Constitution of Trusts

What do you have to do to set up your trust and make it work?

General rule: A trust will not be completely constituted until the relevant trust property has been vested (legal title
transferred) in the intended T. It will fail and be inoperable (imperfect) if it has not been transferred by the correct
legal rules unless:

all the formal steps necessary to vest the property in the trustee have been completed, or
the trustee or intended beneficiary have an equitable right to compel the settlor to carry out the
remaining steps necessary to vest the trust property in the trustee (cf. lectures on formalities and the
right of the beneficiary to enforce an informal trust arising by operation of law).

Justification: Equity does not assist a volunteer When the person to whom the transfer is intended to be made has
not given valuable consideration they are said to be a volunteer. Most trusts are donative transactions (ways by
which the settlor makes a gift to the B, where B has given no consideration). Once the trust is properly constitutive
and operative the B can enforce the Ts duties, even though they are a volunteer. But if the trust is not properly
constituted and operable, the court wont generally assist the B because they will have no legally enforceable rights.

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Transferring the Legal Title

- Milroy v. Lord (1862); Identified three ways in which an absolute owner of property could benefit another
with property:
1. Make an outright gift.
2. Settlor declares that certain property vested in him or her is henceforth to be held on trust for B (self-
declaration).
3. S effectively transfers certain property to T and declares the trusts upon which T is to hold the property
for B.

Rules for valid transfer of property:

Land S.52 LPA 1925; A transfer of land or an interest in land must be by deed and completed by
registration at the Land Registry.
Stocks and shares Stock Transfer Act 1963, Companies Act 1985; For a private limited company there
must be a memorandum of transfer, registration of shares. For a public limited company (plc) there must be
compliance with the electronic CREST system and then the correct instruction will be adequate.
Chose in action Includes things such as cheques, debts, or rights under a contract. Requires compliance
with s.136 LPA 1925, which requires endorsement.
Chattels Can be transferred by deed or compliance with Re Cole [1964]; delivery and intention that legal
ownership is transferred.
Money Merely requires delivery.

Transferring the Equitable Title

S.53(1)(c) LPA 1925; must be signed by the person disposing of the interest. Applies to any type of property held
beneficially, not just land.

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Methods of Constituting a Trust