Beruflich Dokumente
Kultur Dokumente
TRUSTS | Formation
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
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
1 of 14
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
2 of 14
degree of understanding corresponds with value of gift (smaller gift lower degree of understanding)
higher degree of understanding sometimes required
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)
Company shares
shareholders are owner of companies, same rules apply to large companies (many shareholders) & small
companies (fewer shareholders)
shareholders must be correctly registered
3 of 14
transfer of intended gift (which was not legally effective until registration) can be validated by imposition of
a trust
4 of 14
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'
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)
5 of 14
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
Chattels
usually title to chattels ('choses in possession') is passed by physical delivery of asset to transferee
title can be passed by deed
6 of 14
court has to be satisfied there was intention to give & delivery of the subject matter of the gift
7 of 14
s.53(1)(c) LPA 1925 may not apply if equitable interest is transferred along with the legal title
8 of 14
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
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
9 of 14
'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
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'
10 of 14
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
11 of 14
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
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)
12 of 14
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
13 of 14
Conditional
can be implied from deceased statements
prior to death gift can be revoked (as conditional)
14 of 14