Variation and Termination of
Express Trusts
Associate Professor Cameron
Stewart (with a few additions by
Dr Lisa Ford, UNSW)
Variation of Express Trusts
Powers to Vary Contained in Express Trusts
A trust instrument can contain provisions which
give the trustee the power to make certain
amendments to the trust arrangement. For
example, it is common for discretionary trusts to
grant a power to the trustee to add beneficiaries
to the class of objects: Ford & Lee at [15260]. In
Kearns v Hill (1990) 21 NSWLR 107 the NSW
Court of Appeal found that the power of variation
contained in a trust instrument was to be given
its natural an ordinary meaning even where it
included a power to vary the identity of the
beneficiaries of the trust.
Variation of Express Trusts
Inherent Power to Vary Trusts
Emergencies:
• Changes in the nature of investments for infants
from personalty to realty, Lord Ashburton v Lady
Ashburton (1801) 6 Ves 6; 31 ER 910; Re Jackson
(1882) 21 Ch D 786;
• Investments in business transactions not authorised
by a trust of settled land, Re Collins (1886) 32 Ch D
229; Havelock v Havelock (1881) 17 Ch D 807;
• Payment of maintenance out of income , even
where there is a direction to accumulate income, Re
New [1901] 2 Ch 534; Re Tollemache [1903] 1 Ch
955; and
• Compromises in favour of unborn children, Re
Trenchard [1902] Ch 378; Salkeld v Salkeld (No 2)
BC 200001626; [2000] SASC 296
Variation of Express Trusts
Tickle v Tickle (1987) 10 NSWLR 581, Young J
decided not to follow the restrictions placed on the
courts power as set down by Chapman v
Chapman. Instead, His Honour found at 586 that
the inherent power might embrace circumstances
where there was 'an element of salvage and a
flavour of compromise and the combination of
these factors may make it a proper case for the
court to exercise jurisdiction to vary.' As such
Young J thought it wise to add a fifth category
where the power to vary should be exercised
when circumstances have occurred which have
tended to thwart the settlor's intention and where
the parties have consented to a course which will
effect an alternative scheme in line with the
settlor's intention.
Variation of Express Trusts
Statutory Power to Vary Trusts
• After the Second World War, the taxation
of family trusts in Britain led to political
pressure to allow variation of express
trusts in ways that would lessen the impact
of taxation
• Trustee Act 1925 (NSW), s 81
Termination or failure of express
trusts
• Illegality: Any estate involved will be
allowed to lie where it falls, meaning that
equity will not upset the legal title of the
property by imposing a trust: Holman v
Johnson
• The court’s finding of illegality depends on
whether the party has to rely on evidence
of his or her own fraud to prove their title
— equity will not assist them: Tinsley v
Milligan
Termination or failure of express
trusts
• However, if it is possible to prove title without the
need to rely on evidence of illegality, the title can
be upheld in equity. For example, in Tinsley v
Milligan, a house had been purchased jointly by
the parties but registered in the name of one
party, so as to allow the other to continue to get
social security. Given that one party had
provided part of the proceeds an automatic
presumption arose of a resulting trust: see
Chapter 21. The resulting trust was found to be
valid because it arose without the necessity to
bring evidence of the illegal purpose behind the
transaction.
Termination or failure of express
trusts
• In Australia the Tinsley v Milligan
approach has been rejected and a more
flexible test adopted that requires the court
to examine the policy behind the law that
has been breached
Termination or failure of express
trusts
• Nelson v Nelson (1995) 184 CLR 538
• A mother paid the purchase price of a house which was
then registered in her son and daughter’s names. The
purpose behind the transaction was to allow the mother
to purchase another home at some future time, with the
benefit of a subsidy under the Defence Service Homes
Act 1918 (Cth). The subsidy was only available for one
house. Sometime later the mother purchased another
house with the use of the subsidy, making false
declarations that she did not own any other property.
