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law of Equity and Trusts
Law Essay Title:
The law of Equity and Trusts. Jim, having won a large Lotto prize, decided that he would like to make a number of gifts to share his good fortune with others. Accordingly he wrote a letter to his sister, Gill, enclosing a cheque for £50,000 suggesting that she could use it to pay for her children's university fees 'when the time comes'. At the time Gill did not have any children. Jim had always admired the work of the Citizens Advice Bureau and he sent £25,000 to the manager of the local bureau telling her to hold it on trust for the benefit of anyone seeking her advice who seemed to be in particular need. Jim bought two holiday homes, one in the North of England and another in the South of the country. A little later, finding that he was not using both these holiday homes, he wrote to the treasurer of the town's Community Welfare Association saying 'I hereby give you on trust one of my holiday homes for you to use to send disadvantaged families for a week's respite break. Since I am giving the other house to Gill, I will leave it to her to decide which house she wants and you can have the other.' Gill died before making an election and some years later Jim too died without having taken any further steps in the matter. You are to explain the issues and to advise the executors of Gill's estate, the manager of the local Citizens Advice Bureau and the treasurer of the town's Community Welfare Association.
Explanation of the law to the parties
Jim sent Gill a cheque for £50,000 and commented that she might use it to pay the university fees for her children when, as he put it “the time comes”. At the time she received the letter from Jim Gill did not have any children and she passed away before producing any offspring.
No trust is explicitly created here and it must be said that Jim’s suggestion does not indicate that he was of a mind to settle a duty binding in law with regards to the use of the money. An implied trust could arise here if the intent to establish a trust is an obvious implication to be gleaned from Jim’s words or conduct. This seems like an unlikely outcome. In Knight v Knight the court stated that three certainties are necessary to found an effective trust: (a) certainty of intention to create a formal trust of property; (b) certainty of the subject matter (trust property); (c) certainty of objects (beneficiaries).
These conditions are cumulative and unless they are all satisfied no effective trust can come into being. If anything, as the judgment of Cotton LJ in Re Adams and the Kensington Vestry confirms, the position since Knight v Knight has become stricter in terms of certainty and the proof necessary in modern times must be compelling. The brief indicates that we cannot establish certainty of words (a) or of object (b) and consequently it seems that no legally valid and effective trust was created by Jim’s actions.
If the Jim’s intention to create a trust had been express, then perhaps Gill’s estate would be deemed to be in possession of the £50,000 as Jim’s legal trustee. In these circumstances the money would result to Jim’s estate in the final analysis. However, this is not the case here and even if it were there would still be a definite problem due to the apparent lack of objects (from a legal and practical perspective, there are no possible beneficiaries in existence to press the case for a trust). This means that Gill, being the person who received the property, is deemed to hold it free of trust.
Jim has since died and it appears he decided to do nothing further about the £50,000 before his passing. The fact that the terms of the original letter were loose and ambiguous reinforces the conclusion that no trust was created in regards to the £50,000 cheque. The effect of this is that a court was most likely ascertain that both the legal and the equitable title to the money was transferred to Gill.
The best advice for Gill’s executors is thus that it is probably safe to discount the possibility that Jim’s money will become subject to a trust at any foreseeable point in the future.
Jim also sent £25,000 to the manager of the local Citizen’s Advice Bureau requesting that she hold the sum on trust for the benefit of anyone seeking her advice who appeared to be a deserving case for financial support. It is arguably true that, given the way he expressed himself, Jim’s desire to create a legal trust is more certain than in the case of the money received by Gill.
Jim appears to have been attempting to settle a discretionary trust because he informs the CAB manager that she is entitled to decide for herself as to who to make a beneficiary from the fund of money he has donated. This means that no third party is legally entitled to pursue a defined interest in the fund, no matter how “deserving” a case they may be able to make out, unless the Citizen’s Advice Bureau manager decides that they should benefit from Jim’s money.
