LAW 319 -- TRUSTS
ANSWERS TO QUESTIONS FOR PART IIIA
Capacity
Note four main types of incapacity one should watch out for.
-minors
-mental incapacity – understanding the nature and effect of the transaction
-bankruptcy
-non-legally recognized entities
Who must have legal capacity for the creation of an express trust? Who else should have
capacity and explain why?
-settlor must have capacity – this is necessary to make a valid transfer of property
in order to constitute the trust – or to declare themselves a trustee of the property
-trustee should have since otherwise limitations on ability to carry out the terms of
the trust
The Three Certainties
Provide an outline of the law on certainty of intention.
-intention that other person to hold property in trust or that the settlor
himself/herself is holding the property in trust
-can be express or implied from written or oral statement, or, in exceptional
circumstances might be construed from conduct alone
-no specific words are necessary
-the words “in trust” or “as trustee for” normally will be sufficient to indicate a
trust intention but not necessarily – court looks to actual intention
-precatory words such as “desire” “hope” “wish” are not normally interpreted as
exhibiting an intention to create a trust but they might be so interpreted in
appropriate circumstances
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Note the two aspects of certainty of subject matter and for each aspect note three ways in
which that aspect of certainty of subject matter can be satisfied.
1. Property subject to the trust
-reference to specific property
-reference to a specific fund or a fixed amount out of a specific fund
-a formula (e.g. sufficient to provide a payment of $50 per month
2. Certainty of Amounts
-set out specific amounts for each beneficiary
-provide a method of determining the amount
-give the trustee a discretion as to the amount
Explain why there must be certainty of objects.
-the trustees must know on whose behalf the property is being held (i.e. what they
must do with it)
-court must know for the purpose of determining whether there has been a breach
of trust
What is the test for certainty of objects for a fixed express trust for persons?
-the whole range of objects must be ascertained or ascertainable [Broadway
Cottages case] – void for uncertainty unless at the outset it can be seen clearly
that all the beneficiaries thereunder are then ascertainable or will be ascertainable
when the time comes under the trust to distribute capital or income [Underhill &
Hayton citing Re Gulbenkian’s Settlement Trusts]
What is the test for certainty of objects for an express trust for persons in which the
trustee has a discretionary power of appointment?
The class must not be so indefinite that it cannot be ascertained whether any
person falls within it – valid if it can be said with certainty whether any individual
(or person) is or is not a member of the class.
Give three practical reasons for considering underlying values or concerns that may
influence judges’ decisions in cases.
-need a sense of how courts will respond where legal rules seem indeterminant
-points to evidence one may want to get before the court even though on the strike
legal rules the evidence is irrelevant
-identifying risks that particular intended result might not be the one the court
finds and may suggest ways of addressing it
3
Explain the similarities between trust and contract.
-trust is a deal just a s contract is a deal – settlor proposes deal and trustee accepts
– thus promise of trustee to act according to the terms of the trust
-also promise of the settlor to settle property and question of whether it should be
enforced – similar to the question of enforcement of contracts for third party
beneficiaries
Identify and explain four possible underlying concerns or values that may influence
judges’ decisions in cases involving the issue of whether a trust has been created.
Constitution
What does the constitution of a trust require?
-the trustee must hold the interest in property that is to be held in trust
Give two explanations for why an express trust must be constituted.
-trustee needs to control the property in order to carry out trust obligations re the
property – unfair to hold trustee liable for breach of trust when trustee couldn’t
deal with the property to comply with the trust
-court will not force the constitution of a gratuitous trust since doing so would
complete an incomplete gift – equity follows the law and the law requires delivery
for a gift – delivery serves the purpose of confirming intention and deliberation
Note three ways in which a trust may be constituted.
-Settlor transfer
-3P transfer
-settlor declaration
Describe how interests in the following forms of property are transferred: (i) land, (ii)
chattels, (iii) choses in action, (iv) negotiable instruments.
-land – deed or statutory instrument of transfer
-chattels – by delivery
-choses in action – by assignment
-negotiable instruments by negotiation (i.e. endorsement)
Note three ways in which equitable interests may be transferred.