The house in the children’s names was later sold. The
daughter argued that she had a beneficial interest in the
proceeds, whereas the mother and the son claimed a
beneficial interest for the mother.
Nelson v Nelson
Mother
LAW: Legal Title holders?
(son and daughter)
Purchase $$
House
Who gets
beneficial
title in the
proceeds?
EQUITY: Resulting trust
presumed for benefit of ‘real’
purchaser (mother)
Registration
EQUITY: Presumption of
Son &
Daughter
resulting trust is negated by
presumption of advancement
when purchase money
provided by a parent and
property put in name of a child
So unlike Tinsley v Milligan, Mrs Nelson had to rely on her illegal behaviour
to show that she did not provide the purchase price for the benefit of her
children.
Termination or failure of express
trusts
• Deane and Gummow JJ found that there
should be no general policy of letting the
loss fall where it lies. Instead equity should
look at the specific circumstances of the
case and the particular policy behind the
law that had been breached. After
analysing the Act, Deane and Gummow JJ
found at CLR 570; ALR 158 that the policy
was to help eligible persons purchase
dwellings. It was not to prevent them from
owning more than one house.
Termination or failure of express
trusts
• As such, the policy did not require the
court to automatically refuse equitable
relief. Additionally, given the mother was
seeking equitable relief, she was obliged
to make good the amounts that she had
defrauded from the government, before a
resulting trust would be enforced
Termination or failure of express
trusts
• McHugh J stated at CLR 613; ALR 193:
• … courts should not refuse to enforce legal or equitable
rights simply because they arose out of or were
associated with an unlawful purpose unless: (a) the
statute discloses an intention that those rights should be
unenforceable in all circumstances; or (b) (i) the sanction
of refusing to enforce those rights is not disproportionate
to the seriousness of the unlawful conduct; (ii) the
imposition of the sanction is necessary, having regard to
the terms of the statute, to protect its objects or policies;
and (iii) the statute does not disclose an intention that
the sanctions and remedies contained in the statute are
to be the only legal consequences of a breach of the
statute or the frustration of its policies.
Termination or failure of express
trusts
• Toohey J, at CLR 5978; ALR 180 did not require the
mother to pay back the subsidy as that was a matter for
the government
• Dawson J took a different path and found that the false
declaration was not sufficiently related to the
circumstances giving rise to the resulting trust. The
purchase of the home occurred a substantial period
before the false declara tion was made. His Honour
rejected at CLR 581; ALR 166 the distinction drawn in
Tinsley v Milligan between cases where the illegality
needs to be relied upon and those where it does not.
Like Toohey J, Dawson J did not require the mother to
repay the subsidy, given that the government had the
power to recall it.
Termination or failure of express
trusts
• Day v Couch [2000] NSWSC 230, the plaintiff was in a
car accident and believed that he was liable for a large
claim of damages. He transferred properties to his father
for the purpose of making them unavailable to any
possible creditors. However, no claim was brought
against him. After his father’s death he sought a
declaration that he was the beneficial owner of the
properties on resulting trust. There was no breach of any
statute as the consequences of the illegal intent did not
occur. As such Bryson J upheld the imposition of a
resulting trust.
Public policy
• Immorality: A trust that promotes immorality will
be invalid. Under this heading trusts in favour of
future illegitimate children have been struck
down: Re Ayles’ Trusts (1875) 1 Ch D 282,
although it would seem highly unlikely that this
would be the case in modern times
• Trusts that completely restrain a person from
marrying, or which encourage a person to
divorce, are also void: Re Johnson’s Will Trusts
[1967] 1 All ER 553.
Public policy
• Trusts which have the effect of separating parent
and child will also offend public policy:
Re Boulter; Boulter v Boulter [1922] 1 Ch 75.
