THE LAW OF TRUSTS NOTES PART II

Trusteeship involves onerous obligations, where a donor retains no responsibility for the property once the gift has been made.

Difficulty has been found in providing a comprehensive definition of a trust but various authors have made attempts to define the term trust.

A trust is a relationship which subsists when a person called the trustee is compelled by a court of Equity to hold property, whether real or personal, and whether by legal or equitable title for the benefit of some persons, of whom the trustee himself may be one and who are called cestui que trust or beneficiaries, or for some object permitted by law; in such a way that the real benefit of the property accrues not to the trustee, as such, but to the beneficiaries or other objects of the trust.

1.         Lord Coke’s Definition

Lord Coke defined a trust as “a confidence reposed in some other, not issuing out of the land but as a thing collateral thereto, annexed in privity to the estate of the land, and to the person touching the land, for which cestui que trust has no remedy but by subpoena in the Chancery.”

2.         SIR ARTHUR UNDERHILL’S DEFINITION

Sir Arthur Underhill, the original author of the leading practitioners’ work which is now known as Underhill and Hayton, Law of Trusts and Trustees, described a trust as “an equitable obligation binding a person (who is called a trustee) to deal with property over which he has control (which is called trust property), for the benefit of persons (who are called beneficiaries or cestuis que trust) of whom he may himself be one and any one of whom may enforce the obligation.

This is not satisfactory, for it is not wide enough to cover trusts for purposes rather than persons. Trust for charitable purposes (e.g. for the repair of a church or the prevention of cruelty to animals) may lack human beneficiaries and yet be valid as trusts and there may also be other trusts which lack beneficiaries who can enforce them.

1.            There is a person called a Trustee

2.            Trust Property

3.            Beneficiaries

Underhill’s definition does not cover

1. Charitable trusts.
2. Trusts of imperfect obligation- such as a trust “for the maintenance and support of my dog Tigger” –this may well amount to a valid trust but is a trust of imperfect obligation because Tigger cannot enforce it.

 The Successive editors of what is now Underhill and Hayton have, however, pointed out that, even though charitable trusts are outside the scope of the work, they are in any event covered by the definition, simply because such a trust is for the benefit of persons, namely the public, on whose behalf the Attorney General may intervene.

3.         Lewin’s Definition

Lewin on Trusts adopts a rather more comprehensive definition, which is based on a definition given by Mayo J. in Re Scott.

            “the word ‘trust’ refers to the duty or aggregate accumulation of obligations that rest upon a person described as trustee.  The responsibilities are in relation to property held by him, or under his control.  That property he will be compelled by a court in its equitable jurisdiction to administer in the manner lawfully prescribed by the trust instrument, or where there be no specific provision written or oral, or to the extent that such provision is invalid or lacking, in accordance with equitable principles.  As a consequence the administration will be in such a manner that the consequential benefits and advantages accrue, not to the trustee, but to the persons called cestui que trust, or beneficiaries, if there be any; if not, for some purpose which the law will recognise and enforce.”

This definition is an improvement on Underhill’s definition.

1.            Duties and obligations are clearly expressed;

2.            Trust Instrument;

3.            Beneficiaries do not have to be persons –purpose which takes care of charities etc.

 A trustee may be a beneficiary, in which case advantages will accrue in his favour to the extent of his beneficial interest.

4.         Definition in Hague Convention on Law of Trusts:

This has been incorporated into English Law by the UK Recognition of Trusts Act 1987 and under Article 2 of that convention, a trust is defined as follows:-

For the purpose of this convention, the word ‘trust’ refers to the legal relationships created – inter vivos or on death – by a person, the settlor, when assets have been placed under the control of a trustee for the benefit of a beneficiary or for a specified purpose.

 A trust has the following characteristics—

(a)          the assets constitute a separate fund and are not part of the trustee’s own estate;

(b)          title to the trust assets stands in the name of the trustee or in the name of another person on behalf of the trustee;

(c)          The trustee has the power and duty, in respect of which he is accountable, to manage, employ or dispose of the assets in accordance with the terms of the trust and the special duties imposed upon him by law.

The reservation by the settlor of certain rights and powers, and the fact that the trustee may himself have rights as a beneficiary, are not necessarily inconsistent with the existence of a trust.

