Nature and Creation of Express Trusts

Trust – is an arrangement involving property whereby one person, the , has an obligation to hold the property for the benefit and on behalf of another, the .

- The most common type of trust arises when the trustee is the legal owner of the property and the beneficiary has a equitable beneficial interest. - The trustee will always have a obligation to hold the property for the beneficiary. - The beneficiary will always have an , which is enforceable in equity.

The nature of the trustee-beneficiary relationship 11.2

- Fiduciary - Relationship of utmost trust and confidence - Enforceable only in the courts of equity Indicia of a trust

The three indicia of a trust are: trustee, property and beneficiary.

Characteristics and elements which both indicate the existence or and are essential for a trust:

Trustee: The legal or equitable interest in the property is held by one or more persons and/or . The holder of the interest must have an obligation to deal with and/or administer the property on behalf of and/or for the benefit of another person or persons - This is a trustee.

Property: There must be some form of property that is capable of being held on trust. Must be clearly indentified and identifiable. If there is uncertainty as to the indentity of the property, there can be no trust. The property which forms the substance of the trust is called ‘the subject.’

Beneficiary: There must be one or more persons for whose benefit the trustee is obliged to hold the property. These are ‘beneficiaries’ or ‘objects’ of the trust. A trustee may be the beneficiary of a trust if there is one of more other beneficiaries but cannot be the sole beneficiary. If this occurs, the to the property and the beneficial interest in the property will merge and the trust will no longer exist: Re Cook [1948]

Obligations/Duty: Finally, the trustee must be under an obligation to hold and administer the subject matter of the trust for the benefit of the beneficiary. This obligation creates corresponding rights in the beneficiaries. If the person who is holding the property is not holding it for the benefit of another person, there is no beneficial interest and therefore, no trust.

Categories of trusts

Express trusts are trusts created with the intention that the trustee holds the property for the benefit of the beneficiaries.

Terminology:

The settler – The person who creates the trust and who transfers the property to the trustee. A person may declare that they are holding property for the benefit of another and thereby become both the settler and the trustee.

The – Express trusts are usually created by the execution (or signing) of a trust deed, this is sometimes called a trust instrument. The deed sets out the name of the trustee, the exact identification of the property and the names of the beneficiaries. Under some circumstances a trust may be created by oral declarations.

Public trusts – Are created for the charitable purpose which benefit the public generally.

Private trusts – are formed for the benefit of specific beneficiaries or classes of beneficiaries.

Testamentary trusts – These are trusts created pursuant to the terms of a will.

Bare trusts

A is the most straightforward form of express trust.

The trustee’s obligation –

• Hold property until the beneficiaries require title to be transferred to their name; Wade v Wade [2009] • Generally agreed that the trustee’s primary obligation is to preserve trust property. • The trustee’s duties depend upon the circumstances in which the trust is created; Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998).

Fixed express trust

Trustee’s powers and duties -

• Set out in trust deed. Generally have little discretionary power. • If trustee does not carry out duties there will be a breach of trust.

Beneficiary’s rights – have equitable proprietary interest in the trust property

Discretionary Trust (opposite to fixed trust)

Two Types:

• Exhaustive – where the trustee is obliged to make distribution from the trust property to the beneficiaries; Sir Moses Montefiore Jewish Home v Howell & Co • Non-exhaustive discretionary trust – Trustee not require to make contributions and in which the income may be accumulated.

Trustee powers and duties -

• Trustee is given discretion as to certain aspects of dealing with the trust property and the entitlements of beneficiaries. • Although they are given certain powers in the trust deed – still subject to any obligations set out in the instrument • Still subject to obligation from equity and statue.

Beneficiary’s rights:

• Beneficiaries do not have any equitable proprietary interest in the trust property • Beneficiaries merely have the right to compel the proper administration of the trust and/or require the trustee to consider making distributions from the trust assess; Kennon v Spry

Charitable Trust (discussed later)

A fixed, express public trust created for a charitable purpose – for public benefit.

