Constitution of trusts Seminar 4 How to create To form an express trust you need: Certainty of intention Certainty of subject matter

matter Certainty of object The trust needs to be validly constituted and satisfy the formalities Our focus is now on the valid constitution of a trust What is the constitution of trusts? A trust cannot be complete until trustee has title to the property - the trust must be fully constituted There is an overlap here with certainty of subject matter as they both concern trust property Constitution is only relevant to a trust by way of transfer What is the overlap with Subject Matter? Certainty of subject matter concerns whether: It is a property right or a mere expectancy It is present or future property The property is sufficiently ascertainable There will be any property left from an earlier gift to form a trust Uncertain subject matter will cause the trust to fail well deal with this in the next seminar Types of Trust The issue of constitution is only relevant to a trust by way of transfer For a trust by self-declaration the trustee (settlor) already has title to the trust property Provided the statutory formalities and certainties are met, the declaration is itself effective to create a trust Paul v Constance Paul v Constance its as much yours as it is mine Mr Constance told his partner its as much yours as it is mine Court stated that this was enough to create a trust, as there was sufficient intention and Mr Constance held the account on trust for himself and Ms Paul jointly A testamentary trust will be fully constituted if it complies with the Wills Act Constitution of a trust by transfer We are looking at the method of transferring title to the trustee so that the trust can be constituted To do this, the gift to the trustee must be complete in law or equity Rules depend on the nature of the property and the method of transferring it The trust will fail if not properly constituted

Types of property Land: general law and Torrens Shares Cheques Choses in action Equitable property Issues to consider If transferor has attempted to transfer the property to trustee, and all the legal requirements for transfer of the legal title are complete, there is no problem The trustee has acquired legal title to the property What if transferor has only achieved some of the steps? What happens then? We need to consider the rules relating to incomplete legal gifts Milroy v Lord

Thomas Milroy set up a trust for his niece, Eleanor Dudgeon. Samuel Lord was to be the Trustee. Milroy took a number of steps to achieve this: He set up a written deed to establish the trust, consideration was given for the shares, and Miss Dudgeon was intended to receive the dividends of shares when she married and to receive the shares when Milroy died. However, Milroy did not in fact transfer the shares to Lord, but merely gave Lord power to distribute the dividends, which meant that the gift was incomplete. Had Milroy transferred the gift to Lord as stated, all would have been well. However: because Milroy kept the shares which he had originally said were going to be transferred, the trust wasn't valid. Was the gift complete in Milroy v Lord to enable the settlement to be valid? No Turner LJ Classic statement: In order to render a voluntary settlement valid and effectual, the settlor must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him Turner LJ stated that there were three 'modes' of making a gift:

An outright transfer of the legal title to the property A transfer of legal title of the property to a trustee to hold on trust A self-declaration of trust Understanding Milroy Clearly in Milroy the transferor had not done the rights steps to transfer the property If a transferee has done the rights steps, what happens? What is the effect of Turner LJs test? If donor complies with Turners test, then gift is complete in equity, and that renders the donor a constructive trustee of the property, holding legal title for the donee

How do we get to that point? We need to consider how the Milroy v Lord test has been applied in Australian cases to various forms of legal property: Land Shares Debts and other choses in action We must also consider whether the s53 formalities have been satisfied Land Leading case is HC decision of Corin v Patton Gives HC view on applicability of Milroy to Torrens land Recall requirements for a valid transfer of TS land Anning v Anning Lots of property attempted to be transferred by a deed: Leasehold interest in land: transfer needed to be registered Promissory notes: transfer occurs by endorsement Chattels: in Qld transfers had to be registered Debt secured by mortgage: transfer needed to be registered Partnership interest in property: equitable interest need to manifest immediate intention Money in the bank legal chose in action must satisfy s134 PLA equivalent Of the items transferable at law, none of them were fully transferred at law Could the gift be complete in equity if not at law? Three views come from the case: Isaacs J: most strict Higgins J: middle view Griffith CJ: most lenient The views Isaacs J: Unless the requirements for transfer at law are complete, there is no effective transfer Higgins J: If transferor has done everything in his/her power, then transfer is complete in equity, even if it is not complete at law Griffith CJ: If transferor has done all that is necessary for her to do, and remaining steps can be completed by transferee, gift is complete - Preferred view since adopted Corin v Patton (1990) Mrs. P transferred: Land to brother C (in consideration of trust deed) transfer in registrable form C executed a deed of trust stating C held his interest in that land on trust for Mrs. P. Mrs. P beneficiary of trust. She wanted to leave her beneficial interest to her children Majority concluded that property can pass in equity under Torrens system The transferor becomes an interim constructive trustee What is the test to be satisfied? Majority found the gift is complete when the donor has done all that is necessary for her alone to do to complete the gift There are 2 views: Mason CJ & McHugh J view above test means the gift is beyond recall; or

Deane view 2 req. need above, but must also be separately beyond recall We must consider both views until this issue is revisited by the HCA What about this situation? What happens where the DCT is held by a third party as agent? Whose agent are they? Are instructions to hand over the DCT revocable? We need to determine whom the agent is acting for to decide if the attempted assignment is complete in equity Where the agent is the donors, it will never be beyond the donors recall What does a properly constituted trust mean? Once the trust is properly constituted, the beneficiaries may take an equitable interest in the property (under a fixed trust) Until the Corin v Patton test is satisfied the trust is not completely constituted and the beneficiaries have no equitable interest in the trust property Equity will not perfect an imperfect gift Shares How are shares assigned? There needs to be registration in the books of the company of an instrument in the prescribed form: Corporations Act 2001 (Cth) s1071B Re Rose a 1952 UK shares case Type of property: legal, shares He transferred the shares and all my right title and interest there under to wife in form required by co and handed over share certificates Transfers dated 30 March but not regd until 30 June Issue: When were the transfers effective (for tax reasons)? This assignment valid in equity he had done all in his power to divest himself - in the meantime he held the shares on constructive trust for his wife Transfer of other property Statutory method of assigning certain choses in action (debts) at common law Sec 134 PLA creates a method of transferring choses in action at common law It is a default provision only A number of steps are involved S134 PLA The requirements of S134 PLA are: Assignment must be absolute; It must be in writing signed by the assignor; Express written notice must be given to the debtor Under the last step, this notice can be given by either party (Anning, per Griffith CJ) Does delivery have to be actual? No, according to Windeyer, it can be actual or constructive Assignment of a Cheque

