Ah, equity and trusts, one of your core areas of law, and one that is pretty tricky to get your head around. When revising it’s important to start at the very beginning (this is obvious, but just in case). So before we delve into the deep world of formalities, what is the meaning of equity, and what constitutes a trust?
Meaning of equity
In a general sense, equity means fairness. Unfortunately, this definition won’t get you very far in any essays or exams. Historically, the difference between common law and equity was that where common law rulings were based on interpretation of statutes and previous precedents, equity is more related to natural law or moral principles. This is a wee bit vague, so there are maxims of equity that have been developed over time which can still be applied today. For example, “He who comes into equity must come with clean hands”, meaning that if you ask for help about the actions of someone else, but have acted wrongly yourself, you may not receive the help. A classic example would be if a landlord wanted a tenant to vacate a property but they had violated the tenant’s rights.
What is a trust?
“A trust is a relationship that arises when a property is vested in a person… called the trustees, which those trustees are obliged to hold for the benefit of other personas called the… beneficiaries.” Therefore, beneficiaries have an equitable interest in trust property.
Creating an express trust
All trusts must be created with four elements: capacity, certainty, constitution and formality.
Capacity means that the person who creates a trust must be legally capable of doing so. Generally, anyone who can hold property can form a trust. However, because kids can’t own property, they cannot create a trust. Nor can they form a will. People who are considered mentally disordered under the Mental Health Act 1983 no longer control their property if they have a receiver.
Certainty means that a trust must show certainty of intention (to create a trust), subject matter (which specific property) and object (clarity of who beneficiaries are). These are known as the three certainties. A trust can be uncertain in four ways:
- Conceptual uncertainty – when language is unclear
- Evidential uncertainty – where a factual question cannot be answered
- Ascertainability – where beneficiary cannot be found
- Administrative unworkability – trust cannot realistically carried out.
A trust must be constituted by the transfer of property to the trustees, if this is land or an equitable interest in land, it must be transferred in writing to comply with Sections 52-3 of the Law of Property Act 1925.
Formalities are a little bit more complicated…
There is no requirement for particular formalities – they can be oral or written. The only requirement is that it needs to be shown that there is an intention to create a trust. However, as usual with law, there are a number of exceptions. When transferring land, trusts must comply with Section 53 (1)(b) of the Law of Property Act 1925, meaning that there must be evidence of the trust’s existence – a signature on a declaration usually does the trick. When disposing of land, or transferring it into trusts, the Law of Property (Miscellaneous Provisions) Act 1989 must be followed. This can only be made in writing and must list all the terms in one document. This document must also be signed alongside the exchanged contracts.
Equitable interests are also an exception to the formalities rule. When an equitable interest is disposed of this must be in writing and signed by the person disposing of the equitable interest. For instance, nominating somebody to received benefits of a pension fund in the event of the pensioner dying is not a valid disposition. Neither is nominating somebody to benefit from a life insurance policy.
Wills must also follow formalities in order to be valid. It must comply with the Wills Act 1837, whereby no will is valid unless it is in writing and signed by the testator; the testator intended to give effect to the will; the signature is made in the presence of at least two witnesses, who also must attest and sign the will or acknowledge the signature.
Always remember 'LEW' when it comes to exceptions to trust formality – land, equitable interests and wills!