Topic 1: Introduction and Classification of Trusts

1.1 WHAT IS A TRUST?

o A trust is only enforceable in equity; not recognised by common law

o Equity sees a legal owner who does not own it for himself, but for the benefit of others
o Trust has no legal personality, the trustee is a legal person. Hence legal action must be taken
by or against the trustee, not the trust.
o A trust can be over virtually any form of property, including equitable property. Therefore a
trust can be over a beneficial interest. If a trust is declaration over a beneficiary’s interest, a
sub trust is created. This chain can go on indefinitely.
1.2 CLASSIFICATION OF A TRUST

A) Express - Arises when a person sufficiently expresses an intention for a trust to be created.
o Trust by transfer: Settlor transfers property to trustee and trustee holds legal title
and beneficially holds equitable title - ‘I want to create a trust and I want you to be
the trustee’
o Trust by self-declaration: Settlor owns property and declares himself trustee on
behalf of beneficiary, settlor holds legal title and beneficiary has equitable title - ‘I
want to hold the property that I own on trust for somebody else’
B) Constructive - Equity’s response to unconscientious behaviour (can be a remedy) or Joint venture
constructive trust
C) Resulting - Presumed intention to retain equitable title:

1.3 TRUST STRUCTURES

o Trustee: Person who has legal title to property and holds on behalf of the beneficiaries (can
be multiple people and a trustee can be beneficiary, so long as not sole beneficiary)
o Beneficiary: Can be one or more person or can be an object/purpose
o Settlor: Person who creates the trust (can be a trustee (trust by self-declaration))
o Subject matter: identifiable trust property
o Object of the trust: people who are to benefit from the trust

Intervivos Trust Testamentary Trust

Created during settlor’s life, come into effect Created by will of testator, come into effect on
immediately. date of death of testator.

o Trusts created by transfer: Settlor transfers property to trustee à trustee holds legal title
on behalf of beneficiary à beneficiary holds equitable title
o Trusts created by self-declaration à Settlor owns property and declares themselves trustee
on behalf of beneficiary/object à settlor is legal owner à beneficiary had equitable title
o Rule of perpetuity: A trust cannot last for more than 80 years. Property must get to
someone who is absolutely entitled within 80 years (doesn’t apply to charitable trusts).

Failed Trusts
o If a testamentary trust fails, property disposed of by rest of will or intestacy.
o If trust by declaration fails, settlor remains owner of the property.
 o If trust by transfer fails, if property has been transferred to trustee, trustee holds it on
resulting trust for settlor. If transfer itself has failed, settlor continues to hold property.

Topic 2: Creation of Express Trusts

2.1 CONSEQUENCES OF CREATING A TRUST

To create a valid trust, you need:

a) Certainty of intention to create a trust
b) Certainty of subject matter
c) Certainty of object
d) Compliance with relevant statutory formalities
e) Complete constitution of the trust
Unless each element is satisfied, the trust will fail, or at least be unenforceable.

o When a trust is validly created, the beneficial interest passes from the settlor to the
beneficiaries
o If a valid trust has been created, there are immediate and binding consequences and it is too
late for the settlor to change his/her mind (Mallott v Wilson).
o A trust cannot be revoked, once created unless a power of revocation exists (Mallot)

2.2 CERTAINTY OF INTENTION

Intention is a fundamental requirement for the creation of an express trust. An express trust can be
created by declaration or by transfer. Both methods require intention. Ultimate onus of proof on
person claiming trust exists.

o It is not necessary for the words ‘on trust’ to be used

o Imprecise wording may still be held to have the effect of property held on trust if there is
evidence to suggest intention to create a trust (Re Armstrong)
o If there are no written words, spoken words and actions can support the interpretation of
declaration of a trust e.g. “the money is as much yours as is mine” together with joint access
and joint funds (Paul v Constance)

Test: In the circumstances of the case and on the true construction of what was said and written, a
sufficient intention to create a trust has been manifested (Tito v Waddell (No 2))

Available alternatives to a trust:

Gifts with precatory words
Precatory words are words that express a settlor/testators wishes, hopes or confidence rather than
impose on obligation. They tend not to have imperative language and qualify an otherwise absolute
gift. Often found in a will. E.g. “in the fullest confidence” (Re Williams), “trusting that”
o Chang v Tjiong: Not precatory words, merely informal but clear enough to establish trust.