The CAB manager must take her responsibilities seriously in regards to this donation. Under the law relating to discretionary trusts, trustees are under an active duty to distribute the property and fulfil the wishes of the settlor. Consequently the CAB manager should be advised that she should not leave the money idle or use it for other purposes. She should take reasonably diligent steps to distribute the money to deserving individuals that seek the assistance of the Bureau.
This may in practice prove to be a relatively loose duty because Jim has imposed no conditions or restrictions on the way in which she chooses beneficiaries. He would have been better advised to establish clearer and more fulsome rules for distribution to ensure that his wishes were effectively met. A case supporting this line is Burrough v Philcox .
It may be that the CAB manager is happy to distribute the fund to needy parties quickly, responsibly and in good faith, but even if the CAB manager delays in distributing the fund she would be entitled to asserted that in her judgment she had not yet encountered sufficiently deserving individuals.
In the worst case scenario - and assuming that someone came forward to challenge the situation which seems unlikely - if the Citizen’s Advice Bureau manager failed to apportion the fund, it would be possible for the court to dismiss her as trustee, seize the funds and appoint new trustees to fulfil Jim’s wishes. IRC v Broadway Cottages Trust offers authority on this point. Although it would be an unusual step to take, the court could even take it upon itself to distribute the property itself.
In Re Baden’s Deed Trusts (No.1), McPhail v Doulton (1971) the court stated that trustees of a discretionary trust should undertake a reasonable survey of the field of possible beneficiaries and thereafter turn their minds to the question as to which, if any, are deserving of support. Re Manisty’s Settlement sounds a note of caution over administrative workability, which can serve to defeat a settlers intention if taken to extremes, but the scope of this trust seems reasonable - indeed it is in effect to be defined by the trustee herself.
Because Jim apparently passed away without reverting to the CAB manager it seems that the manager has a relatively free hand to deal with the money, for individual charitable purposes, as she sees fit. There is no reason on the face of it why Jim’s estate would choose to intervene. The CAB manager should be advised of this, but reminded that she owes a moral and legal duty to meet Jim’s wishes under the trust. Hopefully she will be prepared to perform this altruistic function in the course of her day to day work at the Bureau.
The best advice for the CAB manager is therefore that a discretionary trust has been settled under which she has considerable free reign to allocate money to deserving cases. She owes a legal duty to do so although it would be difficult to enforce that duty effectively given the breadth of her discretion.
Jim informed the treasurer of the town's Community Welfare Association that he was giving the Association on trust one of his holiday homes so that the Association could use the home to offer disadvantaged families rest breaks. Unfortunately he stipulated that there were two houses and that the choice as to which house would go to the Association was reserved for Gill. Gill died before making that choice and then Jim also died leaving the situation unresolved.
It is apparent that the property to be made subject to the trust has not been ascertained. Trustees of the British Museum v Attorney General confirms that uncertainty in this respect will emphatically defeat the creation of a trust, following the earlier precedent of Knight v Knight as noted above. It is trite law that subject matter must always be certain or the settlement will be rendered nugatory. Moreover, Palmer v Simmonds indicates that knowledge that the subject matter will derive from a specified range of property will not suffice. This is supported by jurisprudence established in Curtis v Rippon which makes it clear that a specified beneficiary will be unable to rely on a trust if his right to property is subject to the unused discretionary powers of a third party.
The Association should therefore be advised that the trust that Jim attempted to create has probably failed on grounds of uncertainty as to subject matter.
Bibliography
- Alastair Hudson, Understanding Equity and Trusts Law, (2004), Cavendish Publishing.
- Angela Sydenham, Equity and Trusts, (2000) Sweet and Maxwell.
- Paul Todd, Cases & Materials on Equity and Trusts, (2000) Blackstones Press Ltd
- David Parker et al, Parker and Mellows: The Modern Law of Trusts, (2003) Sweet and Maxwell.
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