Trust creation
Usually be created by one of four separate and distinct methods
The favoured or usual method is by an express trust whereby the settlor transfers legal assets to a trustee for the benefit of named beneficiaries. A trust deed will be completed by the settlor and the trustee setting out the terms of the trust
It could be said that a trust could be formed by an oral statement and that a trust deed is not necessary to constitute a trust, it is normal practice, especially in offshore jurisdictions to ensure that one is in place
Trusts may be classified by the way in which they are created and/or constituted. It is widely acknowledged that there are four modes of creation
Express trusts
Implied trusts
Resulting trusts - presumed
Resulting trusts - automatic (consecutive trusts)
Express trusts
A trust that is created intentionally by the settlor during their lifetime (inter vivos) or a trust that comes into existence upon the death of the settlor as result of their will may be referred to as an express trust
The majority of trusts in offshore jurisdictions are express trusts created when a deed of settlement made between the settlor and the trustee is executed or when the settlor transfers assets to the trustee who then executes a Declaration of Trust
Another way of explanation is that an express trust has been constituted when all the three certainties are in place, when all the trust documentation has been completed by all the necessary parties and the trustee has received the initial assets of the trust
Implied trusts
A trust that arises from the unexpressed and presumed intentions or is enforced by a court as a result of surrounding circumstances
For example if an individual purchases an asset in the name of another individual, there is a presumed intention that the purchaser holds that asset in trust for the other
Resulting trust - presumed
A resulting trust is the creation of an implied trust by operation of law as where property gets transferred to one who pays nothing for it and then is implied to have held for benefit of another person, the trust property is said to result back to the transferor (implied settlor)
If the trust that was intended fails, for example or a trust fails for a lack of objects, a resulting trust occurs as the trustee find themselves holding the trust assets upon trust for the settlor as a result of the failure
Based upon intention being that the parties have implied intention, they have a general intention but have not yet properly formalised the situation
Resulting trusts - automatic (constructive trusts)
Arise by operation of law and are based on actions irrespective of any intention of the parties for the purpose of being fair to each party
This trust does not consider the intentions involved only that justice is worked into the situation or outcome
If one party transfers assets to another for a specific purpose, then this will create a trust relationship between them
The person receiving the assets (the trustee) will be obligated to carry out this specific purpose
Creation of a valid trust
A settlor must have the ability to establish a valid trust
A person cannot give away something of which they are not the legal owner and it is essential that the trustee acquires good legal title to the assets that they are to hold on trust
If the settlor does not have the capacity to transfer the legal ownership of the assets, the trustee will not acquire a perfect title to the assets and the transfer could be either void or voidable depending on the circumstances
A settlor can usually transfer some of their legal assets to the trustee by the following methods
Property
The conveyance of the property by transferring title of the land into the name of the trustee in accordance with the law of the jurisdiction in which the property is situated
Stocks and shares
The completion of a stock transfer form and delivery of the actual share certificates if any to the registrar of those companies to arrange for them to be registered into the name of the trustee
Chattels
Physical delivery of the asset to the trustee may be all that is needed to confer title and act as proof of title that the item is now part of trust assets
Debts
The settlor would assign the debt into the name of the trustee
Incomplete constituted trusts
If the settlor fails to transfer the intended assets to the trustee, they cannot be compelled to do so by the intended trustee and/or beneficiary
The main disadvantage is that although it is clear than an intention to create a trust is proven, the trust may still be void if the assets are not transferred from the control of the settlor to that of the trust
Milroy v Lord (1862)
Jones v Lock (1865)
Paul v Paul (1882)
The situation will be regarded by equity as an imperfect gift and the trustee as the volunteer cannot compel the settlor to perfect the fit
A possible solution, to enable volunteer beneficiaries to sue a settlor, is when a promise is made by a purported settlor to potential beneficiaries. The decision in Fletcher v Fletcher (1844) stated that there was a completely constituted trust not in respect of the proposed assets, but because of the promise, and the beneficiaries were able to enforce the trust.
The gift will be an effective transfer where the donor has done everything they are obliged to do to make the gift valid.