Define: Constitution Of Trusts

Constitution Of Trusts
Constitution Of Trusts
Quick Summary of Constitution Of Trusts

The constitution of trusts refers to the creation and establishment of a trust arrangement, where one party (the settlor) transfers legal ownership of assets to another party (the trustee) to hold and manage for the benefit of one or more beneficiaries. This process typically involves the settlor executing a trust deed or agreement outlining the terms and conditions of the trust, including the identity of the trustee, beneficiaries, and the purpose or objectives of the trust. The constitution of trusts also involves the transfer of the trust property to the trustee and the acceptance of the trusteeship by the appointed trustee. Additionally, the trust instrument may specify the powers and duties of the trustee, the rights and interests of the beneficiaries, and the rules governing the administration and distribution of trust assets. The constitution of trusts lays the foundation for the legal structure and operation of the trust, defining the rights, duties, and relationships of the parties involved in the trust arrangement.

Full Definition Of Constitution Of Trusts

Constitution refers to the transfer of legal title. When property is disposed of upon death, a valid will constitutes the trust and legal title vests in the trustees. When making a lifetime disposition, Turner LJ in Milroy v Lord set out three ways of transferring property:

  • Outright transfer of gift
  • Declaration of trust with a separate trustee to hold property for a beneficiary
  • Self-declaration of trust to hold property for a beneficiary

It is important that the correct method is used for transferring legal title. For an outright gift of a chattel, this is simply intention and delivery, such as when I give you a birthday present and say ‘here, this is for you’. A trust of land, however, must be evidenced in a signed writing in accordance with section 53(1)(b) of the LPA 1925. A disposition of an existing equitable interest must be made in writing signed by the person disposing of the same (section 53(1)(c) of the LPA 1925).

Where the correct method of transferring legal title has not been used, equity will not perfect an imperfect gift, nor will it assist a volunteer, nor treat a failed gift or transfer as a self-declaration of trust (Milroy v Lord). However, there are some exceptions to this:

  • Where the settlor has done everything in his power
  • Valid death-bed gift
  • Proprietary estoppel
  • The rule in Strong v Bird
  • Where there is an effective self-declaration of trust as one of several intended trustees
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This glossary post was last updated: 29th March, 2024.

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