In order to create a valid trust, there must be certainty as to the intention of the creator (the settlor), certainty as to the assets the subject of the trust and certainty as to the beneficiaries or, at least, the potential beneficiaries.
Sometimes assets are given to another, with the express or implied hope or wish that the recipient benefits another party. For example, a gift may be made to a spouse, expressing the wish that if and when assets or surplus assets are no longer required, they should be passed to children.
This would not generally create a trust, with an obligation on the spouse for the benefit of the children. A clause that reflects a hope and wish is insufficient to create an enforceable obligation.
In contrast, if the wording is in sufficiently imperative terms (e.g. gift to spouse on the basis that one-third will be passed to the children) and is sufficiently certain, it will create a trust obligation on the recipient, with corresponding rights for the beneficiaries.
Some trusts can be created relatively informally. Some trusts are created by operation of law, generally to remedy injustice or to deal with scenarios in which a person’s obvious intention would otherwise be defeated.
Certainty in relation to the assets requires, at a minimum, that it is possible to identify clearly what is to be the subject of the trust. Where the assets which are to be the subject of the putative trust are insufficiently defined, it is not possible for the courts of equity to impose or attach a trust.
If it appears that there was an intention to create a trust, but the assets are insufficiently specified or defined, the courts will not allow the recipient / putative trustee to retain the assets. This will be a resulting trust in favour of the person who created the trust.
There must be certainty as to the beneficiaries and their respective rights. Where the class of persons intended to benefit is too large in number or too uncertain, the apparent trust is likely to fail.
For example, a trust for the “inhabitants of Limerick” or a trust to “the persons who have helped me during my lifetime” are likely to be too vague. In the former case, it is too uncertain and unwieldy, but it may be upheld as a charitable trust, provided that it is for a charitable purpose.
It must generally be possible to make a list of prospective beneficiaries, either by name or by way of a class of persons (whether or not born), for example, the issue of a particular person. The more modern test is that the beneficiaries must be ascertained or capable of being ascertained.
If it is clear that a trust was intended but cannot be implemented, it is likely that the assets will be held by way of a resulting trust for the person who created the trust or in the event of his death, his estate.
Capacity to Create
A trust can be created by any person who has the legal capacity to deal with property. A person under 18 years’ old may dispose of property, but the disposition may be set aside until a period after he reaches full age. Therefore, a trust created by a minor is vulnerable to being set aside.
A trust of land is deemed to exist, where land is vested in a person who is aged under 18 years. The trust mechanism is used so as to protect the interests of the minor.
As with any other disposal of property, the transfer of assets to a trust may be set aside if it is the result of duress, undue influence, fraud or mistake. The courts will be vigilant in the case of transfers by elderly, infirm or apparently vulnerable persons, which benefit other persons with whom they are in relationship of dominance.
See sections in contract law in relation to duress and undue influence, which are equally applicable to transfers to trusts.
An agreement to transfer real property or of an interest in real property (land and/or buildings) must be evidenced in writing. The Statute of Frauds requires that the disposition of a (beneficial) interest in real property by a beneficiary under a trust must be in writing and signed by the person transferring. The transfer of property, which does not comply with the requirement for writing, usually may not be enforced.
A lifetime transfer of title to real property must be done by deed. A transfer of real property on death must be provided for in the deceased’s will.
It is fundamental principle that where there is a gratuitous transfer of an asset, equity will not assist the beneficiary. The failure to prove the apparent trust in writing or by deed is likely to lead to a resulting trust in favour of the settlor, the person who created the trust.
Accordingly, the transfer of assets to the trust must be perfected by an actual transfer of an asset, in accordance with the requirements for transfer of title, applicable to the type of assets concerned. This is expressed by the maxim that “equity will not assist a volunteer”. A volunteer is a person who does not provide consideration or value in return for what he receives.
Assets may be transferred by way of a verbal trust, where there is no statutory requirement for writing. A trust of a movable property may be created by its delivery to a person on terms that he is to hold it for the benefit of others. The absence of writing may be prejudicial to proving and enforcing the terms of the trust.
A trust which is to take effect on death must be included in a valid will or executed in accordance with legal requirements for the execution of a will. A transfer of assets which is to take place on death must generally be effected by a document which conforms with the (strict) statutory formalities for a will.