-by the settlor assigning the equitable interest to another person as trustee for the
benefit of the settlor’s intended beneficiary
-by the settlor giving a direction to the trustee to hold the interest in trust for
another person
-by declaring himself or herself a trustee of the equitable interest for the other
person or persons who the settlor intends to benefit
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What underlying concerns may influence whether or not a court will force a settlor to
constitute a trust?
Formalities
Describe the three types of situations in which writing is required for trusts under sections
4, 7 and 9 of the English Statute of Frauds.
-contracts concerning interests in land that create a trust as part of the contract
-declaration or creation of trusts of interests in land
-the grant or assignment of interests in trust
Identify and describe two responses to problems created by the Statute of Frauds.
-Part performance – i.e. some act has been done that is consistent with the alleged
oral contract and that can only be explained by the alleged oral contract
-use of statute to perpetrate a fraud – where there is clear evidence of an oral
contract (or declaration or creation of trust or grant or assignment of an interest in
a trust) the statute will not operate to deny the contract or trust since that would
allow the statute to be used to perpetrate a fraud – one does not have to prove a
fraudulent intent, just clear evidence of the oral contract, declaration or creation of
trust or grant or assignment of an interest in trust
What are the basic requirements for a valid will under the Wills Act in British Columbia?
-signed at end by the testator (or in the testator’s name by some other person in
the testator’s presence or at the testator’s direction)
-testator makes or acknowledges the signature in the presence of two other
witnesses
-two or more attesting witnesses (i.e. attesting to the testator’s signature by
signing their names in the presence of the testator)
Constraints on the Creation of Express Trusts
Identify and describe five situations in which a trust may be invalid on the basis that it is
illegal or contrary to public policy.
-restraint of marriage
-interference with marital relationships
-interference with the discharge of parental duties
-discriminatory conditions
-restraints on alienation
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Under what three pieces of legislation (federal or provincial) can a transfer to a trust in
British Columbia be void against either creditors or a trustee in bankruptcy? In what
situations under these pieces of legislation will it not be necessary to show that the debtor
was insolvent, or on the eve of insolvency, at the time of the transfer or settlement?
-Fraudulent Conveyance Act
-Fraudulent Preference Act
-Bankruptcy and Insolvency Act
-it is not necessary to show insolvency or the eve of insolvency under the
Fraudulent Conveyance Act or under the provision in the Bankruptcy and
Insolvency Act making settlements within a year of bankruptcy void against the
trustee in bankruptcy
Set out the common law rule against perpetuities.
-there are actually three main rules – one is the rule against remoteness of vesting;
another is the rule against perpetual duration; and another is the rule against
accumulations (pursuant to the English “Thelusson’s Act” (or now provincial
Accumulation Acts)
-the rule against remoteness of vesting is that an interest is valid if it must vest, if
it is going to vest at all, within a period calculated by taking the lives in being, at
the date the instrument takes effect, plus 21 years
Note three of the legislative modification under the British Columbia Perpetuities Act
that can serve to save a trust from being invalid on the basis that it violates the rule
against perpetuities.
e.g.
-wait and see (i.e. don’t deem to be an invalid gift from the outset but wait and see
if the gift actually vests outside the perpetuity period)
-the 80 year rule
-deeming of the age at which persons can have children (14+ for male and 12 to
55 for female)
-age reduction (if a gift on a person reaching an age greater than 21 would render
the gift void on the rule against perpetuities then the court can reduce the age as
necessary to as low as age 21 to save the gift
-class splitting (if the gift vests in some members of the class in the perpetuity
period but not others then those in whom it might vest outside the period are cut
off)
-cy pres (if all else fails try to vary the gift in a way that fits with the general
intention of the gift within the perpetuity rule)
Describe and contrast the Canadian protective trust and the American spendthrift trust.
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American spendthrift trust – the trustee is prohibited from distributing any of the
trust property to anyone other than the specified beneficiary – thus if the beneficiary attempts to assign his or her interest the trustee will not be permitted
to pay out anything to the assignee – this will discourage assignment by the
beneficiary since no one would be willing pay the beneficiary for such an
assignment
Canadian protective trust – the American spendthrift trust would run the risk in
Canada that it would be an invalid restraint on alienation – the approach that has been accepted in Anglo-Canadian law (and often referred to as a protective trust)
is to provide that the beneficiary loses his or her interest in the trust if the he or
she becomes bankrupt or subject to charge in favour of a creditor