Creation of Express Trusts
Assoc Prof Cameron Stewart
Ways to create a trust
1. by declaration, where a titleholder expresses
his or her intention to hold their property on trust
for another;
2. by transfer, where title is transferred to a
person with instructions that it be held on trust
for another; the transfer can occur either via an
inter vivos transaction (which is generally
referred to as a ‘settlement’) or post mortem (by
will); and
3. by direction, where the beneficiary of an
existing trust directs the trustee to hold his or her
interest on trust for another.
The three certainties
Intention
Subject matter/Property
Beneficiaries/Objects
Without all three the trust will fail
Certainty of intention
An express trust will not be valid unless it is
clear that the creator has intended to create a
trust.
NB: resulting and constructive trusts do not have
to satisfy certainty of intention.
The requirement of certainty of intention does
not mean that the creator has to be fully aware
of the law of trusts before they can be found to
have intended to create a trust
Certainty of intention
Because of the focus on the creator’s
intention it is possible to create a trust without
using the words ‘trust’ or ‘trustee’
The intention to create a trust can also be
inferred from conduct
Commissioner of Stamp Duties v Joliffe
(1920) 28 CLR 178 the trust was not valid
even though express words of trust were
used
Foley v Foley [2006] QSC 347
La Housse v Counsel [2008] WASCA 207
Certainty of intention
Must be an intention to create a trust at that time
In Harpur v Levy (2007) 16 VR 587, a deceased
person had attempted to create a trust prior to death,
but the trust was not intended to commence until a
later time. Death unkindly intervened. The Victorian
Court of Appeal found that the deceased’s intentions
meant that the trust had never been constituted.
Re Armstrong (dec’d) two investment accounts had
been deposited by the settlor in a bank for 2 years.
The bank manager was instructed to give the principal
sums to the settlor’s sons when the investments
matured. Interest was to be paid to the creator. The
court found that there was an intention to create a trust
for the sons over the capital amounts, even though
those beneficial rights were postponed until the
investments matured.
Certainty of intention
The burden of proof in cases where the
intention of the creator is questioned, lies
on the person who alleges that a trust was
intended
Inter vivos: oral and written evidence
allowed
Certainty of intention
Parol evidence rule will not apply in situations where:
1. The disposition of the property that constitutes the trust
is not required to be in writing (eg the disposition was of
personal property): Boccalatte v Bushelle [1980] Qd R
180;
2. The document was not intended to be a complete
expression of the transferor’s intention: Star v Star
[1935] SASR 263; or
3. The document is ambiguous, Lutheran Church of
Australia v Farmers Cooperative Executors & Trustees
Ltd (1970) 121 CLR 628; Boranga v Flintoff (1997) 19
WAR 1, or created in circumstances of fraud, duress or
mistake.
Certainty of intention
In cases of post mortem trusts, the law
restricting extrinsic evi¬dence in the
interpretation of a will also applies in addition to
the parol evidence rule
if the creator transfers property and expresses a
motive, hope or expectation that the property will
be used in a particular way, the condition will be
viewed as precatory and impose no obligation. A
mere intention to create a trust which is not
acted upon will not satisfy the requirement of
certain intention: Chang v Tjiong [2009] NSWSC
122
Quistclose trusts
Trusts and debt
Mutual intention of settlor and trustee?
Barclays Bank Ltd v Quistclose Investments
Ltd [1970] AC 567; [1968] 3 All ER 651
The mutual intention of the parties can be
discerned from the language employed by the
parties, the nature of the transaction and the
relevant circumstances attending the
relationship between them
Quistclose trusts
Sole intention of trusee?
Re Kayford Ltd (in liq) [1975] 1 All ER 604
Stephens Travel Service International Pty
Ltd (receivers and managers appointed) v
Qantas Airways Ltd (1988) 13 NSWLR
331
Beneficiaries of life insurance
policies
In the Matter of An Application By Police
Association of South Australia [2008]
SASC 299
Certainty of subject matter
An express trust cannot exist without trust
property. The trust property must therefore
be reasonably identifiable or ascertainable
at the time the trust is created. This
requirement of identifiability is known as
‘certainty of subject matter’
Certainty of subject matter
One of the equitable maxims that is used here is ‘that
which is not certain is capable of being rendered
certain’. As long as it is possible to piece together the
clues to determine the identity and quantum of the
property it will be sufficiently certain
Re Golay’s Will Trusts [1965] 2 All ER 660, a gift of
‘reasonable income’ was upheld because the words
‘reasonable income’ were, in the circumstances,
capable of objective determination. In Estate of Chau
(dec’d) [2008] QSC 156, ‘a trust over any money that I
may have including any bank accounts’ was said to
include a wealth management account which
contained units in a unit trust with a bank.