Four types

1. The relief of poverty 2. The advancement of religion 3. The advancement of education 4. Other purposes beneficial to the community

Trading Trusts

Type of express trust which is generally for a corporation conducting a business for the beneficiaries Superannuation Trusts

• Hold property for the purpose of providing retirement benefits to beneficiaries. • Regulated pursuant to the Superannuation Industry Supervision Act 1993 (Cth) Unit Trusts

• Unit trusts are trusts purchased by the beneficiaries or unit holders who thereby acquire a share in the corpus of the trust and become entitled to a proportion of the trust income.

Beneficiary/unit holders rights:

• An equitable interest in trust • They are more similar to shareholders in a corporation then beneficiaries of an express trust.

Trust imposed over property by the court

Sometimes a beneficial interest in an express trust may fail, in which case the court will declare that the beneficial interest reverts to the settler. Alternatively they may order a ‘court-created trust:’

Resulting trusts (discussed later)

- Created or imposed by the court when there has been a failure of beneficial interest in the trust.

‘Automatic’ - Beneficial interest which is not disposed under the trust deed will be vested by the court ‘automatically’ in the settler.

‘Presumed’ resulting trust - This is when the settler or purchaser’s intention to created a trust in imposed by the court.

Constructive trust (discussed later)

- Imposed if it would be unconscionable for one party to hold property free of the beneficial interest of another. Quistclose Trusts A Quistclose trust is a particular type of trust which arises when A provides or lends money to B and the parties intend that:

- The funds are to be held by B for a specific purpose, but - If that purpose cannot be achieved, or can be only partly achieved, then - B will hold the money on trust for A until it has been repaid to A.

Developed from the below case:

Barclays Bank Ltd v Quistclose Investments Ltd

Facts – In this case “Rolls” was in severe financial difficulty. It had to borrow money from Quistclose Investements so that he could pay dividend to shareholders. The declaration to the dividend created a debt owed by the company to the shareholders. It was agreed between Rolls and Quistclose that the funds should not form part of the assets of Rolls, but would be used solely for the payment of the dividend. The funds provided by Quistclose were accordingly paid into a special account held with Barclays Bank and Barclays were informed by Rolls of the purpose of the special account. Before the dividends could be paid, however, the directors of Rolls placed the company in voluntary liquidation. Barclays attempted to use the funds in the special account to pay off Rolls indebtedness to the Bank.

Issue:

- Whether, because of the arrangement between Rolls and Quistclose, Rolls held the fund son trust for Quistclose - Whether the funds became part of the assets of Rolls as a result of the non- payment of the dividend - If Rolls were a trustee of the funds, whether Barclays has been given notice of the fact.

Outcome – it was held that the agreement between Rolls and Quistclose in regard to the purpose of the funds and their disposition in a special account gave rise to a ‘primary’ trust in favour of the shareholders. It was the intention of Rolls and Quistclose that if the money was not paid out as a dividend, the fund was to be held on a ‘secondary’ trust in favour of Quisclose.

Quistclose had the right to be repaid and also the beneficial interest in the funds; ‘the secondary trust.’ Distinction between trusts and other forms of property relationships

Trust – fiduciary obligation

A fiduciary has a fundamental obligation to act in the best interests of his principal and not to put himself in a position in which his duty conflicts or may possibly conflict with his interest, unless his principal gives his informed consent after full disclosure Whilst all are , not all fiduciaries are trustees. For example, company directors are not trustees: Re International Vending Machines Pty Ltd [1962] NSWR 1408 per Jacobs J, comparing the company director with the Trustee

A trustee always holds property for the beneficiary.

ii) Trustee – executor

An executor is like trustee in that he owes fiduciary duty to the of a will. However, although after the executor holds legal title to the deceased’s , he does not become a trustee. An executor will only become a trustee if, for some reason there has been a delay in the distribution of the assets (“the executor’s year”) AND the court thinks it appropriate. Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694 iii) Trust – bailment

