Class 12 - Trusts

Express Trusts

• Instead of selling/gifting property the holder of a legal/equitable interest can create at trust of that property for the benefit of third parties; by separating the legal and equitable title to asserts they enable flexibility in the disposition of equitable interests while ensuring proper asset management

• Where property is held by a living person a trust can be created in two ways:

  • Declaration – the person seeking to establish the trust retains the legal or equitable interest in the property but declared it is held on trust for the beneficiaries – thus passing them an equitable interst.

    • In some cases the court can infer an intention to create a trust from conduct

    • The holder of a legal/equitable interest can also transfer the interest to a third party with a direction that the interest is to be held on trust for beneficiaries

  • Settlement – where property is transferred to a trustee for beneficiaries that are volunteers, the settlor must satisfy the requirements for passing the legal estate – if he does it not will not be validly constituted per Milroy v Lord)

Formal requirements – NSW Conveyancing Act ss23C, 23D(1), 23E

• s23C provides that, except for the creation of interests by parol; s23(2) says it doesn’t effect resulting, implied or constructive trusts

  1. No interest is created/disposed except by writing signed by the person creating or an agent thereof authorized in writing or by will or by operation of law

  2. Declarations of trust must be manifested and proved by writing signed by someone able to declare such trust or by the persons will

  3. A disposition of an equitable interest or trust subsisting upon disposition must be signed in writing by the person disposing it or their agent authorized to do so lawfully in writing

• s23D(1) provides that all interests in land created by parol and not in writing/signed shall have the force and effect of interests at will only [doesn’t affect the parol creation of a lease as above)

• Nothing in these sections invalidate dispositions by will, affect any interest validly created before the commencement of the Act, affect the interest to acquire an interest in land by taking possession or affect the operation of the law of part performance (s23E)

The creation of Trusts

The requirement of certainty

• Express trusts can be created by anyone possessing adequate legal capacity providing the necessary formal requirements are satisfied – they can also be agents of the Crown

Certainty of intention to create a trust

• Generally where one executes a deed it is unlikely that there is any question but that a trust was intended

• In other cases – no formal or technical words are required provided that some sufficiently clear intention to create a trust is shown

  • For land disposed inter vivos the creation of a trust must be manifested and proved in writing, a testamentary trust must be created by will

    • Courts once had to deal with ‘precatory trusts’ –property held for the benefit of someone without express directions creating it; but now most are drawn by lawyers with standard precedents

• Where someone creates a bank account as trustee, the question of whether a trust has actually been created depends on the intention of the person opening the account. If a person intended it to operate for his/her own benefit a trust will not be created as per Commissioner of Stamp Duties v Joliffe:

  • Facts: J opened a bank account for his wife under the name ‘Hannah...Joliffe, Trustee, depositing 900 into it. The balance went to 906.14.6 when she died. Before the letters of administration for her estate were obtained J opened the account and used the money as his own. The Commissioenr claimed estate duty on it as part of Ms J’s estate

  • Held: No authority justifies that a trust can be created contrary to the intent of the person creating it. There should be the intention of creating a trust and therefore if upon consideration of all the matters the court believes the settlor did not meant to create one, the Court doesn’t impute a trust

  • Basis: The only money paid into the account was his and he only made withdrawals for his purposes. He gave evidence to the effect that it was to avoid creditors

• The question is one of ‘substance, not form’ – and substance turns on the facts of the case; Kauter v Hilton

  • Facts: Man promised to leave his niece 5000 in trust and didn’t include her in his will, saying she’d be better off with money in trust. He gave her passbooks for accounts opened in his name – each which was required for withdrawals from those accounts. The man suggested buying bonds with the money because of higher interest – he purchased hem in his niece but said he wanted to transfer it to her but died before it could be done. She sought a declaration that they were purchased with her money

  • Held: A trust arose as an irrevocable trust of the moneys in the accounts upon their deposit – even though beneficial ownership was postponed until the man’s death The giving of the passbooks as indicative of trust – after that he couldn’t operate the account with her consent/participation

• The effectiveness of attempts to create a trust also depends on the circumstances – trusts created 6 months before presentation of bankruptcy petitions aren’t upheld – since it constitutes voidable preference in favour of the beneficiary (s122, Bankruptcy Act) or at the suit of the liquidator

• Form and substance was again examined in Hyhonie Holdings Pty Ltd v Leroy [2003] NSWSC

  • Issue: Whether a parcel of 1000 shares in Aldora Holdings was part of the bankrupt estate of Robert Yazbek or whether they were hold on trust for the RY Family Trust (TYFT).

  • Facts: He was declared bankrupt on 11/6/02. He relied on a declaration that the trust dated to 14/3/97 when he declared himself trustee of the shares for RYFT. The declaration wasn’t stamped till 2/2001. All company returns for Aldora from ’97 listed him as beneficial owner. He was in business with a Micheal...

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