Gift on Legal Condition

Re Gardiner: strong language suggests can only get the gift if the obligation is performed. Time limit
points towards legal condition, obligation must be performed.
Gift on Equitable Condition
Cobcroft v Bruce: Owns shares and can use as wishes. If doesn’t use, subject to condition to leave to
nephews. Not legal condition as primary intention if gift for her.
Re Williams: Lindley LJ said equitable conditions can be imposed ‘by any language which is clear
enough to show an intention to impose an obligation and is definite enough to enable the court to
ascertain what the precise obligation is and whose in favour it is to be performed’.

Levels of obligation: Dixon J

1. Moral obligation only: No enforceable obligation, recipient can do whatever they want, with
no accountability.
2. Condition: The gift is subject to a condition: both legal and equitable exist
a. Legal conditions lead to forfeiture if condition is not performed
b. Equitable conditions create personal obligations enforceable in equity to perform
them
3. Charge: The recipient takes the gift, subject to a charge. This gives proprietary rights to the
second party whilst the first party gets beneficial ownership.
4. Trust: The recipient of the gift is a trustee for the other named party – Recipient gets legal
ownership but not beneficial.

Intention
Intention is determined objectively and there is very limited role for subjective intention to be
considered. If explicit words are used, the relevant intention is the intention manifested by the
worlds.
o Byrnes v Kendle: When created in writing, judge according to words used. If formal explicit
words used clearly manifest an intention to create a trust, no reason to go behind words.
o If the written words are inexplicit or informal, court will look at all circumstances of
case to see if intention can be inferred. (Re Armstrong; Paul v Constance)
o If created orally, court will look at circumstances to see if intention can be inferred.
(Re Armstrong; Paul v Constance)
o Lewis v Condon – trust created for improper motive, but not a sham. For a sham, must show
an intention to deceive, and that document not meant to take effect according to its terms.
Burden on party alleging sham (high burden).
o Korda v Australian Executor Trustees (SA) Ltd – in absence of explicit declaration of trust,
court looks to language of documents or oral dealings, having regard to nature of
transactions and circumstance of parties’ relationship. Interpretation cannot be inconsistent
with the terms of the contract.

The intention must also be immediate. Intention to create a trust in future does not operate as a
present intention to create a trust (Harpur v Levy)

Reasons for setting aside an objectively stated intention (Byrnes v Kendle):

o Commonly available grounds for setting aside a legal document relevant
o Mistake
o Misrepresentation
o Undue influence
o Unconscientious dealing
o Estoppel
o Failing to adhere to a condition.
2.3 CERTAINTY OF SUBJECT MATTER
A trust (created voluntarily) requires presently existing trust property. Settlor must have rights to it.
Trust property must be certain. The trust may fail if property is not presently existing or is uncertain.

Basic rules:
o A voluntary trust cannot be declared over future property (i.e. property not yet in existence,
or property in existence that is not yet owned by the person who purports to deal with it)
o There cannot be a voluntary transfer of future property, either by absolute assignment or
transfer to a trustee.

Future property is distinguished from future interests. Can have future interest in existing property.
An attempt to assign income that has not yet accrued will fail (Williams; Norman)
An attempt to assign a present right that may generate future income will succeed if the present
right exists (Shephard)
o Williams – assignment of 500 pounds of net income failed as this was future property.
o Norman – assigned dividends on shares not yet declared failed as was future property.
o Shepherd – taxpayer assigned 90% of income that may accrue from royalties, successful as
they had assigned the present right to receive income, rather than income itself.

