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Why Are There Any Special Formalities for the Creation of Trusts and Dispositions of Interests Thereunder? Is the Present Position Satisfactory?

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Why are there any special formalities for the creation of trusts and dispositions of interests thereunder? Is the present position satisfactory?

While declarations of trust in personalty can be made orally, under the present law creation of trust of land and those under a will as well as any dispositions of equitable interest have to be either in writing or evidenced in writing ( s.53 Law of Property Act 1925 and s.9 Wills Act 1837). The general aim behind the formality requirements, like in contracts, is to serve as a caution to those declaring a trust or disposing of an interest under one. The need for writing also serves an important evidentiary purpose. Firstly it makes fraud more difficult and secondly it helps avoid administrative problems by recording the duties of trustees so as to enable them to exercise them properly and in compliance with the trust. More specific aims behind the formalities in declaration of trust for land is the uniqueness of land and the overwhelming need for certainty in realty. As far as dispositions of equitable interest are concerned, evidence is needed since it often is the only indicator of where a particular right resides at any given time. As wills take effect upon the death of a testator/trix it essential that their wishes are know with precision. Hence writing enables the executor of the will to administer it according to the deceased's intentions. However as case demonstrate the formality requirements are not always satisfied. The courts have been faced therefore often with difficult scenarios where there are evidence of the intentions of a party, but only an oral agreement exists. Hence in taking a more facilitative approach and giving effect to such trusts/ dispositions the courts have significantly undermined the statutory formalities provisions. This could by no means be seen as a satisfactory state of the law. But as shall be demonstrated the cases have often involved very complex situations and difficult issues and on balance it seems that the courts have achieved a degree of flexibility which is ultimately necessary in order to facilitate trusts where it is appropriate to do so.

Looking at declarations of trusts in land s.53(1)(b) LPA provides that: Ð''A declaration of trust respecting any land or any interest therein must be manifested and proved by some writingÐ'...'. This means that a declaration which is not in writing is valid but unenforceable in law by the beneficiary of the trust. The point on legal enforcement however has been undermined by the decision in Rochefoucauld v. Boustead. In this case Comtesse Rochefoucauld was unable to keep up with the mortgage payments for a tea plantation which she owned in Ceylon. Her friend Boustead had orally agreed to buy the estate from the mortgagee and hold the estate on trust for her, subject to her paying the purchase price and any expenses. A question arose as to whether there was an enforceable trust. The Court of Appeal ruled that there was an enforceable oral express trust, because Ð''Ð'...equity will not allow a statute enacted to prevent fraud to be used as an instrument of fraud'. Parol evidence was allowed. On the facts of the case it was evident that there had been an agreement to create the trust- oral, written correspondence, conduct. The question is how far courts should go in applying the Rochefoucauld doctrine when difficult facts like the case itself arise and there is no writing? Historically the courts of Chancery had been flexible in applying formalities as Youdan demonstrates. In addition the formality of writing is not a particularly strict one. For example it does not render the trust void ab initio, like s.53(1)(c) does. Further as the court are now in a better position procedurally to determine whether a trust exists without writing, the approach in Rochefoucauld could perhaps be defended to a certain extent. In Bannister v. Bannister the court preferred to dress up the express trust between the mother and son-in-law in terms of construct trust which is exempt from writing under s. 53(2) and avoid undermining s. 53(1)(b). Yet this does not necessarily do less harm than the approach in Rochefoulcauld. Even though a lip service is paid to the law, writing and the benefits that come with it, as explained above, are in effect disposed of again. If the Act is to be undermined in this way then a further issue arises as to how best to deal with three-party cases. Should there be a bare trust for the settlor or should there be an express / constructive trust in favour of the intended beneficiary? If the former were adopted, then the act would not be undermined and the settlor is given the opportunity to declare the trust again in accordance with formalities. The latter on the other hand may not necessarily be contrary to the purpose of formalities and seems more just to the beneficiary since the settlor in a sense has already divested himself of the property. This demonstrates the tension that the courts are faced with. The purpose of formalities may be served without writing and in those cases the courts feel that the trust has to be enforced. The consequence of this is that there is less certainty as to how cases will be decided.

Another area of difficulty is the requirement of writing when disposing of a subsisting equitable interest s. 53(1)(c). Here the courts have indirectly undermined the act by making fine distinctions as to what constitutes a disposition. There are several areas of contention. Firstly, an exception to the requirement of writing is the situation where a beneficiary under a trust declares a sub-trust in favour of a third party. This is not a disposition of a subsisting equitable interest since it is necessary as a basis of the sub-trust, but a transfer only of the beneficial interest. It is said that this exception only applies to sub-trusts which involve active duties on part of the sub-trustee and not bare trust (Neville v. Wilson). Under the latter it said that the sub-trustee drops out of the picture. Yet this analysis can be attacked on several levels. One is the distinction between bare trusts involving active duties and those which do not involve such duties. A bare trustee who does not have active duties may not drop out of the picture since the trustees can always choose to pay him and let him deal with his own sub-trust. What is more questionable is whether declaration of a sub-trust should be seen

as outside the ambit of s.53 (1)(c). One would agree with Green that no authority really supports the non-application of the section. In addition it is the beneficial interest which is of most value when a subsisting interest exists and it is this interest that is worth of protecting. It is unfortunate that the Act does not make this distinction

when seeking to protect an equitable interests

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