To validly transfer a cheque, there are a number of different options: If the cheque is made out to bearer or cash it is validly assigned by delivery only If the cheque is made payable to a person, it needs to be endorsed and delivered Cheques Act 1986 (Cth) s40 Jones v Lock A father J placed a cheque in his name for 900 in the babys hands and in the presence of his wife & nurse said Look you here, I give this to baby Held there was no effective gift as the cheque was in his name and had not been endorsed over to the baby The intention to make a gift failed as the gift was imperfect and there was no valid declaration of trust Summary - Legal Property Is the property presently owned? Have the legal transfer requirements been met? If not ask if the donor has done all that he alone can do per majority and is it beyond his recall per Deane from Corin v Patton? If yes, equity will recognise the failed legal assignment and the trust will be fully constituted Still need to check if formalities satisfied Equitable Property Equitable property (i.e. property which has no existence at common law) and can only be assigned in equity for example: A beneficiarys interest under a trust; Partnership property; or An equitable mortgage; What is required to assign it? Equitable Assignments Equitable property may only be assigned in equity Norman v FCT per Windeyer J: a clear manifest expression of intention to immediately and irrevocably assign Best method is by delivery of a deed: Norman per Windeyer J. Assignment must comply with s53(1)(c) writing requirements

Norman v FCT Voluntary deed between a husband and wife whereby the husband purported to assign to the wife two items of property. First, there was interest on a loan, which the borrower was entitled to repay to the assignor at any time and without notice. Second, there were dividends on certain shares owned by the assignor. Tax Com argues that voluntary hence ineffective HC both were future property Shepherds Case This case will be covered in detail later when we look at future property S was trying to assign 90% of his royalties for a limited period of time

It was a part chose in action and could only be assigned in equity Kitto J agreed with Windeyer J: All that was required was a manifestation by the assignor of an intention to transfer the chose in action in a manner binding on himself

Part Choses in Action Can you assign part of a chose in action under s134? No, that cannot be assigned at law, only in equity This is a form of property which exists at common law but which cannot be assigned at common law e.g. part of a debt How are such forms of property assigned? In the same manner as equitable property i.e. by a manifest expression of intention to immediately and irrevocably assign Assignments Using the Flowchart from Blackboard Ask is it legal or equitable property? Legal property: assignable at law - check transfer rules to see if the transfer is valid at law If not valid at law, check if it may be assigned in equity: has donor done all that he alone can do? Equitable property: only need manifest intention to assign immediately The trust is fully constituted when you reach the bottom of the flowchart, provided any relevant formalities under s53 are satisfied Questions The general rule is that a failed gift or assignment wont be rendered effective by regarding it as a declaration of trust. The case of Paul v Constance represents an apparent exception to this rule. Why was the court able to conclude that a trust was declared in that case? What did Turner LJ in Milroy v Lord mean when he stated that the transferor had not done everything necessary to transfer the property? Consider the different interpretations placed on this statement by Griffiths CJ, Isaacs and Higgins JJ. in Anning v Anning. Which of these approaches was endorsed by the majority in Corin v Patton? Consider section 134 of the Property Law Act 1958 (Vic.) (Class Materials). Can you give examples of property transfers that must comply with this section? Problem for Discussion Prepare to discuss Colin Cool (revision problem 6) in seminar 4 Marchesi v Apostolou dealt with three titles of land. When Mr Apostolou was declared bankrupt he claimed that the properties were held in a trust for him. It is true that on 8 October 1987 Mr Apostolou executed a document in the following terms:- I Andrew Vasalou, also known as Andreas Vassiliou of 18 St Kilda Road, St Kilda in the state of Victoria make the following gift to a family trust known as the Vassiliou family trust. 17 Gifted certain properties 10 Claremont South Kilda 18 St Kilda Road, St Kilda 5/3 Alfirston Street, Earlwood

I hereby state that: I make gift all of the above properties together with chattels fittings and accessories titles (if any) to the family trust named above with no consideration. Valuations were prepared and transfers were executed. However the stamp duty on each transfer was never paid. His solicitor wrote requested Mr Vassiliou to forward a cheque for $16,000.00 so that we can attend to payment on assessment issues. The stamp duty was never paid and the properties remained registered to the bankrupt notwithstanding the declaration of trust. The trust mortgaged the properties and secured the properties for borrowing made to the trustee. Jessup J referred to the principles in Milroy v Lord (1862) 4 De G F & J 264 and the judgment Mason CJ and McHugh J in Corin v Patton (1990) 169 CLR 540 at 559: Accordingly, we conclude it is desirable to state that the principle is that, if an intending donor of property has done everything which is necessary for him to have done effect a transfer of legal title, then equity will recognise the gift. So long as the donee is equipped to achieve the transfer of legal ownership, the gift is complete in equity. Necessary used in this sense mean necessary to effect a transfer. From the view point of the intending donor, the question is whether what he has done is sufficient to enable a legal transfer to be effected without further action on his part.