Constitution and Formalities of Trusts Cases

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Grey v Inland Revenue Commissioners [1960] AC 1

Facts: Hunter attempted to transfer shares to his 6 grandchildren under separate trusts. To avoid tax liability he created a trust over 18000 shares and declared himself as sole beneficiary (as beneficial interest was retained no tax was payable). He then directed his trustees orally to transfer his equitable interest in those share to the trusts held for his grandchildren before subsequently writing these instructions down with the trustees

Held: The House of Lords held that there was no transfer of the equitable interest when the oral declaration was made (due to non-compliance with s53(1)(C)), but the disposition of Hunter’s interest in the shares was effective when the later declaration was made in writing (so stamp duty was payable)

Hodgson v Marks [1971] Ch 892

Facts: A widow sol here house, in whom she placed trust and confidence, on the understanding that he would hold it on trust for her. The lodger subsequently sold the house on

Held: It was held the purchaser could not rely on s.53(1)(b) to deny the widow’s interest in the house, as to deny the widow’s interest would be fraudulent

In re Stewart. Stewart v McLaughlin [1908] 2 Ch. 251

Facts: In this case a husband had bought some bonds which he intended to give to his wife. However, he died before they had actually been delivered to him and so he was unable to assign them to her in his lifetime.

Held: Her appointment as one of 5 executors, coupled with his continuing intention to give the bonds to her, was held to be sufficient to perfect the gift

Milroy v Lord (1862) 45 ER 1185

Facts: Thomas Medley held shares in company and wanted to give them to his Niece. He made a gift of shares to his niece, however this is insufficient to transfer legal title in shares so Medley legally remained owner of the shares. Medley died 3 years later. In the interim, dividends were given to the niece and her husband

Held: The Court held there was no gift and the deed of gift did not have the effect of creating a trust → it was a deed to give and not a deed to create a trust and the two are distinct

  • So this case affirm affirms that an ineffective gift does not constitute a declaration of trust i.e. it upholds the fundamental principle that ‘equity will not assist a volunteer’

Oughtred v Inland Revenue Commissioners [1960] AC 206

Facts: Oughtred had a beneficial interest in 200,000 shares in a company under trust, with her son owning the reversion (i.e. so when she died the shares would be held on trust for her son). Oughtred was also the absolute owner (i.e. legal and beneficial owner) of another 72,200 shares in the comapny. To reduce estate duty (ie. a tax paid on the property left by a dead person) payable on Oughtred's death, an oral agreement was made whereby the son would surrender his reversionary interest in the settled shares in consideration for the 72,200 shares, so both would have a parcel of shares absolutely

The IRC assessed whether stamp duty was payable on the oral contractual transfer of the son’s reversionary shares to Oughtred. The IRC argued as they were attempting a disposition of the shares it should be void as under s53(1)(C) this needed to be done in writing

Held: Lord Jenkins said stamp duty is payable on documents only and not transactions: As s53(1)(c) had not been complied with, when the son told the trustees to transfer his reversionary interest to his mother it had no effect; this meant the value was transferred in the document (NOT the oral contract) and therefore was taxable under stamp duty

Paul v Constance [1977] 1 WLR 527

Facts: A bank account was held in the name of a man and said to his mistress that he holds the money in the account for them both jointly: “the money is as much yours as it is mine”

Held: The court upheld that there had been a creation of an express trust despite only being made orally

Pennington v Waine [2002] EWCA Civ 227

Facts: This case has been criticised by academics because the ‘every effort rule’ was not applied → rather a wholly novel position was established in this case: it was said that an ineffective transfer will take effect in equity where it is unconscionable for the transferor to change his mind

In this case, a donor (Ada Crampton) intended to transfer 400 shares in a private company to her nephew, Harold, and to have Harold made director of that company. Ada completed a share transfer form which she sent to her accountant, Pennington, but Pennington failed to forward this form either to the company or Harold. Consequently, due to failure to deliver form, no transfer of shares was made to Harold

