Trust formalities

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Generally speaking, there are no formalities required for the creation of an express trust (see Paul v Constance), nor are there formalities for trusts that arise by the action of law under section 52(2) LPA (1925). However, in certain situations, Parliament has deemed it necessary to impose formalities. These are:

  • Creation of a trust of land under section 53(1)(b) LPA 1925

According to the Act, a declaration of a trust of land must be manifested and proved by some writing and signed by some person who is able to declare such a trust. S.53(1)b is usually taken to state an evidential requirement. That is, although failure to comply with this section does not invalidate the trust, Parol evidence will not be admitted by the courts to prove the existence of the trust. This probably means that the trust obligations will be unenforceable. It is also accepted, although less widely, that the writing need not be made at the same time as the trust is declared. I can declare a trust of land orally and it is a valid trust; then when called upon I can execute a document confirming that I have done this.

  • Dispostion of an existing equitable interest under s.53(1)(c) LPA 1925

According to the Act, disposition of an existing equitable interest must be in writing, not merely proved by writing. This is usually taken to mean that a trust not made in writing is void, not merely unenforceable.

The difficulty with s.53(1)c is that it is not entirely clear what a 'disposition' is, although some assistance may be provided by TimpsonsExecutorsVYerbury1935. Clearly, if A assigns outright his existing interest to B, that is a disposition. It seems unobjectionable that an instruction to the trustees to hold the property on trust for someone else is a disposition. However, if person A declares a sub-trust of his interest in favour of person B, is that a 'disposition'? Timpson suggests so, but this case did not discuss the different metas of sub-trust. If it is a bare sub-trust (see bare trust), arguably it is a disposition. After all, person A now has no effective role to play in the trust, and has no remaining beneficial interest in it. However, he still has a (technical) equitable interest, because he still has rights that would be recognised in equity. Be that as it may, the general academic opinion is that creating a bare sub-trust does amount to a disposition, while creating a discretionary sub-trust does not.

Timpson also suggests that a disposition has been made if the holder of the equitable interest enters into a valid contract to assign it to someone else, even if the assignment itself is not made. However, the question then arises whether such a contract requires writing. The answer would appear to be 'no', at least on the authority of NevilleVWilson1997. The logic seems to be that, as soon as the contract is formed, the assignor holds the equitable interest on Constructive Trust for the assignee, and s.53(2) states that s.53(1) does not apply to Constructive Trusts. In summary, although a contract to assign an equitable interest is a 'disposition', it is exempted from s.53(1)(c) and does not need to be in writing.

For a consideration of whether instructions to trustees to benefit different beneficiaries, or instructions to trustees to dispose of the legal title, amount to dispositions or not (and this is far from clear, even after a welter of case-law) see TheGreyAndVandervellCases.

Can s.53(1) be avoided?

Many attempts have been made to avoid the action of s.53(1)b and s.53(1)c. Why? Because if a document is used to transfer a beneficial interest, stamp duty may be payable. It is still payable on land transactions and was, at the time of the the grey and vandervell cases, payable on share transactions too. Naturally, anyone who wants to avoid paying stamp duty will want to avoid using a document to create or transfer a trust. Most attempts to do this have failed. The courts take a dim view of over-enthusiastic tax avoidance, and the lack of precision of the term 'disposition' has allowed them to give effect to that view. Arguments about whether it is possible to come up with a way to defeat s.53 to the satisfaction of a judge are now moot -- stamp duty is generally only payable on land transactions, and it is almost impossible to do anything with land these days unless it is in writing.

At the same time, the courts are aware that s.53(1), although intended to prevent fraud, can be used by unscrupulous trustees to commit a fraud on the beneficiaries. If person A offers (orally) to hold land on trust for person B, and takes money from person B for doing so, s.53(1)b would ordinarily prevent person B enforcing the trust against person A in court. However, the courts have historically prevented statutes being used as instruments of fraud (see, for example, Rochefoucault v Boustead 1897) and, no doubt, similar action would be taken today. In fact, it is the widespread acceptance that writing requirements should be subjugated to a general requirement to prevent fraud that allows the existence of a secret trust.

UK LAW
Land and Property Law
Trust Law