Future interest in existing property is distinguishable from an expectancy (e.g. person named in a
will of someone who hasn’t died yet). Expectancies cannot be assigned and cannot form subject
matter of trust (unless consideration is given). If consideration is given, equity will treat as a contract
to assign, and when property comes into assignor’s hands, equity deems done that which ought to
be done.

Certainty
Assuming trust property is present property, it must be identifiable and ascertainable. If description
is too vague, certainty will not be made out.

Declaring a trust over part of a larger bulk can occur if the property isn’t individually identifiable
o Hunter v Moss; Cant declare over bottles of wine – distinguishable unless all same
o Shortall v White – Shares all in one company, identical class = certain
o Mussoorie Bank v Raynor – ‘What’s left over of the estate’ is too uncertain.
Topic 3: Trust Structures

3.1 INTRODUCTION

Many trusts are for the benefit of people, but some trusts are for purposes. Only certain purposes
are acceptable.

Beneficiary principle: There must be some person in whose favour the court can enforce the trust.
Charitable purposes are the only exception(Morrice v Bishop Dunham)
o Court controls the trust and there must be someone with standing to seek performance of
the trust
o AG is the person with standing for charitable trusts

3.2 MODERN TRUST STRUCTURES

Trusts are used for:

o Public investment via the unit trust
o Retirement planning via the compulsory federal superannuation regime
o Tax effective income distribution via the discretionary trust

3.3 TRUSTS AND POWERS

CLASSIFICATION

A) Fixed interest trusts

o Fixed trust = Fixed terms set by the settlor, trustees have no discretion
o Beneficiaries and shares in trust are specified at time of creation
o Must be performed according to its term, and courts will intervene to ensure it is.
o Rule: Trustees must be able to say with certainty exactly who beneficiaries are
o ‘List Certainty’ test (IRC v Broadway Cottages)
§ Every person on the list is genuinely a beneficiary and
§ They haven’t missed anyone off the list

B) Powers of appointment
o A power of appointment can be thought of as having the power to choose to distribute
property to certain beneficiaries, however there is no obligation to do so
o Donee = person who exercises power of appointment
o Object of power = persons to whom property is disposed
o Donor of power (settlor) = person who confers authority on donee
o Taker in default = those who will get the property if power to appoint is not
exercised (starts as a beneficiary, will get property instead of going back to settlor)
o Rule: ‘Criterion Certainty’ test – flexible test for certainty of objects in relation to powers of
appointment (Re Gulbenkian’s Settlement)

Classes of Powers
Special Powers à A power to appoint to anyone within a specified class of individuals
 General Powers à A power to appoint to anyone in the world, including the donee
Hybrid Powers à A power to appoint anyone in the world except a specified class of individual

TRUST POWER MERE POWER

GENERAL Invalid; either on basis right to treat property as Valid. Donee can
own inconsistent with fiduciary obligations, or treat property as own.
because it would fail admin workability test.
HYBRID Invalid. Fails admin workability test, because Valid. Criterion certainty
‘rest of world’ a hopelessly wide class: Re Hays test applies. Admin
workability not relevant:
Re Hays
SPECIAL Valid- criterion certainty test (including Valid. Criterion
admin workability applies). Certainty test applies
Admin workability
Word ‘except’ – If anyone in world except (Hybrid),Irrelevant,
if but
specified class except (special power) capriciousness?

General Hybrid Special

Bare/Mere: Valid Valid Valid
Permissive powers
standing alone
Trust: Role for them Invalid Invalid Valid
to exercise (Would require (‘Rest of the world’ is
discretion/an trustee to consider all also too wide)
obligation to the world as possible
distribute the prop objects)

C) Discretionary Trusts
o Doesn’t stipulate who is to get what but gives the trustees discretion to decide
o Mandatory nature of the trustees to act and distribute property, mere discretion as to who
o Rule: ‘Criterion Certainty’ test – just need to be able to say in relation to any individual
asking for property, whether that particular individual is a member of the class of
beneficiaries (McPhail v Doulton and applied in (Re Baden’s Deeds Trusts (No 2))

RIGHTS OF BENEFICIARIES AND OBJECTS COMPARED

Taker in Default
o A TiD has a proprietary interest, unless and until the power is exercised against them/their
interest is subject to divestment by the exercise of power
o TiD has a standing to take matters to court because of their proprietary interest
o NOTE: If there isn’t a TiD, courts can imply one from the words use, or proprietary interest
stays with the settlor.