A bailor delivers chattels to the care of the bailee subject to a condition that they be returned to bailor, when the purpose of the bailment has been carried out. The bailee obtains only possession of the property, not legal or equitable title to it. iv) Trustee – legal mortgagee

A mortgagee holds the legal title whilst the mortgagor has an equity of redemption. Thus, the mortgagee has a security interest in the property for his own benefit. On the other hand, a trustee holds the property for benefit the benefit of a beneficiary. A mortgagee can purchase the property which is subject to the mortgage, while trustee cannot purchase trust property for his own benefit.

v) Trust – agency

Agency arises when person (agent) has an express or implied authority to act on behalf of another (principal), usually in a contractual arrangement. Equitable consequences have been superimposed on this relationship, so that the agent is treated as a fiduciary.

However, an agent does not hold legal title to the principal’s property, although he may have the right to sell it on the principal’s behalf. On the other hand, whilst an agent can bind his principal to a , a trustee when he enters into a contract, cannot bind the beneficiaries. Palette Shoes Pty Ltd (in liq) v Krohn (1937) 58 CLR 1.

Express Trust A trust created by the (the person who transfers to property to the trustee) with the intention that the trustee should hold the legal and equitable property on behalf and for the benefit of the beneficiaries.

• SETTLOR – Assigns legal title to the trustee. • TRUSTEE – Holds legal title to the property for the benefit of the beneficiaries. • BENEFICIARIES – Derive some sort of benefit from the property being held by the trustee.

The Essential Elements of an Express Trust

The following a necessary for an express trust to be valid: (all discussed in detail below)

1.Three certainties:

ü Intention ü Subject Matter ü Object.

2.Beneficiary principle:

ü Must be for the benefit of persons or for charitable purposes; Morise v Bishop v Durham (1804)

3.Trust must be either:

ü Fully constituted or, ü Supported by valuable consideration

4.Writing Requirement:

ü Only where statue require that the trust must be created in writing. Eg. Conveyancing Act s23C.

5.Must be no “buried flaw” such as”

ü Incapacity on the part of the creator of the trust ü Illegality of purpose ü Or other vitiating factor

The three certainties Certainty of intention

Require an intention to “create a trust” rather than some other form of obligation.

The question to ask – Whether the transaction gives rise to a trust, or some other form of arrangement regarding property? (eg. Bailment or mortgage.

1.Words of precation:

Court will look at words actually used and ask whether they reveal the intention.

• A precatory word is a word which expresses a wish, hope or desire – vague ambiguous words. • A gives property to A and expresses the wish/desire/confidence, request recommendation that A will confer a benefit on B.

Problem with words of precation:

- These vague words (wish/hope/desire) raise doubts as to whether the testator intended to impose anything more than a moral obligation. - The question to ask: Did the settlor intend a binding obligation? - When this occurs the court will construe the transaction/ will as a whole to ascertain the settlor’s intention.

Cases:

Re Williams [1897] 2 Ch 12 [Eng CA], 27 – SHOWS HOW VAGUE WORDS CAN NOT BE BINDING

Facts - A testator bequeathed the residue of his estate to his wife “absolutely, in the fullest confidence that she will carry out my wishes in the following particulars …” The wife did not carry out all the wishes of the testator as expressed in the will Outcome - The widow took absolutely, free of any obligation.

2.Illusory trust – using the word “trust”

• An illusory trust occurs when the word “trust” is used, but it is fairly clear that settlor did not intend any equitable benefit to be created. • It therefore becomes a question of the intention of the settlor. • An example of this: when the word “trust” is used in its popular or lay meaning rather than its legal meaning.

