Completely And Incompletely Constituted Trusts Notes

Completely and Incompletely Constituted Trusts

• For a trust to be valid, trust property must be vested in the trustee (it must be assignable) – This is the question of whether the trust has been completely constituted

  • In trusts by declaration there is typically no issue of CC Paul v Constance

  • Usually arises in relation to trusts by transfer

    • The rules governing gifts will determine whether the trust property has vested in the trustee. It will be sufficient if the property has passed to the trustee in equity

• If the trust is not completely constituted, it will fail. A failed gift will not be interpreted as a declaration of trust

  • A trust cannot be complete until the trustee has title to the relevant property and can hold it subject to the trust which has been declared

• There are four main exceptions to the rule that incompletely constituted trusts are unenforceable

  • An imperfect transfer may be enforceable where the transferee can show a representation by the transferor that was intended to be relied on and was relied on to the transferee’s detriment

  • Under the rule in Strong v Bird, if a testator intends to make a gift but does not make a complete gift before their death and appoints the donee his executor, then equity will assist the done

  • Gifts in contemplation of death

  • An incompletely constituted trust can be enforced pursuant to a promise to create a trust to a person who has provided consideration

Complete or Incomplete?

• If a trust is properly constituted:

  • Property in the asset has passed. If there is a completed legal assignment, the transferee takes title. If the assignment is complete in equity, the assignment will be enforced against the transferor in equity.

  • This property can now form the subject matter of a trust, but remember to check whether s 53 (1) applies/has been complied with.

• If a trust is not constituted

  • There is no trust – title remains with settlors

  • However constitution is not a problem when there is consideration

    • If I give you consideration for transferring property to me to hold onto trust and something goes wrong in the legal transfer mechanism, it won't matter as the receipt of considerations will bind the assignor's conscience. Once they have it in their hands, equity requires done what ought to be done and will require the assignor as holding it on constructive trust

1. Assignments of legal property for value

   • Equitable title arises

   • Assignor will hold on CT for assignee

2. Voluntary assignments of legal property

   • Has the property been assigned at law? (if yes, trust constituted)

     • Torrens Land

       • Registration TLA s 40 signed by both transferee and transferor, lodged with the DCT

       • If no registration, apply Corin v Patton

     • General Law Land

       • Assigned by deed PLA 52(1)

       • Similar to delivery – when a deed is executed, all titel moves

       • If not executed, the land remains with the assignor

     • Choses in possession

       • Delivery with intention of transferring legal ownership OR deed of assignment

     • Shares sold off-market

       • Registration in books of company of an instrument in the prescribed form Corporations Act 2001 (Cth) s 1071 B

       • (Instrument of transfer needs to be signed by both transferee and transferor and lodged together with share certificate).

     • Cheques

       • To effectuate assignment, need to endorse and deliver Jones v Lock

       • Cheques made payable to person by endorsement and delivery Cheques Act 1986 (Cth) s 40

     • Other bills of exchange:

       • Endorsement and delivery Bills of Exchange Act 1909 (Cth) ss 36 (3), 95

     • Life insurance policy

       • Memorandum of Transfer endorsed on the policy, signed by transferee and transferor, and registered by the policy issuer Life Insurance Act 1995 (Cth) s 200

     • Entire choses in action (only applies to absolute assignment)

       • Assignment in law by s 134 PLA (only use for legal, as equitable is simpler and 134 is a default provision)

         • Absolute assignment

         • In writing

         • Signed by the assignor

         • Express written notice given to the debtor (by either the assignor of the assignee holding the document of transfer – Anning)

       • If not satisfied, apply Corin v Patton to establish whether the...

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