example of proprietary estoppel ( well-established
exception to rule that 'equity will not assist a volunteer')
A bound as she told H he was being gifted shares & H acted to his detriment by becoming
director of the company

Cheque payable in favour of the transferor


cheque is a negotiable instrument, title is transferred by the payee (transferor)
title is transferred by transferor signing back of cheque in favour of transferee (endorsing the cheque)
modern cheques state 'pay A only' or 'account payee only' preventing transfer

Cheque payable in favour of transferee


cheque is a revocable mandate to the donor's bank to pay the amount to the donee on presentation (to
donee's bank)
revoked: donor stops the cheque before it is presented by donee or if donor dies before donee presents
cheque (no application of Re Rose principle)

Sterling bank notes issued by Bank of England


title is transferred by delivery of the note to transferee

Debt owed to transferor


assignment: A is owed sum by B & wishes to transfer sum to C

LAW OF PROPERTY ACT 1925


s.136: assignment of debt should be in writing & notice given to debtor

Land
all transfers of land or interests in land must be in writing (s.52 Law of Property Act 1925)
registered land: prescribed form (Land Registry form TR1) is signed as a deed by transferor (previously it
was also necessary to deliver the deed) completion of legal title: transferee as registered proprietor

MASCALL V MASCALL (1985) 50 P & CR 119


once a gift is perfect & complete (transferee has in his control all things necessary to enable
him to complete the title by registration) it cannot be 'untied' by the donor

Chattels
usually title to chattels ('choses in possession') is passed by physical delivery of asset to transferee
title can be passed by deed

JAFFA V TAYLOR GALLERY LTD, THE TIMES, 20 MARCH 1990


title can be passed by deed without physical delivery of chattel

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court has to be satisfied there was intention to give & delivery of the subject matter of the gift

THOMAS V TIMES BOOK COMPANY [1966] 1 WLR 911


FACTS:
widow of Dylan Thomas (DT) claimed possession of original manuscript of the play Under
Milk Wood against present possessor
present possessor asserted that DT gifted manuscript to his predecessor in title Mr Cleverdon
(C)
DT had lost the manuscript in one of several pubs
C had made copies of the manuscript, when DT collected a copy he told C he could keep the
original manuscript if he could find it (DT was then travelling to America to promote the play)
C found the original manuscript whilst DT was in America, DT died during his trip to America
ISSUE:
was there intention to make a gift & satisfactory delivery?
HELD:
sufficient intention to make a gift: DT promised C the manuscript & DT had told C potential
locations
effective delivery: C succeeded in finding the manuscript from one of mentioned locations
onus on defendants to prove gift rather than plaintiff to disprove: on evidence found a gift was
made

Transfers of title when donor owns an equitable interest


trusts property (land or personalty) held by trustee upon trust for beneficiary
legal & equitable interests are separate: title (trustee) & equitable (beneficiary)
equitable interest is a proprietary interest 'piece of property' in its own right
if equitable interest is being transferred separately from legal title special procedure must be followed

LAW OF PROPERTY ACT 1925


s.53(1)(c): equitable interest or trust subsisting at time of disposition, must be in writing
signed by person disposing, authorised agent or by will

T hold property on trust for B, to transfer equitable interest:


B can assign (in writing) his equitable interest directly to C
B can direct T to hold property on trust for C
s.53(1)(c) LPA 1925 applies to dispositions of subsisting equitable interests but not to creation of new
equitable interest (legal owner declares a trust)

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GREY V IRC [1960] AC 1


FACTS:
1949: Mr Hunter (H) transferred assets to trustees (T) to hold on trust for his 6 grandchildren
(G)
1955: H transferred 18 000 shares to T telling them to hold them on bare trust for himself)
to try & avoid stamp duty (payable on written transfer of equitable interest to G) he orally told
T to hold shares on trust for G
Ts wrote to H confirming instructions & Inland Revenue assessed documents to stamp duty
ISSUE:
was oral instructions a disposition of an equitable interest or trust subsisting at the time of the
disposition?
HELD:
oral instruction was a disposition within meaning of s.53(1)(c): 'the full equitable interest in
the eighteen thousand shares concerned, which at the time was his, was... diverted
from his ownership into the beneficial ownership of the [G]'
disposition ineffective: as not in writing

s.53(1)(c) LPA 1925 may not apply if equitable interest is transferred along with the legal title

