EQUITY AND TRUST

TOPIC 2 : CLASSIFICATION OF TRUST

A. Introduction

1. Trust law is a set of rules that have been established to regulate situations where one
person places trust in another person to look after their affairs.

2. This includes the way that charities are run or the way that money left to somebody
in a will is governed.

3. Property of any sort can be held on trust. The uses of trusts are many and varied.
Trusts can be created during a person's life (usually by a trust instrument) or after
death in a will.

B. Elements

1. Settlor

transfers property to the trustee

2. The trustee

Who becomes the legal owner of the trust property for the benefit of the beneficiaries

The trustee can be either a person or a legal entity such as a company. A trust may have
one or multiple trustees. A trustee has many rights and responsibilities; these vary from
trust to trust depending on the type of the trust.

The trustees are the legal owners of the trust's property. The trustees administer the
affairs attendant to the trust. The trust's affairs may include investing the assets of the
trust, ensuring trust property is preserved and productive for the beneficiaries,
accounting for and reporting periodically to the beneficiaries concerning all transactions
associated with trust property, filing any required tax returns on behalf of the trust, and
other duties. In some cases, the trustees must make decisions as to whether beneficiaries
should receive trust assets for their benefit.

In modern times trustees are often lawyers or other professionals who cannot afford to
work for free. Therefore, often a trust document will state specifically that trustees are
entitled to reasonable payment for their work.

3. The Beneficiary

Who is the equitable owner

Either immediately or eventually, the beneficiaries will receive income from the trust
property, or they will receive the property itself.
C. Creation

1. Trusts can be created by the expressed intentions of the settlor

Will
Charity
Inter vivos trust (a written trust document created by the settlor and signed by
both the settlor and the trustees)

2. Trusts can be created by implication

Where A contributes money towards the purchase of something and does not
intend that contribution to be a gift, when the item is sold, A expects to get a
proportionate share of the proceeds. This is called a resulting trust.

Where A leaves an asset to B in a will, but B dies before A. The asset results
back to As estate. This is also an example of a resulting trust.

Where A has put him/herself in the position of being a trustee, the courts will
construe him/her as being a trustee. This is called a constructive trust.

A specific type of constructive trust arises in the context of the family home
where a person will be construed as a trustee if there is a common intention
between the couple that the house is to be shared and the beneficiary has
relied on that intention to their detriment.

3. Trusts can be created by operation of law

Co-owners of land are trustees Law of Property Act 1925 s34

The person who administers a deceased persons estate is a trustee

Administration of Estates Act 1925 s33.

D. Formalities

Generally, a trust requires three certainties, as determined in Knight v Knight :

1. Intention
There must be a clear intention to create a trust

Equity looks to intent rather than form, the law thus demands no particular words to
create a trust;

Trust can be created by any language which is clear enough to show an intention to
create it;

A mere appearance of wanting to benefit another is in sufficient;

 Re Adams and the Kensington Vestry
Quah Eng Hock v Ang Hooi Kiam

2. Subject Matter.

The property subject to the trust must be clearly identified (Palmer v Simmonds).
One cannot, for example, settle "the majority of my estate", as the precise extent
cannot be ascertained. Trust property can be any form of specific property, be it real
or personal, tangible or intangible. It is often, for example, real estate, shares or cash.

Re Kolbs Will Trust [1926] Ch 531;

Re Golay [1965} 2 All ER 660

3. Objects.
The beneficiaries of the trust must be clearly identified, or at least be ascertainable
(Re Hain's Settlement). In the case of discretionary trusts, where the trustees have
power to decide who the beneficiaries will be, the settlor must have described a clear
class of beneficiaries (McPhail v Doulton).
Beneficiaries can include people not born at the date of the trust (for example, "my
future grandchildren"). Alternatively, the object of a trust could be a charitable
purpose rather than specific beneficiaries.

A) Discretionary Trust

The trustee ought to be able to determine with certainty whether any given
claimant is or is not within the description of the relevant class;

McPhall v Doulton [1971] AC 42;4

B) Fixed Trust

Halsburys Law of Malaysia explain:

If a trust requires division between all the members of a class, for example in
equal shares, it will be void for uncertainty if it is not possible to provide a
complete list of the beneficiaries, as the size of each equal share cannot be
ascertained unless the precise number of the beneficiaries is known. Where
the equal division is of capital and is to take place at some future date, it will
be necessary at the date of commencement of the trust to determine whether
the description of beneficiaries is void for uncertainty;
E. Mutual Wills

The basis of mutual wills is two persons agree to make wills on identical terms in
favour each other with the remainder to the same ultimate beneficiary;

The question is whether the said arrangement gives rise to an implied or a resulting
trust;

One option is to conclude that from the moment A dies B holds all the combined
properties on a constructive trust basis and B consequently will not be permitted to
revoke his will or execute a codicil so as to interfere with the terms of the trust

It is necessary to prove that there was an agreement that none of the parties would
revoke the mutual will

Re Oldham [1925] Ch 75;

Re Cleaver [1981] 1 WLR 939;

F. Islamic Law and Trust

Jual janji transaction:

A owns a land and borrows money from B. As part of the arrangement, A transfers
the land to B, and also as part of the arrangement, A undertakes to pay B and B in
turn undertakes to return the land upon complete payment of the amount taken. A
who is commonly a farmer, continues occupy and work the land in return for paying
rent to B. The arrangement thus involves no element of interest since riba, as
opposed to profit based calculations, is forbidden under Islamic Law.

There are some similarities between a jual janji and the English Law pertaining to
mortgage, being a disposition of property to another as security for a debt

There is no provision in the NLC 1965 resembling the English equity of redemption

Under this principle, the mortgagor has an equitable interest or estate on the property
mortgaged, one feature of that being his or her right to redeem the property even if
the time specified in the contract has passed

In local context, jual janji cannot be regarded as a security transaction and it falls to
be considered as a contractual arrangement

The right of mortgagor to have the land transferred to him or her is a right in contract
and can be denied him or her account of a failure to comply with the time for
payment as may be stipulated in the agreement;

Haji Abdul Rahman v Mohamed Hassan [1917] AC 209;