Ada subsequently signed a form consenting to Harold becoming a director of the company, but by her will she transferred him insufficient shares for Harold to have a controlling shareholding in company → If Ada had transferred the 400 shares to Harold before her death, then Harold would have had such a controlling interest in the company

Held: It was held by Arden LJ that an equitable interest in those shares passed to Harold because it was considered that it would have been unconscionable for Ada to have refused to transfer those shares to Harold

  • Whereas the every effort rule is an equitable rule that would apply automatically if the transferor made every effort to transfer the property, this rule appears to give the court discretion and wide powers to decide whether or not it would be the right thing to do to complete the gifts

Re Beaney [1978] 1 WLR 770

Facts: In this case, a mother who was suffering from senile dementia made a gift of her house, the only substantial asset of her estate, to one daughter, Valerie, who had stayed at home to look after her mother for many years; but this had the effect of virtually disinheriting the other two (married) children

Held: It was held that the gift was void because she was unable to understand the conflicting claims of her other daughters i.e. she didn't have the mental capacity

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Re Rose (decd), Midland Bank Executor and Trustee Co Ltd v Rose [1949] Ch. 78

Facts: A person making a will (Mr Rose) put in his will that some shares would go to a man named Hook, which would happen when the testator died. But, before the testator’s (Mr Rose’s) death, he did execute a share transfer in respect of the same shares to Hook i.e. Rose attempted to transfer the shares, thus nullifying the need of operation of the term in his will

Because these were shares in a private company, its directors had the right to refuse to register the transfer and did not actually register it until the death of the testator

  • So the transfer form completed by Mr Rose constituted everything he needed to do to transfer the shares, but the transfer was not complete because there were further formalities to be completed by the company

The issue was whether the transfer of shares to Hook had taken effect under the ineffective inter vivos transfer form or under the terms of the will

  • As mentioned, the completion of the transfer form was the only formality which Mr Rose was required to carry out as transferor, however, the company’s articles of association gave the board of directors power to refuse to register the transfer of shares → Therefore transfer not complete until board approved it

Whether the legatee had taken the shares inter vivos or post mortem mattered a lot

  • This mattered because the bequest in Mr Rose’s will was conditional on the shares not having been transferred to the legatee prior to the testator’s death; it was, therefore, possible to argue that the transfer inter vivos was ineffective to pass any title but nevertheless sufficient to defeat the testamentary gift, thus preventing the legatee from receiving the shares at all!

Held: Jenkins J, held that, because the testator (Mr Rose) had done everything in his power to transfer the shares inter vivos, from that moment he held the shares on trust for the transferee (Hook); consequently, the legatee (Hook) had taken the shares inter vivos

Re Rose (decd), Rose v IRC [1952] Ch. 499

Facts: In this case, the decision of Re Rose [1949] was followed and applied by the Court of Appeal.

The registered owner of shares executed two share transfers, one in favour of his wife absolutely by way of gift and the other in favour of 2 people (including his wife) on trust

Again, the transferor had completed all the formalities required of him; only ratification by the board of directors remained before the transfer was complete

The date of the transfer was again important so that Rose’s estate could demonstrate that the voluntary transfer had succeeded in passing an equitable interest in the shares to attract a lower rate of tax than would otherwise have been payable if the transfer had not taken effect until the date of ratification by the board

The argument for IRC was that there was no transfer until ratification and that there could be no suggestion of an express trust having been created because that would be to give effect to the intended bequest by means not intended by the transferor

Held: The Court of Appeal approved the decision in Re Rose [1949] and held that the equitable interest in the shared had been transferred as soon as the transferor had completed all of the formalities, which he was required to complete i.e. as soon as transferor completed all the formalities he could there was a constructive trust over the shares

Rochefoucauld v Boustead [1897] 1 Ch. 196

Facts: Land was transferred to the defendant on an oral declaration to hold it on trust. This was not put into writing and the defendant subequently mortgaged the land. The claimant sought a declaration of trust, but the defendant argued the trust was not enforceable due to the lack of writing

Held: Equity will not allow a statute to be an instrument of fraud and it would be unconscionable here for the defendant to keep the land (Lindley J)

Sen v Headley [1991] Ch. 425

Facts: The donor of a gift, who was terminally ill, made an oral declaration to his former partner that his house and its contents would belong to her when he died. He gave her keys to a steel box containing the title deeds of the house.