• A trust for one’s widow or widower which ceases
on their remarriage is valid: Lloyd v Lloyd (1852)
2 Sim (NS) 255; 61 ER 338.
• Partial restraints on marriage, such as
preventing marriage to a person of a particular
religious denomination, race, ethnicity or class,
have also been upheld: Seidler v Schallhofer
Public policy
• Kay v SESAHS
• I give the Children’s hospital at Randwick $10,000 for the
treatment of White babies
• Racial Discrimination Act s 8(2)
This Part does not apply to:
(a) any provision of a deed, will or other instrument,
whether made before or after the commencement of
this Part, that confers charitable benefits, or enables
charitable benefits to be conferred, on persons of a
particular race, colour or national or ethnic origin; or
(b) any act done in order to comply with such a
provision
Restraints on alienation
• Once property has been given absolutely on
trust, any restraint that is inconsistent or
repugnant to that absolute gift will be invalid. For
example, a restraint purporting to prevent the
sale of the property after it has been given
absolutely will be void: Public Trustee v
Donoghue [1999] TASSC 147. Similarly in
Brandon v Robinson (1811) 18 Ves 429; 34 ER
379, a trust which granted a life interest was
given on the basis that the life interest was not
transferable. This restraint was void because the
life interest contained a power to alienate, which
was offended by the condition subsequent.
Restraints on alienation
• A distinction must be drawn between an
absolute gift that is subject to a restraint, and a
determinable interest that automatically ends on
the happening of some event. The absolute gift,
which is subject to a condition subsequent, in
effect grants a complete interest, that is then
divested on the satisfaction of the condition. As
such, this type of condition subsequent is void
as a restraint on alienation. If, however, the
interest transferred in trust is determinable, the
interest is considered to have ended naturally on
the occurrence of the event:
Restraints on alienation
• For example, ‘to A on trust for B for life,
but if B ceases to use the property as a
hotel, then to C’ is considered to contain a
restraint on alienation. The life interest is
granted to B, but can be artificially cut
short by the event of B no longer using the
property as a hotel. Such a condition subsequent is a restraint on alienation.
Restraints on alienation
• However, if the trust was worded ‘to A on trust
for B for life until B ceases to use the property as
a hotel’, B’s life interest is always limited in time
to the event of the property no longer being used
as a hotel. If and when the property is no longer
used as a hotel B’s estate comes naturally to an
end. This disposition is not considered to be an
absolute gift with a limitation, as the interest
contains the limitation within itself. As such there
is no restraint on the interest granted
The rule against indestructible
trusts
• A trust instrument that seeks to prevent
the beneficiaries from eventually using and
exhausting the capital of the trust funds
will be void. Such a trust is objectionable
because it prevents the trust property from
being alienable: Re Cain [1950] VR 382 at
391. Such a trust also offends the rights of
beneficiaries under the rule in Saunders v
Vautier
The rule against perpetuities
• The purpose behind the rule is to place
time limits on the creation of interests in
property that prevent testators from being
able to forever control property from the
grave via the use of infinite successive
interests
• McCrimmon states at 130:
– While strong arguments can be made for the
abolition of the Rule, that fact remains that it is
part of our law and legal practitioners and law
students should have an understanding of its
application
The modern rule against
perpetuities
• An interest that is created to vest
some time in the future, must vest
within a life in being plus 21 years
from the date the instrument becomes
effective
The modern rule against
perpetuities
• Note that the rule is not concerned with how long an
interest will last. It is only concerned that the interest vest
within the perpetuity period.
• A ‘vested interest’ is an interest in property that has
taken effect in possession, or one that will take effect in
possession through the natural determination of prior
estates. To illustrate, consider a gift ‘to A on trust for B
for life, and then to C’. This disposition contains three
separate interests: the legal title of A as trustee, the
equitable life estate in B and the remainder to C. All of
these interests are considered to be vested. A’s interest
has taken effect in possession.
