Creation of Trusts-Three certainties


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Creation of Trusts-Three certainties

  2. 2. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 2LEARNING OUTCOMEStudents will be able to appreciate and analyse methods ofcreating a valid trust. understand the concept of threecertainties and how it is different fromone another. apply any of the tests to determine theclass of beneficiaries. differentiate between fixed trust anddiscretionary trust
  3. 3. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 3Private Express Trust:MeaningAn express declaration by the personwho want to create trustduring is lifetimeTrustWill Other formDeed -writing-verbal
  4. 4. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 4Charitable TrustPrivate Family TrustBare TrustFixed Interest TrustDiscretionary TrustProtective TrustSecret @ Floating Trust Trading TrustUnit & Investment TrustAssets in Unincorporated AssociationsTYPES OF EXPRESS TRUST
  6. 6. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 6
  7. 7. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 7 3 points that must be certain beforean express private trust must becreated 1) Certainty of intention 2) Certainty of subject matter 3) Certainty of objects
  8. 8. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 8KNIGHT V KNIGHT (1840) 3 Beav 148 “As a general rule, it has been laid down thatwhen property is given absolutely tocommand, recommended or entreated orwished, to dispose of that property in favourof another, the recommendation entreaty, orwish shall be held to created a trust. First, ifthe words are so used, that upon thewhole they ought to be construed asimperative.
  9. 9. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 9 Secondly, if the subject of therecommendation or wish becertain and thirdly, if the objectsor persons intended to have thebenefit of the recommendations orwish be also certain.
  10. 10. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 10Certainty of Intention Certainty of intention on part of the settlor/testator to create trust
  11. 11. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 11 No particular words are essential Imperative words Equity looks to the substancerather than form Trust may be created without usingthe word ‘trust’. It all depends on the construction ofthe language used.
  12. 12. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 12IMPERATIVES Clear technical language = one party’sinterest is safeguarded as much aspossible. Words must be imperative in nature inorder to construe the essentials to createtrust. Eg: 1) : I direct my trustee…/ I instructmy trustee./ in full confidence that/ fullytrusting that/ in firm expectation that/ itis my heartfelt desire that….
  13. 13. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 13Precatory words An expression of hope or desire is notsufficient. Examples: “It is my sincere wish’, ‘ itis my hope…’ There is a need to see and examinethe construction of trust as a whole. To show intention on part ofsettlor/testator.
  14. 14. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 14RE HAMILTON (1895) 2 Ch 270 (LindleyL.J) “You must take the will which youhave to construe and see what itmeans and if you come to theconclusion that no trust wasintended you say so, althoughprevious judge have said to thecontrary on some wills more or lesssimilar to the one you haveconstrue.”
  15. 15. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 15Lambes v Eames (1871) LR 6 Ch. 597 Ttor gave his estate to his widow‘to be at her disposal in any wayshe may think best, for the benefitof herself and her family.” By will she gave part of the estateto outsider Ct: She had been absolutely entitledto the property and the gift wasvalid.
  16. 16. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 16Re Adams and The Kensington Vestry(1884) 27 CH.D 395 Ttor gave his real and personal estateto his wife ‘absolutely in fullconfidence that she will do what isright as to the disposal thereofbetween my children, either in her lifetime or by will after her death.” Ct: No trust. The world absolutelyindicated that the property was left tothe wife alone.
  17. 17. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 17Comiskey v Bowring Hanbury (1905) AC 84 Ttor left his property to his wife; ‘infull confidence that she will makesuch use of it as I would myself andat my death she will devise it tosuch one or more of the nieces asshe may think fit.” Held : There was a gift to the wifeand with trust in favour of thenieces after her death,
  18. 18. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 18 Peculiar situation : If the intentionto create a trust is clear it will beupheld although the word trust isnot expressly used.
  19. 19. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 19PAUL V CONSTANCE (1977) 1 WLR 527 Mrs Paul lived with Mr Constance ashis wife, He opened an account andtold Mrs Paul ; ‘ The money is asmuch as yours as mine. It wasrepeated in a nbr of situations. Held : Effective declaration of trustin favour of the plaintiff (Mrs Paul)
  20. 20. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 20 RE KAYFORD (1975) 1 WLR 279 De Fonseka v De Fonseka & Ors[1971] 2 MLJ 155 Ct : Ct would give effect to theintention of the author of thetrust as expressed in the trustinstrument.