Held: The Court of Appeal held that the elements necessary for a Donationes Mortis Causa had been present, and that the gift of the house was valid.

Strong v Bird (1855) LR 18 Eq. 315

Facts: Bird borrowed £1,100 from his stepmother with whom he shared the house. She paid him quarterly rent to stay in the house, so it was agreed that he (Bird) would repay the £1,100 loan by reducing her rent by £100 per instalment. She paid the reduced rent for 2 quarters, but, when payment was due on the 3rd quarter, the stepmother insisted upon paying the full rent without deduction. She continued to make full payments of rent until her death 4 years later, whereupon Bird was appointed to be sole executor of his stepmother’s estate. The stepmother’s next of kin, Strong, alleged that Bird ought to repay the £900 balance of the loan that remained

Held: The court held that the stepmother satisfied the requirements of the rule in Strong v Bird. Namely, it was held the stepmother intended to make a gift of the money owing, and that intention remained at her death

  • Accordingly, the appointment of the stepson as executor released the debt

T Choithram International SA v Pagarini [2001] 2 All ER 492

Facts: Pagarini (referred to as TCP in the case) was a wealthy businessman and philanthropist. He had made provided financially for his children and family during his lifetime (so as far as he was concerned they were settled). He wanted to give the remainder of his wealth to a charitable trust → a deed of trust was prepared, naming nine trustees, including Pagarini himself, which set up the a charitable foundation known as ‘the foundation’

Pagarini was given the deed, but did not execute it until 1992. The solicitors bought the deeds to him in 1992 (as he was very ill) and it was properly executed (signed and witnessed); so the trust was then created. However, this did not transfer wealth into the trust: it just establishd a framework ready to receive his property (so property still belonged to him at this point)

He then orally directed his accountant to transfer all of his wealth to the trust i.e. words of gift → as seen, words of gift are not effective to make a gift unless there is delivery

  • Note: It was not a donatianes mortis causa even though he was on his deathbed because it wasn’t a conditional gift i.e. it wasn't a gift that would be made when he died, it was to be made there and then

The accountant noted that TCP did not have long to live and urgently prepared all the transfer forms for TCP to sign to transfer legal title. But, once the transfer forms were given to TCP he refused to sign them → he seemed to have lost interest and saying he had already disposed of his property. He died a month later → so this looks like a prima facie incomplete gift

The issue was whether, by his oral declaration, P had successfully transferred the property to the trust.

  • As already said, an oral declaration gift must be coupled with delivery to be effective → without both requirements the gift will be ineffective

Held: At trial it was held that there were 2 methods of transferring property: either effectively transfer legal title (this didn't apply as he hadn’t complied with legal formalities to transfer his property) OR by declaration of trust (by declaring yourself to be a trustee for the benefit of the recipient)

  • If neither of those had taken effect there is no transfer of title
  • The words used by TCP were words of gift NOT trust
  • Accordingly the property was not transferred to the charitable trust (as he had not completed the formality requirements of a gift) but went to his estate → so, the property went to his beneficiaries under the rules of intestacy

Privy Council allowed an appeal → they held it was an effective transfer of equitable title

This was an unusual case in that TCP was trustee of the foundation; in his own right he was the legal owner of the property; the intention was the property would vest in the trustees of whom TCP was already one (i.e. TCP was a trustee of the trust) → so if somebody holds property as a trustee they don't need to transfer legal title because they already have it

  • “Although equity will not aid a volunteer, it will not strive officiously to defeat a gift.” - P.501 (Lord Browne-Wilkinson).