The PURPOSE OF THE CONVENTION was twofold:

(i)            to provide rules by which the courts of signatory states can uniformly determine the jurisdiction by rules of trust law trusts with international dimensions are;

(ii)          to provide some means of dealing with trusts in jurisdiction where the trust concept is unknown.  When property situated in such jurisdictions becomes the subject matter of a trust, problems potentially arise because it can be extremely difficult to convince the authorities of the jurisdiction in question that the trustees are not the beneficial owners of the trust property.

The definition has added the following to the previous definitions:

      The characteristics of a trust;

      the trust can be created during the lifetime of the settlor or after his death.

      it touches on the powers and duties or the trustee.

Main elements of a trust

1.            Equity/equitable jurisdiction. It is a creature of equity rather than common law.

2.            There is an equitable obligation – an imperative duty.

3.            There is a trustee-beneficiary relationship.

4.            There is property constituting the subject matter.

5.            There is duality of ownership – the trust separates legal ownership of trust property from its equitable or beneficial ownership.

5. Keeton in his book Keeton Law of Trust defines trust as

“the relationship which arises whenever a person called the trustee is compelled in equity to hold property for the benefit of some persons or for some object in such a way that the real benefit of the property accrues not to the Trustee but to the beneficiaries or other objects of the trust.

Snell is of the opinion that Keeton definition is the more satisfactory because it encompasses a wider area in which objects are confined.

6. The Trustee Act Cap 167 Laws of Kenya does not contain any definition of the word Trust but its attempt is a negative and inclusive definition which seeks to show the types of transactions to which the Act applies and does not apply.

Section 2 of Trustee Act Cap 167 – contains words that:

Trust does not include the duties incidents to an estate conveyed by way of mortgage but with this exception the expressions trust and trustee extend to implied or constructive trusts and to cases where the trustee has a beneficial interest in the trust property and to the duties incident to the office of a personal representative and Trustee where the context admits includes a personal representative.

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Classifications of trust

There are no hard and fast categories but the following classes may be convenient:

1.      Express trust.

An express trust is one created by an express declaration of the person in whom the property is vested. This could be under a will or by way of a trust deed or even under a document not under seal or orally.   What matters is that there is intention and conduct creating the trust. An express trust is also referred to as a declared trust.

2.      Implied trust.

An implied trust arises from the presumed as opposed to the expressed intention of the owner of the property. So for example if property is transferred to A to be held on certain trust which fail there is a presumption that A hold the property in trust for the owner’s estate. Sometimes these are also called presumptive trusts or resulting trusts.

3.      Constructive trust.

This is a trust imposed by equity although it is neither the expressed nor the presumed intention of the settlor or the testator or the owner of the property. Equity will impose such a trust  when it would an abuse of confidence to allow the holder of the property to use it for his own benefit. See Keech v Standford (1726) where the trustee of leasehold property had used his position to induce the landlord to renew the lease in his favour upon the determination of the initial term of the lease. The court held that this was an attempt to obtain a personal advantage for himself which was antagonistic to the beneficiary’s interest and in bad faith. He was directed to hold the new lease on the trust under which he held the old lease. And this situation has also arisen in Kenya in customary view of land trust: you cannot defeat the first title under LRA. But judges have gone around this especially where the land involved was family land.

Trust may also be classified between private and public or charitable trusts.

A trust is said to be private if it is for the benefit of an individual or a class of individuals which the law refers to as a defined but limited group of beneficiaries. By its nature it can be enforced by the individual or individuals. It is private even though there may be some benefit conferred thereby to the public at large.

On the other hand a public trust promotes the public welfare as an object and is public even if it incidentally confers a benefit on an individual or class of individuals. The public trust is only enforceable by the Attorney-General or an officer appoint by him for that purpose or by two or more persons who can show that they have interest in the trust with the express consent of the Attorney-General.

Then you have trusts of perfect and imperfect obligation.

Trust of imperfect obligation

A trust not enforceable by a beneficiary or on the beneficiary’s behalf is called a trust of imperfect obligation. The courts are rather reluctant to uphold such trusts, e.g. a trust to take care of my dog Simba. But some have been enforced such as a trust to take care of a tomb. There have been borderline cases that the courts have upheld but refused to follow as precedent, e.g. a trust to enhance grounds for hunting

Trust of perfect obligation

In the case of perfect obligation the objects are specific and capable of enforcing the trust

