Jonah Patel
A trust is said to be completely constituted when the settlor has done all that is required by law to properly vest title to the trust property in the trustee. An incompletely constituted trust, on the other hand, is one where something remains to be done by the settlor to perfect it. This could be due to a failure to furnish consideration, an imperfect gift, or a third party's actions, resulting in the trust being treated as unenforceable or void. However, there are exceptions where an incompletely constituted trust will be enforceable, such as the Re Rose principle, Proprietary Estoppel, DMC, and the debt forgiveness concept. Understanding the effects of an incompletely constituted trust is crucial for beneficiaries and trustees to assert their rights and ensure compliance with legal requirements.
| Characteristics | Values |
|---|---|
| Nature of the property | Everything necessary must be done to effectuate the assignment |
| Transfer of property | The settlor must do everything required by law to properly vest title to the trust property in the trustee |
| Declaration of trust | The settlor must declare himself as trustee for his own property |
| Transfer of personalty | If the property is corporeal, such as money, a car, or other movable goods, the delivery of the property suffices |
| Transfer of realty | Must be in writing and registered as required by law |
| Failure to furnish consideration | Equity will not aid a volunteer |
| Failure to comply with rules for valid constitution | Incompletely constituted trust |
| Failure to transfer property | Incompletely constituted trust |
| Imperfect gift | Equity cannot perfect an imperfect gift |
| Exceptions | Proprietary Estoppel, DMC, Re Rose principle, and debt forgiveness concept |
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What You'll Learn
Incompletely constituted trusts are imperfect gifts
An incompletely constituted trust is one where the settlor has not done all that is required by law to properly vest the title to the trust property in the trustee. This can occur when the settlor fails to convey the property as promised or when the shares are not transferred correctly. In such cases, the trust is treated as an imperfect gift. The principle underlying this is that "equity cannot perfect an imperfect gift", though this rule has exceptions. For instance, if the beneficiary has given valuable consideration (money or money's worth) or if it falls within the concept of marriage consideration, equity may assist in perfecting the gift.
The rule, with regard to the constitution of realty, is that it must be in writing and registered as required by law. If the settlor only possesses an equitable interest in the property or wishes to transfer only the equitable interest, they must evidence the trust in writing. However, if the settlor is declaring himself as the trustee for his own property, no conveyance is required, but the declaration must be in writing. For the transfer of corporeal property, mere delivery of the property may suffice.
In the case of Milroy v Lord, it was held that "there is no equity to perfect an imperfect gift nor will equity construe an imperfect gift as a declaration of a trust". However, an incompletely constituted trust may still be enforceable in certain instances. For example, if an imperfect gift is made inter vivos to a donee, it may be perfected if the donee is subsequently made executor or administrator of the donor's estate.
In the case of JEFFERY v JEFFERY, a father made a will leaving his estate to his wife. Later, by voluntary deed, he conveyed the freehold of his estate to a trustee in trust for his daughter. The court held that the daughter was entitled to the freehold, but the agreement to convey the leasehold was unenforceable as it was incompletely constituted. Thus, incompletely constituted trusts are imperfect gifts that may, in certain circumstances, be perfected through various legal mechanisms.
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Equity will not aid a volunteer
A trust is an ordinary transfer of title in property, with the added dimension that the property should be held for a beneficiary. The constitution of a trust has more to do with inter vivos declaration than creation by will. When a trust is created during the lifetime of a settlor, the rules regarding complete and incomplete constitution of trusts apply.
A trust is said to be completely constituted when the settlor has done all that is required by law to properly vest title to the trust property in the trustee. The trust is enforceable by the beneficiaries against trustees and is binding on all except the bona fide purchaser for value without notice. The settlor must possess the legal title in the trust to be able to carry it out. The beneficiary can only enforce an incompletely constituted trust if they have given valuable consideration or if it falls within the concept of marriage consideration.
An incompletely constituted trust is, in effect, not yet a trust. Something remains to be done by the settlor to "perfect" it. A trust is completely constituted when the legal title to the trust property is transferred to the trustee(s). In most cases, this is effected by the declaration itself, but in others, certain formalities must be complied with. For example, a declaration of a trust of land must comply with section 53(i)(b) of the Law of Property Act 1925. An incompletely constituted trust will be void.
The general rule is that equity will not aid a volunteer. This means that a person who has not furnished valuable consideration has no remedy in equity. This is because, prior to complete constitution, the beneficiary is treated as a volunteer. However, if the covenant is by deed, the beneficiary need not furnish any consideration as agreements made by deed do not need to be supported by consideration before they can be enforced at common law.
There are exceptions to the rule that equity will not aid a volunteer. Equity may, in some cases, perfect the imperfect gift of an incompletely constituted trust. The first exception is proprietary estoppel, which can be used as a defence and as a means to perfect an imperfect gift. The second exception is the Re Rose principle, which applies when a third party's actions have made the trust incomplete. The third exception is the DMC, and the fourth is the debt forgiveness concept.