VANDERVELL V IRC [1967] 2 AC 291


FACTS:
Mr Vandervell (V) wanted to donate 150 000 to the Royal College of Surgeons (C)
V transferred 100 000 shares in the family business to C, until the shares had paid 150 000
in dividends
once dividends paid out, a separate company (a family trust) (T) was given option to
purchase shares from C for 5000
V's chares were held on bare trust for him by a bank
V told bank to transfer chares to C, bank did so by stock transfer form & dividends were then
paid to C
Inland Revenue (IR) assessed V for income tax on dividends earned on shares after legal title
was transferred to C
legislation stated if V still owned any interest in the shares he would be liable for surtax
as V had not disposed of his equitable interest in writing (as required by s.53(1)(c) LPA 1925)
he still owned it
ISSUE:
had V disposed of his equitable interest?

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HELD:
noted written requirement under s.53(1)(c) LPA 1925 origins in Statute of Frauds 1677:
trustees need to know identity of beneficiary, therefore dealing with equitable interest need to
be in writing (but no obligation to notify trustees)
s.53(1)(c) only relevant when: dealings with the equitable estate are divorced from dealings
with the legal estate
if beneficiary of bare trust directs trustee to transfer legal estate to third party (with intention
third party take equitable interest too) s.53(1)(c) does not apply, as transfer of legal title also
effects transfer of equitable interest

distinction: Grey v IRC (transfer of equitable interest only) & Vandervell v IRC (transfer of legal title
'carries' the equitable interest & trust is extinguished)
s.53(1)(c): applies in Grey v IRC situations but not in circumstances of Vandervell v IRC
expectancies: not a proprietary interest (a hope of future ownership - legacy under will of person still alive)
transfer of expectancy ineffective: pragmatic approach, cannot transfer something which you do not own,
however, can enter binding contract to transfer future property

Succession
law of succession applies when a person dies

Administration
when a person dies his estate (all property person had a vested interest in) is dealt with by personal
representatives (PRs)
PRs: use estate to pay inheritance tax & debts then distribute remainder to beneficiaries
PRs: legal & beneficial owners of estate of deceased when he dies
executors: named PRs who have to obtained a Grant of Probate (confirmation from court they are
authorised PRs by will)
administrators: PRs who have obtained Grant of Letters of Administration (authorised PRs by court
when no will)

Wills
testator: person who makes a will

WILLS ACT 1837


s.9 valid will must normally:
be in writing
signed by testator in joint presence of two witnesses
witnesses must sign will in testator's presence

codicils: can alter will but must also be witnessed as prescribed under s.9 WA 1937
will takes effect on death of testator, until which beneficiary has 'mere expectancy'
types of gifts under wills: 'devise' - gift of freehold land or realty
'legacy' or 'bequest' - gift of personal property or personalty
'specific' - gifts of an asset or group of assets distinguished in will from all other assets of the same kind
'pecuniary legacies' - gifts of money

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'residuary gift' - gift of what remains (after payment of taxes, debts other specific legacies)
'gifts on trust' - property given to trustees for benefit of beneficiaries

Failure of gifts
gifts left in valid wills can fail
ademption: specific gifts fail if testator no longer possesses the specified property when he dies
lapse: gifts will fail if beneficiary dies before testator, subject to some exceptions
lapsed specific or pecuniary gifts fall into residuary estate & passes under intestacy rules
gifts to witnesses are invalid

WILLS ACT 1837


s.15: if will is witnessed by beneficiary or beneficiary's husband, wife or civil partner, will is
validly witnessed but gift to witness fails

will may be wholly or partly revoked by testator before his death by:
marriage or civil partnership of testator
destruction of the will with intent to revoke
making a new will which deals with the same property
individual gifts may be revoked by codicil

Intestacy rules
intestacy rules apply if:
deceased made no will (to whole estate)
will contains no residuary gift (to residuary estate)
residuary gift has failed or is revoked (to residuary estate)
all deceased's estate passes to PRs to pay debts & tax (& distribute valid gifts if any valid will exists)
remainder shared between deceased relatives in accordance with formula
beneficiaries on intestacy are 'statutory next of kin'

Trustees and PRs


similar functions for trustees (Ts) & PRs: many statutory powers apply to both
when administration of estate is completed PRs cease to hold subject matter of trust as PRs, must assent
(transfer using appropriate method) trust property to Ts appointed by deceased in will
if trust property is land assent must be in writing

Exceptions to rule equity will not assist a volunteer


limited situations court will assist a purported donee even if transferor has failed to transfer legal title