Imperfect obligation

Express Private Trust

Who has the capacity to create an express private trust. If a person a power of dispossession over a particular type of property he can create a trust of that property. He must be of age and of sound mind and a trust will be set aside if it can be show that the settlor did not understand the nature of his act. The burden of proof will normally lie with the person seeking to set aside the trust but where there is a long history of mental illness the burden is easily discharged and it is then for the other side to prove that the trust was made  during a lucid interval. See the case of Cleare v Cleare (1869) 1 P & D 655

Half secret trusts

These arise where the trustee on the face of the will takes as trustee but the terms of the trust are not specified. For example, if property is given to a person for purposes which I have communicated to him or for purposes which he is aware of a half secret trust will arise. It is clearly established that evidence cannot be adduced to contradict the express terms of the will, therefore if the will points to a future communication, for example, to my trustees for purposes which I will communicate to them evidence cannot be admitted of communication made before the will was made. Similarly if the will points to a contemporaneous or past communication evidence cannot be admitted of communication made after the execution of the will. You should note that as the present state of the law stands future communications with respect to half secret trusts, whether or not the will points to them, are not in any even admissible.

However where the communication of the trust is made before or at the same time as the execution of the will evidence is admissible to show the terms of the trust and the trustee is bound by it. You may refer to the case of Backwell v Blackwell (1929) A 318 for that proposition.

It has been argued that the principle governing communication made after the execution of will yet prior to the testator’s death with respect to half secret trust cannot be justified and it would appear that the courts have confused the doctrine of secret trust with the probate doctrine of incorporation by reference. Section 12 sets out the probate doctrine of incorporation. It means that it is possible to incorporate in a will a document which is not executed in accordance with —- in our case-- the Law of the Succession Act but for the doctrine to apply the document must be in existence at the date of the will and must be specifically referred to in the will. It is argued that this rule of probate is concerned purely with the validity of the will itself and the documents to be incorporated within it. The rule should not and does not relate to secret acts, which according to the doctrine of secret trusts operates outside the will.

If a testator wishes to carry out his purpose by making a number of secret trusts piecemeal he must inform the trustees in respect of every edition to the secret objects. Example in the case of Re Colin Cooper (1939) Ch 811 in which a testator by will bequeathed 5,000 pounds sterling to two trustees “upon trusts already communicated to them”. He had in fact communicated the nature of the trusts to the trustees by a farther will he purported to increase the sum to be devoted to the secret trust to 10,000 pounds but did not inform the trustees. The result was that though the first install of 5,000 pounds could be devoted to the secret trust the second installment could not.

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Secret trust

These usually arise where a person wishes to make provision for another but does not want the whole world to known about it. When a person dies his will become open to public inspection and secret trusts are used to  avoid this public scrutiny and sometimes this is because  the testator mistress or illegitimate children. The doctrine of secret trust was originally based on equity’s maxim that equity will not allow a statute to be used as a cloak or  engine of fraud. The statute referred to in this maxim was the Wills Act 1837, which was a statute of general application. Under section 9 of that act (equivalent to section 160) no will shall be valid unless

(a)          it is in writing and signed by testator or by some other person in his presence or by his direction

(b)          it appears that the testator intended b y his signature to give effect to the will

(c)          the signature is made or acknowledged by the testator in the presence of two or more witnesses

(d)          each witness either (1) attests and signs the will or (2) acknowledges his signature in the presence of the testator. A will executed without these formalities is void and this applies to both inequitable interest as well as a legal estate disposed of by the will.
The doctrine of secret trust applies in that the details of the trust or the very existence of the trust is not disclosed in the will. And the doctrine applies as follows: If a testator makes a provision of a gift in his will to a trustee therein named on the strength of a promise that the recipient will hold that property on trust for a third party, equity will prevent any attempt by the recipient to rely on the absence of any mention of the trust in the will and to claim the property for himself. And this is despite the testator’s failure to comply with section 9. an equitable obligation communicated to the trustee during the testator’s lifetime, which obligation which the trustee has expressly or by implication accepted. The doctrine of secret trust therefore operates outside the provisions of the will Act or the Law of Succession Act. In Blackwell v Blackwell (1929) AC 318, 335, it was stated by Viscount Summer “ For the prevention of fraud equity fastens on the  conscience of the legatee a trust which otherwise would be inoperative. In other words it makes him do what the will has nothing to do with. It lets him take what the will gives him and then makes him apply it as the court of conscience directs and it does so in order to give effect to the wishes of the testator which would not otherwise be effectual.”