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A trust is completely constituted when the settlor has done all that is required by law
A trust is a legal entity with distinct rights, akin to a person or corporation. It involves a trustor (or settlor) giving a trustee the right to manage property or assets for the benefit of a third party, the beneficiary. Trusts are often used to protect assets from creditors or certain family members, or to ensure assets are safe for specific purposes, such as a beneficiary's education.
For a trust to be validly constituted, certain formalities must be observed. For example, in the case of land, the conveyance must be registered with the Land Registry, and the transfer of shares requires a proper instrument of transfer. The basic rule is that a settlor may create a trust by manifesting an intention to create it. However, the transfer of legal ownership of some forms of property must be in writing or by another formal process.
If the trust is not completely constituted, it may be deemed incompletely constituted. This means that there is something left to be done before the trust property can fully vest in the trustee. In such cases, the beneficiary may not be able to enforce the trust. For example, in the case of JEFFERY v JEFFERY, a father conveyed the freehold of his estate to a trustee in trust for his daughter, but he died before he could convey the leasehold. The court held that the daughter was entitled to the freehold, but the agreement to convey the leasehold was unenforceable as it was incompletely constituted.
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A trust is only enforceable by beneficiaries when it is completely constituted
A trust is a transfer of title in property, with the added condition that the property is held for a beneficiary. The constitution of a trust has more to do with an inter vivos declaration than a will. When a trust is created during the lifetime of a settlor, the rule regarding the complete and incomplete constitution of trusts applies.
A trust is said to be completely constituted when the settlor has done all that is required by law to properly vest title to the trust property in the trustee. The settlor must possess the legal title to the trust in order to carry it out. A valid declaration of trust becomes "completely constituted" when the legal title to the trust property is transferred to the trustee(s). In most cases, this is done by declaration, but in others, certain formalities must be complied with for a trust to be completely constituted. For example, a declaration of trust of land must comply with the Law of Property Act 1925.
An incompletely constituted trust is, in effect, not yet a trust. Something remains to be done by the settlor to "perfect" it. A trust is only enforceable by beneficiaries when it is completely constituted. The beneficiary is treated as a volunteer before the complete constitution, and the general rule is that equity will not assist a volunteer. A beneficiary can only enforce an incompletely constituted trust if they have given valuable consideration or if it falls within the concept of marriage consideration.
There are, however, exceptions to the rule that equity will not perfect an imperfect gift. Proprietary Estoppel, DMC, the Re Rose principle, and the debt forgiveness concept are examples of these exceptions.
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An incompletely constituted trust is not yet a trust
A trust can be created by will or by inter vivos declaration. However, the constitution of trusts is more concerned with inter vivos declaration than creation by will. When a trust is created during the lifetime of a settlor, the rule regarding the complete and incomplete constitution of trusts will apply.
A trust is said to be completely constituted when the settlor has done all that is required by law to properly vest title to the trust property in the trustee. The settlor must possess the legal title to the trust in order to be able to carry it out. A valid declaration of trust becomes "completely constituted" when the legal title to the trust property is transferred to the trustee(s).
An incompletely constituted trust is, in effect, not yet a trust. This means that there is something left to be done by the settlor to "perfect" it. The beneficiary is treated as a volunteer, and the general rule is that equity will not assist a volunteer. A beneficiary can only enforce an incompletely constituted trust if they have given valuable consideration (money or money's worth) or if it comes within the concept of marriage consideration.
There are exceptions to the rule that equity will not perfect an imperfect gift. These include Proprietary Estoppel, DMC, the Re Rose principle, and the debt forgiveness concept. For example, in the case of Milroy v Lord, the court held that the daughter was entitled to the freehold, but the agreement to convey the leasehold was unenforceable as it was incompletely constituted. However, the court also held that the trust would be enforceable if the gift was made with the intention to create a trust.
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Frequently asked questions
An incompletely constituted trust is, in effect, not yet a trust. It is a trust that has not been properly formed, and something remains to be done by the settlor to "perfect" it.
For a trust to be completely constituted, the settlor must have done all that is required by law to properly vest title to the trust property in the trustee. This includes complying with any relevant legal formalities, such as registering the trust.
An incompletely constituted trust is generally unenforceable by beneficiaries, and the settlor may be able to reclaim the property. However, there are exceptions where an incompletely constituted trust may be enforced, such as the Re Rose principle, where a third party's actions made the trust incomplete.
Relevant cases include Milroy v Lord, where it was held that "there is no equity to perfect an imperfect gift nor will equity construe an imperfect gift as a declaration of a trust". Another is Shah v Shah, which is a useful reminder of the difficulties that can arise in interpreting the actions of settlors/trustees.
There are four exceptions to this rule: Proprietary Estoppel, DMC, the Re Rose principle, and the debt forgiveness concept. Proprietary Estoppel can be used as a defence and as a means to perfect an imperfect gift.