Certainty of subject matter
Problems can occur when the trust property
is part of a number of identical items, for
example, ‘5% of 950 shares’. If the subject
matter has not been specifically identified the
trust is uncertain: Herdegen v Federal
Commissioner of Taxation (1988) 84 ALR
271
White v Shortall [2006] NSWSC 1379
Future property cannot be held on trust: Re
Rule’s Settlement [1915] VLR 670.
Certainty of objects
A trust will fail if the beneficiaries are not
identified with sufficient certainty. This is
sometimes known as ‘the beneficiary principle’
There are two exceptions to this rule. The first
exception is charitable trusts. The second
exception is a particular anomalous group of
trusts for animals
The level of certainty required by the beneficiary
principle changes subject to whether the trust is
a fixed trust or a discretionary trust
Fixed trusts and certainty
In a fixed trust the beneficiaries must be identifiable
in such a way as to allow the court to draw up a
complete list of the beneficiaries at the time their
beneficial interests come into effect : Re
Gulbenkian's Settlements [1970] AC 508; Lempens
v Reid [2009] SASC 179; Prosper v Wojtowicz
[2005] QSC 177
Problems can occur when the list of possible
beneficiaries is extremely long and the job of
discerning the identity of the beneficiaries cannot be
completed at the time the trust comes into effect:
West v Weston (1998) 44 NSWLR 657
Fixed trusts and certainty
Once the identity of the beneficiaries has
been ascertained the fact that it is difficult
to find the whereabouts or continued
existence of the beneficiaries does not
affect the certainty of the disposition.
Trustees can always apply to the court for
directions or pay the missing beneficiary’s
share into court
Certainty of beneficiaries in
discretionary trusts
It should be recalled that discretionary trusts, or trust
powers, are forms of trust whereby the trustee is given
the discretion to choose the beneficiaries.In cases where
the trustee’s discretion is unfettered the power of the
trustee is called a general power. Note, however, that in
such circumstances the trustee will be unable to use the
power for his or her benefit. If the trustee is permitted to
appoint themselves under a general power then there
will be no trust as such a power is tantamount to
ownership. Where the trustee is allowed to choose from
beneficiaries of a particular class, the power is referred
to as a special power. The trustee’s power might also be
an intermediate or hybrid power where the trustee is
allowed to choose beneficiaries as long as they are not
part of a particular class
Certainty of beneficiaries in
discretionary trusts
In Re Baden’s Deed Trusts; McPhail v
Doulton [1971] AC 424
‘criterion certainty’
Certainty of beneficiaries in
discretionary trusts
Unincorporated associations
Radmanovich v Nedeljkovic (2001) 52
NSWLR 641; Leahy v Attorney General
(NSW) [1959] AC 457; In The Estate of
Dulcie Edna Rand (dec'd) [2009] NSWSC
48; Hanchett-Stamford v Attorney-General
[2008] EWHC 330
The rule against delegation of
testamentary power: Tatham v Huxtable
(1950) 81 CLR 639
Complete constitution of an
express trust
‘Complete constitution’ generally refers to
the irrevocable transfer of the trust
property and the creation of the beneficial
interest.
executed trust which has been completely
constituted
executory trust, which is merely an
uncompleted agreement to create a trust
Complete constitution of an
express trust
An executory trust that is not supported by
consideration cannot be specifically performed,
nor can there be an order of part performance in
relation to it. This is because equity will not
assist a volunteer. However, this maxim does
not apply once the trust is executed. An
executed trust is enforceable, even at the suit of
a volunteer, because the trustee has been fully
burdened with fiduciary responsibilities
Complete constitution of an
express trust
Declarations of trust
Legal personal property - no writing
Equitable personal property – writing - Adamson v Hayes
(1973) 130 CLR 276
Land – writing
Wratten v Hunter [1978] 2 NSWLR 367, a son was given
land by his dying father. At the funeral of the father the
son declared that he was going to hold the land on trust
for the other members of the family. However, his
brother and sister later were unsuccessful in enforcing
the trust as the trust was not evidenced in writing. Nor
could they seek remedies in part performance as they
were volunteers.