Cases: Dean v. Cole (1921) 30 CLR 1 – NO INTENTION TO CREATE A TRUST. JUST TO EXPRESS WISHES. Facts: A testator devised his estate to his wife “trusting to her that she will at some time during her lifetime, or at her death, divide in fair, just and equal shares between my children … all such part and portion of my estate as she may, be in the use and enjoyment of …”

Outcome: The testator had not intended to create a trust, merely to express his wish that the wife would dispose of her property in her will fairly and justly. The wife took absolutely

*Commissioner of Stamp Duties v Jolliffe (1920) 28 CLR 178 CREATED A TRUST WITH NO INTENTION TO CREATE A TRUST Facts: In Qld a person was statutorily prohibited from holding more than one bank account in their name. Mr J wanted to open a second bank account, so he opened it in his own name BUT adding that it was held “on trust for” Mrs J. When Mrs J died, the Commissioner of Stamp Duties claimed estate duty on the money in the bank account, on the basis that Mrs J had a beneficial interest in the account which passed on her death to her estate.

Mr. J contended that he did not intend that a trust be created.

Outcome - No trust had been created by Mr J because there was no real (subjective) intention to create a trust.

Law – The effect of this case is that the mere opening of an account such as this is not necessarily sufficient to make the person “trustee of another”. In Kauter v Hilton (1953) 90 CLR 86 the High Court using this case as authority stated that “all relevant circumstance must be examinded in order to determine whether the depositor really intended to create a trust.”In Kauter v Hilton (1953) 90 CLR 86, the High Court treated Jolliffe as deciding, for the purposes of the legislation in question, that “all the relevant circumstances must be examined in order to determine whether the depositor really intended to create a trust. . . . The effect of CSD v. Jolliffe is that the mere opening of an account such as this is not necessarily sufficient to make the person ‘trustee’ of another.”

As seen below it is now the case that SUBJECTIVE INTENTION IS IRRELEVANT.

The below case is contrary to the above case and is the new authority.

***Byrnes v Kendle (2011) 243 CLR 253, CONTRARY TO COMMISSIONER CASE - overturn the principle enunciated in Joliffe.

Facts: Ms Byrnes and Mr Kendle had been married in 1980. In 1984 they purchased a property in Mr K’s name and in 1989 a trust deed was executed in which Mr K declared that he held one half of the property on trust for Ms Byrnes. In 1994 they sold the first property and purchased another. Mr K was the sole registered proprietor of this property, but a new trust deed was executed in the same terms as the first. The parties moved out of the second property in 2002 and Mr K rented it to his son for a nominal rent, of which only the first two weeks were ever paid. The parties separated in 2007 and Ms Byrnes assigned her interest in the property to her son, a solicitor. In 2008 Mr Byrnes commenced proceedings against Mr K for breach of trust – failing to collect the rent and failing to account. Mr K’s defence was that there had been no trust, and, if there had, he had no active duties and that if he were subject to duties and obligations, Ms Byrnes had acquiesced to any breaches.

Issue: Was there a trust? If so, was Mr K subject to obligations and duties re the property and if he was in breach, had Ms B acquiesced to the breaches.

Outcome - There was a trust and Mr K was in breach of his duties as trustee in failing to collect the rent. Ms B had not acquiesced to the breaches. In finding that there was a trust, all members of the High Court (in two joint and one individual judgment) were at pains to overturn the Jolliffe principle. It was held that a trust must be inferred ONLY from the face of any documentation alone and that the subjective intention of the putative trustee (to be inferred from surrounding circumstances) was irrelevant.

Certainty of Subject Matter

Concerned with whether certain types of property are capable of being held on trust and the identification of the property to be held on trust.

• Generally, any property can be held on trust, including an equitable interest of a chose in action. • It was held that even property which is not assignable can be held on trust. Such as involving personal skill and confidence; Don King Inc v Warren [2000] Ch 291

Elements that the creator of the alleged trust must do: Herdegen v FCT (1988) 84 ALR 271

ü Identify the particular property to be held on trust ü Specify the quantum of the beneficiary’s interest (this must be identified too)