One of the more startling aspects of studying abroad was learning that British students at the University of Manchester Faculty of Law begin studying trusts before general real estate in introductory property law courses. As a Canadian law student, ‘Trusts’ and ‘Wills and Estates’ are taught as advanced level upper year courses, which are not touched upon in the 1L program. I am personally intending to take the ‘Trusts’ course in my final semester of 3L. As a result, I’ve had to catch up a bit with the British program!
Roughly speaking, a trust is property transferred to a trustee that is ‘on trust’ for beneficiaries. This is distinct from a gift, which is property transferred absolutely to a donee, and also unique from a power of appointment, where property is transferred to a trustee but the donee of the power of appointment is given the power to select who should receive the property. These concepts are all virtually identical in Canadian law.
To break down these concepts even further, a trustee can choose to distribute their property through a fixed trust or a discretionary trust (where the beneficial class is certain but trustees have discretion as to individual beneficiaries and/or beneficial shares). Most importantly, whether or not a trust is fixed or discretionary, it can only be valid when the following criteria are met:
- There is certainty of intention to create a trust;
- There is certainty of subject matter; and
- There are certainty of objects.
The seminal British case dealing with the concept of validity is Knight v Knight (1840) 3 Beav 148. In this case, there was an attempt made to dispose of a large amount of property via trusts and wills. The significant phrase used was: “I trust to the liberality of my successors to reward any others of my old servants and tenants according to the deserts, and to their justice in continuing the estates in the male succession, according to the will of the founder of my family, my above-named grandfather Richard Knight.”
The question for the courts was whether this was a will, a general statement, or a power of appointment. The phrase “I trust” was pivotal: was this a casual “I expect them to do so …” or significant enough to create a valid trust? While the testator was expecting successors to be liberal and just when rewarding his old servants and tenants, this is a call to moral justice. But does a call to moral justice create an obligation to leave property down the male lineage and/or give money to past employees?
Lord Langdale specified that the three certainties needed to be judged objectively according to the language of the document. He emphasized that courts should not intervene in order to make a will for a testator if they had not been clear in doing so themselves. In simpler terms, the testator was not clear in his intentions – and the courts should not read his mind. It is a testator’s obligation to set out his mind in a will, which was emphasized again in the recent case of McPhail v Doulton [1971] AC 424 by Lord Wilberforce, who noted that a trust will only be valid if it is practically certain what the settlor wanted to do.
This brings us to the next general question: are words imperative?
It’s important to note that in British law, trusts can be created without using words at all, which are a subset of trusts known as implied trusts. Re Kayford Ltd [1975] 1 WLR 279 [Kayford] is authority for the proposition that the word ‘trust’ is not needed to create a valid trust: courts are allowed to look to the intention of the parties rather than the form of the document. In Kayford, a mail order company was in financial difficulty. A separate bank account had been created to deposit money for customers whose goods hadn’t been used; the main question of the case revolved around whether the money in the bank account was the assets of the creditors, post-insolvency, or the original customers.
In Kayford, even though the formal word ‘trust’ was not used, the conduct of the parties was clear. A valid trust had been created. Due to the presence of a separate bank account, the customers were able to get their money back: actions spoke louder than words.
However, the British case law is somewhat muddled on this point. Alternately, in Re Snowden (Deceased) [1979] 2 All ER 172, an elderly lady left property to her brother in her will, stating that he would know what to do with it. The court found that there was no obligation imposed to create a trust – instead, this was an absolute gift. Although there was a moral obligation on the brother, a moral obligation is not enough to create a legal or fiduciary one.
Similarly, in Jones v Lock [1865] LR 1 Ch App 25, a father placed a cheque for his infant son in his safe. While he made an appointment to see a solicitor to change his will so that his infant son would receive his money upon his death, he died before actually changing the will. Unfortunately for the child, the courts held that there was no intention to create a trust. While it was self-evident that the father intended the son to receive his property, simply putting the cheque into a safe did not manifest the intention that he was holding property as a trustee for his son. The justification for this decision stems from a policy argument: the courts argued that it would create a dangerous precedent should a valid trust have been found.
Looking forward to learning more in the final two months of the semester!
Cheers,
Tamie Dolny