Beneficiaries under a Fixed Trust

o A beneficiary under a fixed or unit trust has an equitable proprietary right to the trust
property and those rights are capable of assignment
o Has standing to insist trust is performed according to its terms
Objects of a Discretionary Trust
o A person who is an object of a discretionary trust has no present property right capable of
assignment until an appointment is made in their favour.
o Prior to assignment, the object cannot be taxed on the basis of trust or assign interest to
anyone else.
o However, objects do have rights/standing to enforce proper administration of the trust
(Kennon v Spry), but it can’t force it to be performed in their favour.
o McPhail: Trustees exercising a trust power are under a duty to survey class and
inquire into their needs/qualifications, adopting a strategy for selection.

Objects of Bare Powers

o Do not having standing to enforce exercise of power (because it doesn’t have to be
exercised), however, have standing to insist power, if exercised, is exercised properly.
o Non-fiduciary donee of power has no obligation to exercise in any manner or at all
o If exercised, must keep within its limits and in good faith.
o When donee of bare power is a fiduciary (trustee), McPhail says they must:
o Consider periodically whether or not to exercise the power
o If they choose to exercise, consider the range of objects, so as to enable them to
carry out their duties
o If they choose to exercise, consider the appropriateness of individual appointments
o But a less extensive duty than that imposed on trustee of a trust power (because
bare power does not need to be distributed)

3.4 CERTAINTY OF OBJECT

The courts must be able to identify the objects of the trust and trustee must know who to account
for. If the trustees cannot properly identify the objects of the trust, they cannot distribute to them,
or account to them and would risk of acting in breach of trust if they didn’t make a distribution.

The trustee is entitled to go to court to get the court’s direction/advice, and if the trustee follows
this advice then they can’t be held liable for breach of trust. If the court cannot identify with
certainty, then trustee cannot carry out trust. The clause will be void for uncertainty of object.

TESTS FOR CERTAINTY

1. Fixed interest trust = ‘list certainty’ must be satisfied.

o Trustees must be able to identify all beneficiaries, make a list of people they have to
distribute property to.
o On the date of creation, you have to be able to say that on the date of distribution, you will
be able to write the list of people.
o Can’t make a list of future employees
o If described, semantic certainty still required.

2. Trust powers + objects of bare powers = ‘criterion certainty” must be satisfied

o Trustees must be able to say whether person is inside or outside the class
o Two steps per Re Gulbenkian’s Settlement
 o Semantic certainty – Meaning of the words must be ascertainable and capable of
objective definition (Re Gulbenkian, McPhail)
o Evidentiary certainty – court can give direction about what evidence is needed. If it
is semantically certain, clause won’t be invalid just because of difficulties in
ascertaining members of the class.
Third step for trust powers only (McPhail v Doulton obiter)
o Administrative workability – if class is too wide, the power might be void because it is
administratively unworkable. If the class is too hopelessly wide as to render it incapable
of forming anything like a class (District Auditor) à Problem: gives too many people
standing to complain, practically impossible to distribute, so loose so they don’t form a
class
Third step for bare powers only (Re Manisty’s Settlement)
o Capriciousness - Donee must not exercise their powers capriciously such that the power is in
favour of ‘an accidental conglomeration of people with no discernible link to the settlor’