The modern rule against
perpetuities
• To contrast, consider a gift of property ‘to
A on trust for B for life, then to C if C
attains 21 years’. Unlike the previous
example, C’s interest will not automatically
come into possession on B’s death. C’s
interest is subject to a contingency, and is
referred to as a ‘contingent remainder.’ C’s
interest will only vest if C attains the age of
21.
The modern rule against
perpetuities
• The perpetuity period is equivalent to a life in
being plus an additional 21 years. The phrase a
‘life in being’ is usually a reference to the life of
someone mentioned expressly in the disposition.
The life in being must be human and the person
must be alive at the date of the creation of the
interest:
• For example, in a gift to ‘B for life and then to
any children of B who attain 18 years’ the life in
being is taken to be B. The contingent interests
of the unborn children must vest within 21 years
after the death of B.
The modern rule against
perpetuities
• More than one person can be employed in
a disposition as ‘lives in being’. When a
class is used the 21 years runs from the
death of the last survivor in the class.
Classes will only be valid if the class is not
capable of increasing in number when the
instrument takes effect. Moreover, the
class must be capable of ascertainment at
the date the instrument comes into effect.
The modern rule against
perpetuities
• A popular example of this principle is the
‘royal lives’ clause where the lives in being
are defined to be the descendants of a
particular member of the royal family. For
example, in Clay v Karlson (1998) 19
WAR 287, the life in being was defined to
be the last living survivor of King George
V.
The modern rule against
perpetuities
• If the life in being is an unborn child (en
ventre sa mere — ‘in the belly of the
mother’) the length of gestation is added to
the perpetuity period.
• People are presumed to be able to
reproduce no matter what age they are!!!!!
SOME STEPS
1. Is this a perpetuity problem? IE is there a
contingent remainder
2. When is the interest created? (death?
Inter vivos)
3. Who is the life in being? (living person or
closed class of living persons)
4. Is there any possibility that it will vest
outside the period of LIB + 21 years
5. Is there some mitigating rule or statute
(will talk about later)
DRAW IT ON A DIAGRAM!!!!
The modern rule against
perpetuities: EXAMPLES
• An inter vivos gift ‘to A on trust for B for life, and
then to any of B’s children that marry’. In this
disposition the life in being is taken to be B. If B
is alive at the time of the creation of the trust, the
gift is to the children is void. B’s interest is
vested but the children’s interest is contingent on
them marrying. B may have children after the
trust is created and those children might marry
more than 21 years after B’s death
B is life in Being
B’s children can marry more than
21 years after his death
To A on trust B for life, then to any of B’s children that marry
The modern rule against
perpetuities
• A gift of a gravel pit on trust to A to use
until the pit is exhausted, and then to be
sold and divided equally among the
testator’s living issue. Assume that the pit
is actually exhausted after six years. This
gift will still be void because at the date the
gift becomes effective it may take longer
than a life in being and 21 years for the pit
to be exhausted. This is known as an
example of the magic gravel pit
A is life in being
At the time the gift vests, no one knows if the gravel pit
will ever be exhausted.. Doesn’t matter if it is in fact
exhausted before perp pd POSSIBILITY = VOID
gravel pit on trust to A to use until the pit is exhausted, and then to be sold and
divided equally among the testator’s living issue
The modern rule against perpetuities
• A testamentary gift ‘to A, my wife, for life, then to
A’s children for life, then for such of any children of
my brother and sister who attain 21’. In this
example, the wife is treated as the life in being.