Strong v Bird rule


general rule: donee can have no benefit from an imperfect gift
exception set out in Strong v Bird (1874)

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STRONG V BIRD (1874) LR 18 EQ 315


on death of donor gift becomes perfect & donee has priority claim to property over
beneficiaries of will

for Strong v Bird rule to apply four conditions must be met


1. donor intends to make immediate gift to donee, but gift is imperfect because relevant formalities are not
followed
2. immediate gift must be intended

RE FREELAND [1952] 1 CH 110


FACTS:
P's car was not working
F said she would give P her car, but the car was currently at garage being fixed
car never delivered to P & F died
ISSUE:
was P assisted by exception?
HELD:
exception not apply: gift was not immediate

3. intention must continue unchanged until donor's death

RE GONIN [1979] 1 CH 16
FACTS:
M allegedly attempted to give house & garden to daughter
M failed to sign deed & subsequently sold part of garden
ISSUE:
was intention unchanged?
HELD:
changed intention: by selling garden M still considered herself the owner

4. donor dies & donee appointed as personal representative, legal title to property now vested in donee &
gift is perfect

Donatio mortis causa


'donatio mortis causa' (DMCs): a gift in contemplation of death
during donor's lifetime transfers property to donee (on condition it will take effect on donor's death)

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if formalities not complied with (imperfect on donor's death) donee can ask court to order personal
representatives to transfer property to him
DMC valid if:
gift made in contemplation, not necessarily expectation, of death
delivery to donee of subject matter of gift
gift made under circumstances showing that subject matter of gift reverts to donor should he recover
(conditional on death)

Contemplation
DMCs are only valid where lifetime transfer (conditional on donor's death) is made in contemplation of
death
must be some risk to donor which justifies donor contemplating comparatively early death

WILKES V ALLINGTON [1931] 2 CH 104


FACTS:
1922: uncle (U) told he cancer & refused operation
subsequently U was seriously ill & considered himself close to death
1927: U gave envelope (containing financial documents) to nieces (N) marked to be 'given
up at death'
1928: U died from pneumonia whilst still suffering from cancer
ISSUE:
was gift made in contemplation of death?
HELD:
gift was made in contemplation of death
fact he died from different cause than expected immaterial as cancer still threatened

THOMSON V MECHAN [1958] OR 357


FACTS:
Canadian case
donor feared flying & made gift on contemplation of death on a planned flight
donor survived flight but died two days later of heart attack
ISSUE:
was gift made in contemplation of death?
HELD:
original risk (flying) has passed so DMC failed

Delivery
delivery: donor must have parted with 'dominion' over property (donor no longer have practical power to
alter the subject-matter of the gift in some way)
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donor parts with dominion: making perfect gift conditional on death or if transfer was imperfect, but donor
passed to donee not property itself but means to control it
chattels: passed to transferee by physical delivery or deed of gift

RE LILLINGSTON [1952] 2 ALL ER 184


FACTS:
6 Feb 1950: Mrs Lillingston (L) had been ill for several months & stated to Mrs Pembery (P)
that she felt 'done for it'
L said she would give P her jewellery & gave P a key for safes to access the items
L stated: 'Keep the key it's yours now'
12 Feb 1950: L died
ISSUE:
was there sufficient delivery?
HELD:
sufficient delivery: by handing over key P had access to gift

WOODARD V WOODARD, THE TIMES, 15 MARCH 1991


hospitalised donor gave donee keys to his car stating: 'You can keep the keys, I won't be
driving it any more'
sufficiently parted with dominion despite not delivering log book

choses in action (intangible property) cannot be passed by physical delivery


DMC: sufficient if donor delivered document of title to donee or given donee dominion over the document

BIRCH V TREASURY SOLICITOR [1951] CH 298


document must be: 'the essential indicia or evidence of title, possession or production
of which entitles the possessor to the money or the property purported to be given'

DMC valid: in relation to unregistered land

SEN V HEADLEY [1991] CH 425


FACTS:
donee given keys to box containing deeds
ISSUE:
was dominion to property passed or just to deed themselves?
HELD:
deeds were indicia of title to house & transfer of deeds can constitute passing with dominion

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Conditional
can be implied from deceased statements
prior to death gift can be revoked (as conditional)

This article can be found online at www.bitsoflaw.org/trusts/formation/revision-note/degree/gifts-transfers-property where links to further


resources are available.

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