A person may be given a gift, which appears on the face of it to be an absolute gift, but which is, in fact, a gift on trust. In order for this to apply, the person receiving the gift must expressly or by implication accept the obligation to act as trustee.
This may create a “secret” trust. A secret trust requires that it should be clear that the person gave the assets on trust, with the intention of imposing a trust obligation on the recipient. The terms of the trust must be communicated to the recipient, and he must have accepted it or acquiesced in it.
Letter of Wishes
A secret trust stands in contrast to a letter of wishes. Letters of wishes are commonly made in conjunction with discretionary trusts, created during lifetime or comprised in a will. It is a non-binding indication, addressed to the trustees, of the intentions of the settlor in creating the trust.
If the letter or directions are too certain or directive, they may themselves be deemed to be part of the terms of the trust, provided they fulfil the minimum requirements for certainty referred to above. This would generally have adverse effects in terms of transfer of ownership and tax planning, so the letter of wishes should make it clear that it gives non-binding directions or indications of intentions only.
Prior to the 2009 Land and Conveyancing Reform Act, there was a limit on the period of time for which assets could remain unvested in beneficiaries. This, in effect, put a “longstop” time limit on the duration of trusts periods, during which the ownership or assets remain unvested or floating.
The period in question was 21 years plus the lifetime of named or designated persons who are alive at the date of creation of the trust. In practice, this meant that a trust could operate for periods of up to 80 to 120 years.
This so-called rule against perpetuities has been abolished by the 2009 land law reforms. There is no absolute time limit for the duration of an unvested interest under a trust (e.g. a discretionary trust).
Instead, it is now possible to apply to the court to have a trust varied. This is seen as a more flexible means of limiting the potential perpetual holding of assets within a single trust, unvested.
The perpetuity rules were very arbitrary. In most other jurisdictions, they had been reformed several decades ago. In Northern Ireland, England and Wales, a fixed perpetuity period of up to 80 years are generally permissible. Where the rule against perpetuities was infringed, the trust or benefit concerned could be invalidated.
The perpetuity rules were highly technical and could have unjust and profound effects. Trusts were commonly created to ensure that the “lives in being” for the purpose of the rules extended to cover the lives of an identifiable group of persons. Because royal lives are catalogued, it was typical to refer to the descendants of a UK monarch, such as Queen Victoria or, latterly, King George V, in being at the date of creation of the trust, being the date of death in awill trust.
As with contracts, trusts may be rendered void and unenforceable for a number of different reasons. A trust may be void if it is illegal or contrary to public policy. As with contracts, the courts will not enforce trusts which promote an illegal or immoral purpose. The purposes need not necessarily be specifically unlawful if they are contrary to public policy.
Trusts which seek to restrain persons from marrying or interfering with parental duties may be void, as contrary to public policy. This may raise fine distinctions and difficulties of interpretation.
If a trust provides a particular benefit, which would cease entirely in the event of marriage, the Courts may interpret this as a restraint or an attempt to restrict marriage. This condition would be likely to be found void and of no effect. On the other hand, if the intention is to meet the beneficiary’s needs before he married, then the trust may be upheld. Partial restraints on marriage may be valid.
Where there are any circumstances which negate the free will of the settlor or testator in creating the deed of trust of the will, the trust may be challenged and set aside. If the settlor acted as a result of duress or undue influence, it may be set aside. See the sections in relation to duress, undue influence and improvident bargains in relation to contracts.
Where a trust of will trust is made in favour of a person who is in a position of influence in relation to the settlor or the deceased, the onus is on that person to show that the trust of will trust was created as a result of the free, unfettered decision of the settlor/testator. In practice, this may require that he is shown to have received independent legal advice and possibly more.
If a trust is created as a result of fraud or misrepresentation, it is invalid and may be set aside in the same way as a contract.
If property is transferred for the purpose of avoiding creditors it may be set aside. Gratuitous transfers made within a certain period before bankruptcy may be set aside without proof that it was intended to defraud creditors. Where assets are transferred at undervalue, particularly to related parties within a certain period prior to bankruptcy, they may be set aside automatically in bankruptcy.
Public Sector Materials; Statutes and Cases in italics are reproduced as public sector material. See the Legal Materials link in the footer.