The basis of the secret trust is therefore the existence of a validly executed will which passes the title of property to the intended trustee and the acceptance by the trustee of an equitable obligation during the testator’s lifetime

This is illustrated in the case of Re Young (1951). Ch 344.  Here one of the intended beneficiaries under a secret trust had witnessed the will and the question was whether he forfeited his legacy under section 15 of the Wills Act which provides that a witness to a will cannot take a benefit under it (S 13 (2) of the Law of Succession Act. The judge held that there was no forfeiture because the whole theory of the formation of a secret trust was that the act had nothing to with the matter. He went on to say that the forms required by the Wills Act were to be entirely disregarded because the beneficiary did not take by virtue of a gift in the will but by virtue of a secret trust imposed on an apparent beneficiary who did not take under the will and who was bounded by the trust.

Secret TRUSTS will classified into full and half secret trust.

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A full secret trust

A full secret trust, which are completely concealed by the testator in his will. On the face of the will, the alleged trustee takes absolutely. If property is given by will to x absolutely and a communication is made to x by the testator during his lifetime that x is to hold the property on specified trusts and provided also that x accepts the trust, a fully secret TRUST which is enforceable at equity will come into being. In the case of Ottaway v Norman (1972) Ch 698 the judge stated the essential requirements of a secret trust as follow

1.      The intention of the testator to subject the primary donee to an obligation in favour of a secondary donee

2.      the communication of that intention to the primary donee

3.      The acceptance of that obligation by the primary donee either expressly or by acquiesce. Evidence oral or written is admissible to show the terms of a trust. And in the case of Ottaway it was stated that clear evidence is needed before court will assume that the testator did not means what he said but intended that the gift should be held by the beneficiary subject to a secret trust. He was also of the opinion that the standard of proof required to establish a secret trust was perhaps analogous to that which the court requires for the ratification of a written instrument. On the other hand in Re Snowden (1979) the vice chancellor conceded that the standard of proof for ratification was not the appropriate analogy. He thought that in the absence of fraud or the special circumstances the standard of proof of a secret trust was merely the ordinary civil standard of proof required to establish an ordinary trust. In this case the testator had left her residual estate to her brother who subsequently died leaving his estate to his only son. There was some evidence that the testatrix had said that the brother would know what to do and would deal with everything for  her but it was held that although there was some arrangement between the parties it amount only to a moral obligation which was not intended to be binding and accordingly the brother had taken the residual free from any secret trust and on his death it passed to his son absolutely

The doctrine of fully secret trust has a rather long history and its basis was established as long ago as 18^th century. Thus in the case of Drakeford v Wilks (1737) the t. had bequeathed a bond to the plaintiff. She was thereafter induced to make a new will by which she bequeathed the same bond to a third party  on the strength of a promise by the third party that upon his death the bond would go to the plaintiff and it was held on those facts that the plaintiff could compel the performance of the trust

FULLY secret acts

1. It is essential to show that the testator did in fact communicate the trust during his lifetime to the legatee and that the latter explicitly or impliedly accepted it. If the legatee only hears about the trust after the testator’s death the secret trust will fail and the legatee will take absolutely.

[Legatee-one who is named in a will to take personal property; one who has received a legacy or bequest; loosely, one to whom a devise of real property is given]

2.    The communication of the trust and its acceptance may take place either before or after the date of the Will provided that it takes place during the lifetime of the testator.

3.    If the fully secret trust is accepted by the trustee but the objects of the trust are not communicated during the lifetime of the testator the trust will not take effect but in such a situation the legatee will not take absolutely and there will be a resulting trust in favour of the testator’s estate or in favour of the residuary legatee if there is one.

In the case of Re Boyes (1884) 26 Ch D 531, the testator had made an absolute gift of property to his executor. The testator had previously told the executor that he wished him to hold the property according to directions which he would communicate by letter and the executor had agreed to this arrangement. However, these directions were not communicated by the testator but after his death two unwitnessed documents were found in which the testator stated that he wished a particular person to have the property and on those facts it was held that the secret trust failed and the executor held the property for the testator’s next of kin as there was no gift of residual.

4.    Communication and acceptance of the trust may be effected constructively and in that case in Re Boyes the judged expressed the view that a trust put in writing and placed in the trustee’s hands in a sealed envelope would constitute communication and acceptance at the date of delivery for that purpose. This view was accepted by the court of appeal in the case of Re Keen (1937) Ch 236 which was a case of half secret trust.

It is required that the property that forms the subject matter of the intended trust be certain which is a rule that applies generally in the law of trust.