‘Manifested and proved in
writing’?
Pascoe v Bensch (2008) 250 ALR 24
Department of Social Security v James
(1990) 95 ALR 615
Marchesi v Apostoulou [2006] FCA 1122
Complete constitution of an
express trust
Creation by transfer
Trusts created by transfer will be executed
when the title of the trust property has
been completely and irrevocably
transferred to the trustee
Inter vivos – perhaps writing or Milroy
Post mortem - wills
Complete constitution of an
express trust
Creation by direction
A trust is created when the beneficiary of
an existing trust directs the trustee to hold
his or her interest on trust for another. This
is a disposition of an existing equitable
interest and, as such, needs to be
evidenced in writing
An agreement to create a
trust at a later time
In Queensland the Court of Appeal has held that executory contracts for
interests in land are covered by the requirements for writing in the Property Law
Act 1974 (Qld), s 11(1)(b): Riches v Hogben [1986] 1 Qd R 315; Theodore v
Mistford.
ISPT Nominees Pty Ltd v Chief Commissioner of State Revenue (2003) 12 BPR
22, 941
Halloran v Minister Administering National Parks and Wildlife Act 1974 (2006)
229 CLR 545; 224 ALR 79
Sorna Pty Ltd v Flint [2000] WASCA 22 at [7]
Abjornson v Urban Newspapers Ltd [1989] WAR 191 at 200.
Thompson v White a joint venture agreement involved the purchase of property
in the name of one of the parties with a view to renovating it and selling it. The
profits were to be split between the parties. The agreement did not purport to
immediately create any legal or equitable interest in the property in favour of the
other parties to the joint venture. On that basis, the New South Wales Court of
Appeal found that there was no requirement of the agreement to be in writing.
Baloglow v Konstanidis [2001] NSWCA 451
Khoury v Khouri (2006) 66 NSWLR 241
Secret trusts
Form of testamentary trust
fully secret trusts where there is no record
of the testator’s intention to create a trust
in the will
half secret trusts, where the testator
indicates his or her intention that the gift is
not to be held beneficially, but is held
subject to some private instruction that has
been communicated by the testator
Secret trusts
1. the testator must intend to subject the
donee to an obligation of trust;
2. the testator must communicate the
intention to the donee; and
3. the donee must accept the obligation
before the testator’s death.
Secret trusts
The nature of the secret trust has been
subject to long debate. On the one hand, a
secret trust can be understood as part of
the will, on the other, the trust can be seen
as an independent trust that exists
separately from the will. It is now accepted
that the secret trust is the latter
What is the trust property of a secret trust?
Contsructive?
Problem
Eric was a wealthy fashion
designer, and was happily
married to Stephanie. During
the Vietnam War, while
stationed at Darwin, Eric had
an affair with Brooke. As a
result of that affair Eric and
Brooke had a son named Eric
Jnr. Eric’s past was unknown
to Stephanie. Eric was
concerned that Brooke and
Eric Jnr were satisfactorily
provided for in his will. Eric
thus made a will, in 1980, and
clause 7 of the will read as
follows:
Problem
I leave $500,000 to my son Ridge feeling
confident that my express wishes in
relation to this money will be carried out.
By clause 15 of Eric’s will, Stephanie was
named as beneficiary of the residue of his
estate.
Problem
On 1 April 1997 Eric showed his will to his son
Ridge and handed him a sealed envelope. He
said to Ridge: ‘I want you to carry out the
instructions contained in this letter after I die.
You are not to tell your mother about it.’ Ridge
said nothing in response but nodded to indicate
that he agreed to abide by his father’s wishes.
On 1 May 1997, Brooke died in an automobile
accident. Upon hearing of the news of Brooke’s
death Eric suffered a heart attack and eventually
died on 1 June 1997.
Problem
After his father’s death Ridge opened the
envelope he had been given in April 1990. In the
letter Eric stated that the $500,000 referred to in
clause 7 of his will was to be held on trust for
Brooke. In trying to locate Brooke, Ridge
discovered that she had died and had left a will
appointing her son Eric Jnr as executor and
beneficiary of her entire estate.
Ridge seeks your advice as to what is to happen
to the $500,000 referred to in clause 7 of Eric’s
will.