Examples:
o Re Gulbenkian’s Settlement – ‘my old friends’ uncertain, unless special meaning assigned to
the term by settlor. No semantic certainty
o McPhail v Doulton – court can determine as a question of fact who is a ‘dependant’, it was
semantically certain
o ’ also sufficiently certain
o R v District Auditor No 3 Audit District of West Yorkshire – population of 2.5 million = too
large. Can’t make a sensible choice amongst those people if the court was called on to make
the choice.
o Re Manisty’s Settlement – administrative workability will only relate to trust powers. Courts
will never be called on to administer a mere power because it doesn’t have to be exercised.
o Capricious power might be void – applies where there is no discernible link between the
settlor and the would-be beneficiaries.
NOTE:
“I give my trustee $500 with power to appoint to my mother, and in default of appointment for my
friends.”
1. When the second half of a clause (taker in default) is invalid, the trustee can probably still
exercise the power.
2. The proprietary interest is with the taker in default, subject to divestment by exercise of power.
When taker in default fails, proprietary interest would revert to settlor/estate.
3. We know settlor/testator intended trustee to be able to benefit mother, but under no obligation
to benefit mother. There is an intention to benefit mother, so trustee can arguably exercise
power even though gift over has failed.
4. The alternative would be to say that the whole clause was interdependent i.e. if one part fails, all
fails
5. To avoid any liability, trustee should seek court’s directions before exercising power

“I give my trustee $500 with power to appoint to my friends, and in default of appointment for my
mother.”
- Trustee cannot exercise power because mere power is invalid. Taker in default is valid
- Mother has proprietary interest, subject to divestment by exercise. If the power cannot be
exercised, arguably the proprietary interest simply stays with her.
- Settlor/testator didn’t impose duty on trustee to appoint to friends. If trustee didn’t exercise, we
know that settlor/testator had decided it would go to mother, so this seems sensible.
- Alternative is that settlor/testator didn’t intend to make an outright gift to the taker in default.
- Trustee should approach court for direction
 Trust Power Plan

Clause indicating trust

power – mandatory
language (shall, must)

Is it a Special class?

If Hybrid or General
class, the trust will fail
immediately for
administrative
unworkability (Re
Hays)

Fixed Trust (Fixed terms by Discretionary Trust (Discretion in

settlor, no discretion for trustee) regards to the object)

Is Criterion Certainty sufficed?

Is List Certainty sufficed? Is o Is there Semantic Certainty? (If
there identification of no, FAIL)
beneficiaries at date of o Is there Evidentiary Certainty?
distribution (McPhail) (If no, seek direction from
court)

Is there Administrative
Unworkability?
o Is it giving too many people
List Certainty is List Certainty isn’t standing?
sufficed = VALID sufficed = FAILS o Practically impossible to
distribute
o So loose a class isn’t formed

Criterion Certainty + no No Criterion Certainty +/or

admin unworkability = admin unworkability =
VALID FAILS
 Bare/Mere Power Plan

Clause indicating bare

power; permissive
language, taker in
default

ASK: Is It special,
general or hybrid?

ASK: Is the donee

fiduciary or non-
fiduciary?

General Special Hybrid

Essentially a gift, trustee Donee has power to appoint Donee has the power to
shouldn’t profit anyone in class appoint world except
specific class
If donee is fiduciary, must If donee is fiduciary, must
consider periodically consider periodically If donee is fiduciary, must
whether to exercise and whether to exercise and consider periodically
consider appropriateness of consider appropriateness of whether to exercise and
awarding. awarding. consider appropriateness of
awarding.
If donee is not fiduciary, no If donee is not fiduciary, no
obligation to exercise. obligation to exercise. If donee is not fiduciary, no
obligation to exercise.
Must suffice Criterion
Certainty Must suffice Criterion
o Semantic Certainty Certainty for the excluded
(if not, fails) class
o Evidential Certainty o Semantic Certainty
(if not, seek (if not, fails)
directions from o Evidential Certainty
court, doesn’t fail) (if not, seek
directions from
Capriciousness court, doesn’t fail)
Must not be of an irrational,
perverse or irrelevant
nature