  21. 21. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 21HAMEEDA BEE V MRS P SEENIVASAGAM [1950]1 MLJ267- Held : Clear and unequivocallanguage must be used to establisha trust
  22. 22. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 22KISHABAI V JAIKISHAN[1981] 2 MLJ 289 - no particular form of expressionis necessary for the creation of atrust, if on the whole it can be gatheredthat a trust was intended;
  23. 23. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 23CERTAINTY OF SUBJECTMATTER Certainty of subject matter fallsunder two heads; A) trust property – B) beneficial interest –
  24. 24. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 24EXAMPLES OF SUBJECT MATTERA bungalow at Kota Damansara a bungalow in 5 acres of land: Mohan’s holiday getaway staying. a shop lot at Damansara Height an apartment at Ampang Villa 20 acres of agricultural land at Ulu Yam cash $1000 million at RHB Bank Jalan Ipoh Shares in Angkok Ware Composites (M) Sdn. Bhd.worth $ 50million Jewelleries worth $ 100 million. Trust property& Beneficial Interest
  25. 25. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 25PALMER V SIMMONDS (1854) 2 DREW221 A ttrix by her will gave her residuaryto Thomas Harrison “for his own useand benefit as I have full confidence inhim, that if he should die withoutlawful issue he will leave the bulk ofmy said residuary estate unto B,C, Dand E.(certain named persons)” Whether the subject matter of trustwas sufficiently certain
  26. 26. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 26Kindersley V.C : No trust as there was uncertainty ofsubject matter of trust “What is the meaning of the bulk.The appropriate meaning accordingto its derivation is something whichbulges out. It is a popular meaning.When a person is said to have giventhe bulk of his property, what ismeant is not the whole but thegreater part and that is in factconsistent with its classicalmeaning….”
  27. 27. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 27RE GOLAY’S WILL TRUST (1965) 1 WLR969 The testator directed his executor ‘to let Tossy to enjoy one of my flatsduring her lifetime and to areasonable income form my otherproperty.” Whether the gift of income was voidfor uncertainty? Held : VALID
  28. 28. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 28 Ct: Reasonable income; there willbe the yardstick in which the Courtcould and would apply inquantifying amount.
  29. 29.  Abrahams v Trustee in bankruptcyof Abrahams [1999] BPIR 637 Swift v Dairywise Fans Ltd [2000] 1All ER 32014/06/13LAW OF TRUST (DR.ZURAIDAHALI) 29
  30. 30. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 30Labuan Offshore Trust Act 1997 Section 7(1) A trust is an offshorewhere- (b) the trust property does notinclude any immovable property inMalaysia unless allowed by relevantauthorities
  31. 31. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 31Effect of lack of certainty of subjectmatter If a settlor failed to specify the trustproperty at all – there will be no trust. If the settlor failed to specify thebeneficial shares @ there will beresulting trust for the settlor’s estate. A (settlor) ----B (trustee) -------C(bene)resulting trust
  32. 32. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 32Certainty of Object Object of the trust : Human Wife / girlfriend/ mistress Children : Mother &Father,brother /sister Best Friends Nephew & nieces
  33. 33. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 33Certainty of Object The Rules : Trust must be for human beneficiaries. Ascertainable beneficiaries is a must for atrust other than a charitable trust. Lack of certainty of objects : Trust will bevoid. the beneficiaries must be identifiable :they can be given their appropriateshares of their for his beneficial interest.
  34. 34. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 34Labuan Offshore Trust Act 1997 Section 7(1): A trust is an offshore trustwhere- (c)all beneficiaries are qualified persons Section 8(1) :An offshore trust is createdby a will or other instrument in writingincluding a unilateral declaration of trust…. (2) A unilateral declaration of trust is adeclaration in writing by a trust companystating- (d) the names or information enabling theidentification of all beneficiaries.
  35. 35. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 35Re Endacott [1960] Ch 232; Evershed MR : “No principle has greater sanctionor authority behind it than thegeneral proposition that a trust byEnglish Law, not being charitabletrust, must be ascertained orascertainable beneficiaries.”
  36. 36. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 36The test Depends upon the nature of trust. Need to differentiate between: A fixed trust and discretionarytrust. Trustees are given discretion: tocarry out of the trust.
  37. 37. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 37A Fixed trust A trust where the trust instrumentspecifies the share which eachbeneficiary is to take The beneficial interest of potentialbeneficiaries are fixed. Trustee(s) must identify each andevery object.
  38. 38. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 38 Beneficiaries is equitable owner of hisinterest. The test : the list principle. Need to know each and everybeneficiaries. Eg: ‘a trust of RM 1,000 to themembers of my family in equal share :a fixed trust requiring the trustees todetermine all beneficiaries
  39. 39. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 39What is Discretionary Trust It is an express Private Trust. A flexible type of trust- an attractive vehiclefor family money. Trustee has some form of power ordiscretion. May involved a wide variety of discretion.And deals with all situations: eg : power ofappointments, the power to choose Trustee has a choice and discretions toexercise to determine the class of object
  40. 40. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 40 To -lack prudence in dealing withmoney The trustees can pay out income orcapital to any one or more of thebeneficiaries entirely at their owndiscretion.
  41. 41. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 41Role of the Discretionary Trusta) Protect trust property A useful device for a settlor who wishes toprotect family property againstspendthrift. Prevent and to safeguard the trust fundfrom dissipation by the beneficiaries- whoare financially inexperiencedb)       Adaptability to changingcircumstances- family, fiscal & economic -         It lies in its flexibility.