Vandervell v IRC [1967] 2 AC 291

Facts between Vandervell and the IRC: Vandervell (V) owned 100,000 A shares and 2.6m B shares in Vandervell Products. He set up a trust company (Vandervell Trustees) and transferred the 2.6m B shares to be held on trust for his children (1949). V decides to found a chair at the Royal College of Surgeons by making a gift of £150,000 to them. A tax efficient way to do this was to transfer the 100,000 A shares and put those shares on trust for RCS, and then declare a dividend of £1.50 per share. He also agreed an option to repurchase those shares for £5000, which is exercisable by Vandervell Trustees. In 1961 V and Vandervell Trustees exercise the option to purchase having given £150,000 to RCS. Substantial dividends were paid on the 100,000 shares (1961-1965), which was now the legal property of the trustees under the 1949 settlement. In 1965, V executes a deed transferring his beneficial interest in the shares to his children. In 1967 V dies.

Case Facts: The IRC assessed Vandervell (V) as liable for surtazx on the shares as he retained a beneficial interest in them (as stated under the Income Tax 1952 s414). The IRC argued when V instructed (in writing) the bank to transfer legal title in the shares to RCS, he failed to specify he was also transferring his own beneficial title in the shares, so the transfer failed by virtue of s53(1)(c). This would have meant that V was still the beneficial owner and subject to tax.

Held: This argument by the IRC failed

  • V had actually directed the trustees to transfer the absolute interest, and does not need not be a separate disposition under s53(1)(c), and neither can the beneficiary be said to retain any of the beneficial interest
  • “The transfer thus made pursuant to his intentions and instructions was a disposition not of the equitable interest alone, but of the entire estate in the shares…. I see no room for the operation of s53(1)(c)” (Lord Donovan).
  • HOWEVER, the House of Lords still found for the IRC on the grounds that V retained a beneficial interest in the option to repurchase the shares under a resulting trust (as it was unclear who could exercise this equitable interest, so it resulted back to him) → so he still had a beneficial interest and therefore subject to tax under the Income Act 1952

Vandervell’s Trusts (No 2): White v Vandervell Trustees [1974] Ch 269

Facts: This case was a claim by the executors of Vandervell's will against the trustees of the 1949 settlement. (See the case above for the backdrop to this case). Vandervell's executors claimed, as a result of Vandervell v IRC, the shares repurchased under the option were held on trust for Vandervell, and hence formed part of his estate from 1961 to 1965 before transferring them to his children. During that period, the shares had paid substantial dividends: if the shares belonged to the defendant during that time they would form part of his estate and go to his beneficiaries, and would therefore pass to his residuary beneficiaries, not to his children under trust; if the shares belonged to the trust there would be a large tax liability to the estate

Held: The Court of Appeal held the resulting trust came to an end when the option was exercised in 1961; Denning held a new trust – of the shares – was created and, as a trust of personalty, did not require writing under s.53(1)(b), as it was not a trust of land, or 53(1)(c), as the resulting trust no longer existed: there was no subsisting beneficial interest.

  • It was also held that, as the money used to exercise the purchase came from the 1949 trust fund: as a general principle, any property bought with money under a trust becomes part of the trust property.
  • The resulting trust, which came into existence as a result of Vandervell’s failure to declare on what basis the option was held, was exempt from the provisions of s.53(1)(c) by virtue of s.53(2) of the LPA 1925.

The case is controversial: it has been held that the grounds on which the CA held that the shares were held for the benefit of the children are unconvincing and difficult to reconcile with other cases.

A particular issue is Lord Denning’s separation of the option and the shares as separate properties. However, it has been argued that this is artificial, in that the option can be ‘traced’ into the shares purchased; and that the use of the money from the 1949 settlement would give them an equitable lien over the shares but not a proprietary interest.

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