Assume that at the death of the testator his
parents were both aged 66. Regardless of this
fact, it is presumed under the modern rule that
both parents were fertile and could produce more
children. Therefore the gift over to the nephews
and nieces is too remote as it was possible that
the parents of the testator could have more
children who might then breed and add to the
class more than 21 years after the death of the
wife. This is known as the example of the fertile
octogenarian
A (wife) is LIB
Brothers + Sisters of T can be
born and have babies
Babies of brothers and sisters
can reach 21
‘to A, my wife, for life, then to A’s children for life, then for such of any children of
my brother and sister who attain 21’ (T’s parents are old but living at the time of
death)
Common Law Amelioration
To soften the Rule against perpetuities,
courts developed the Rule in Andrew v
Partington (1791) 3 Bro CC 401; 29 ER
610. It is best explained through example.
TAKE THE VOID GIFT:
‘A on trust for B for life and then such of
B’s children that attain 25 years’
B is LIB
B can have children
until the day he dies
B’s children can turn 25 >21
years after B’s death
‘A on trust for B for life and then such of B’s children that attain 25 years’, where B
is alive at the time death/effect
RULE IN Andrews v Partington
If one of B’s children turns 25 before the first
interest vests, the class of B’s children is
closed.
Children born after that date don’t get
anything.
So the gift doesn’t offend the Rule
Statutory reform
• The primary reform has been the
introduction of wait-and-see provisions:
Perpetuities Act 1984 (NSW), s 8(1)
• The second major reform is in relation to
the calculation of the perpetuity period.
The period is set at 80 years
automatically: Perpetuities Act 1984
(NSW), s 7
Statutory reform
• The third reform consists of an automatic
reduction in age for beneficial interests
that would fail because they are stipulated
to take effect upon the beneficiaries
reaching a specified age beyond 21 years
plus a life in being. In some jurisdictions
the age can be read down to an age that
would not infringe the modern rule:
Perpetuities Act 1984 (NSW), s 9(1)
Question
• Sue died leaving a farming property and a
large bank account. Under her will, Sue
appointed her brother Lex as executor and
trustee of her estate. Sue was a
prejudiced woman and disliked Catholics
immensely. Clause 4 of her will stated:
• I give the farm to Lex on trust for Elizabeth
for life, on the condition that Elizabeth is
not married to a Catholic.
Question
• Clause 8 of her will states:
• I give $200,000 to Lex on trust for Anthony, then
for any wife he may marry for life, then to
Anthony’s children that attain 25 years.
• At the time of Sue’s death, Elizabeth had been
married to Patrick (a Catholic) for five years. Sue
had been aware of the marriage and did not
approve. Anthony was aged 65 and had not yet
married or had any children. He was, however,
considering marriage to Bronwyn, his girlfriend
who was aged 70. Analyse the validity of these
trusts.
Solution
• Given the use of the phrase ‘on the condition
that’ in cl 4, the gift of the life estate to Elizabeth
has taken the form of a disposition with a condition subsequent. The condition subsequent
concerning a marriage to a Catholic can be
struck out as being against public policy
because it requires Elizabeth to divorce. At first
glance the gift appears to be a valid partial
restraint of marriage as the condition restrains
marriage to a person of a particular religious
faith
Solution
• However, if a partial restraint is worded in
such a way that it forces the beneficiary to
divorce it will be struck down . It is clear
that the testator’s intention is to force the
beneficiary to divorce. As the condition is
severable from the disposition, Elizabeth
can take her interest free from it.
Solution
• Clause 8 needs to be examined to
determine whether it offends the rule
against perpetuities. For the purpose of
calculating the perpetuity period, Anthony
must be the life in being as the future wife
and children are not ascertainable at the
date the will comes into effect. The gift to
the future wife is valid as it will vest within
the life in being, because her interest will
vest when she marries Anthony.
Solution
• However, the children’s interest offends
the rule. First it is presumed that Anthony
is fertile and that any wife he marries will
also be fertile, regardless of their age. It is
therefore possible that Anthony’s wife will
bear him a child that will not reach 25
years of age within 21 years of his death.
Therefore, that child’s interest could
possibly vest outside the period.
Solution
• The gift would be saved by legislation,
which automatically reduces the age
restriction to bring it within the perpetuity
period. This would have the effect of
reducing the age restrictions to 21 years
as opposed to 25 years. Finally, the waitand-see provisions would allow the gift to
survive initial uncertainty