  42. 42. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 42 Allows/enables trustees to provide suchsums as the future circumstances of thebeneficiaries require 3) The trustees own the trusts propertyon behalf of the beneficiaries.- The trustees are given discretion as towho shall receive income and / or capitalfrom the trust, and in some cases, whatamounts, if any, they shall.- The beneficiaries need not all even beborn at the time the trust is created
  43. 43. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 434) Beneficiary-is not the equitableowner of the interest- The beneficial interest is in suspenseuntil the trustees exercise thediscretion Trustees decide both whoshall benefit and what the benefitshall be Beneficiary cannot claim any rightover the interest unlike
  44. 44. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 44Trustee & the test Need to determine the object withcertainty. Failure – Breach of trust Two tests:a) Criterion certainty testb) in and out test Trustee need to determine whethera person is or is not within thedescription of relevant class
  45. 45. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 45Mc Phail v. Doulton (1970) 2 All ER228.- HOL Settlor executed a deed for a fundto be held upon trust : in favour ofthe staff of Matthew Hall Co Ltdand their relatives and dependants. Whether this is a trust or power? Void for uncertainty? If not what is the test
  46. 46. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 46 -         Under clause 9(a) it is stated :The trustee shall apply the netincome of the fund in making attheir absolute discretion grants toor for the benefit of any of theofficers and employees of thecompany or to any relatives ordependants of any persons in suchamounts at such times and or suchconditions as they think fit.
  47. 47. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 47Judgment Ct of 1stinstance: It was power and not a trust. COA : It was power and not a trust. HOL : The deed created the trust and notpower. Trustee should not approach their duty in anarrow way. Instead they ought to make asurvey of the range of objects or possiblebeneficiaries as will enable them to carry outtheir fiduciary duty.
  48. 48. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 48Re Baden Deed Trust (No 2)[1973.] Ch 9.COA had to apply the test by the HOL indeciding and consider in particularwhether the words ‘dependents’ and‘relatives’ were too uncertain.The test : Can it be said with certainty thatany given individual is or is not a memberof the class. (HOL test – applied by theChancery & COA later)
  49. 49. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 49 Sachs LJ stated that in applying thetest it is essential to bear in mindthe difference between conceptualuncertainty and evidentialdifficulties
  50. 50. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 50Three kinds of uncertainty1) Semantic, conceptual or linguisticuncertainty2) Evidential uncertainty3) Administrative uncertainty
  51. 51. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 51Conceptual Uncertainty It is also known as administrativeuncertain/ semantic, linguistic uncertain Problem in the vagueness of language usedby the testator to express his intention. It will be administratively unworkable. Eg:‘someone under a moral obligation My shorter employee. For my old friends and business associate For my fans For my friends who are good citizens.
  52. 52. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 52 Effect : Express trust fails. It will be held on resulting trust
  53. 53. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 53Halsbury’s Law of Malaysia. “If a trust accords trustees discretion toelect among a class of beneficiaries, it nolonger fails if a list of every member ofthe class cannot be drawn up, it suffices ifit is possible to predicate of any proposedbeneficiary that he is or is not a memberof that class. If there remain a number ofpersons who cannot be proved to beinside or outside the class, for exampleold friends of the testator, then the trustfails
  54. 54. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 54Cases Re Barlow’s Will Trust
  55. 55. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 55Evidential Difficulties/Uncertainty Language used is precise. Trustee will have to find evidenceto carry out the settlor’sinstruction. It does not invalidate adiscretionary trust. The court is never defeated byevidential uncertainty
  56. 56. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 56Judgment a)       Stamps LJ : ‘Relatives” meant nextof kin or nearest blood relation. b)       Megaw LJ : ‘Relatives’ meantdependants from a common ancestoralthough giving rise to evidentialuncertainty. c)      Sachs LJ : opts for wider meaning ofthe former and thought that the trusteeought not to pay an individual who failedto prove that he was a relative.
  57. 57. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 57Administrative uncertainty Lord Wilberforce in Mc Phail v Doulton; “There may be a third case where themeaning of the words used is clear butthe definition is so hopelessly wide as notto form “anything like a class” so that thetrust is administratively unworkable or that cannot be executed. I hesitate togive examples for they may prejudicefuture cases but perhaps “all residents ofGreater London will serve. I do not thinkthat a discretionary trust for “relatives”even of a living person falls within thiscategory.”
  58. 58. 14/06/13LAW OF TRUST (DR.ZURAIDAHALI) 58ESTATE & TRUST AGENCIES (1927) LTD V TUNGKU MERIAMBINTE ALMARHOUM SULTAN AHMAD OF PEKAN & ANOR[1948 -1949] SUPP MLJ 82 The last question was whether the word "issue" ofTungku Omar and Tungku Meriam comprise allthe descendants of Tungku Omar and TungkuMeriam or whether it is limited to their children.Held: in this case the word "issue" was intendedto include only the children of Tungku Omar andTungku Meriam.