Creation and requirements of express trusts - Constitution o...

Learning Outcomes

This article explains the concept of constitution in the context of express inter vivos trusts. It outlines the different methods by which a trust can be constituted and the formalities required for transferring various types of property. It also details the exceptions to the rule that equity will not assist a volunteer. Your understanding of these principles is essential for advising on the validity and enforceability of lifetime trusts in SQE1 assessments. In particular, you should be able to identify when a self-declaration constitutes a trust immediately, when a transfer to third-party trustees is effective only on completion of the correct legal steps, and how statutory writing requirements intersect with constitution (for example, evidential writing for declarations of trust over land). You should also recognise the main equitable routes by which imperfect gifts or incompletely constituted trusts may nevertheless be treated as effective in equity, including the rule in Re Rose (the “every effort” test), the rule in Strong v Bird, donationes mortis causa, proprietary estoppel, and related doctrines such as the Choithram principle where a settlor declares themselves among the trustees.

SQE1 Syllabus

For SQE1, you are required to understand the rules concerning the constitution of express inter vivos trusts. This involves applying the principles relating to the transfer of legal title for different types of property and recognising situations where equity may intervene to perfect an imperfect transfer, with a focus on the following syllabus points:

• The meaning and importance of constitution for express lifetime trusts.
• The two methods of constituting a trust: self-declaration by the settlor as trustee and transfer of property to third-party trustees.
• The specific formalities required to transfer legal title for different types of property (land, shares, chattels, money).
• The equitable maxim that 'equity will not assist a volunteer' and its effect on incompletely constituted trusts.
• The main exceptions to this maxim, including the rule in Re Rose, the rule in Strong v Bird, donationes mortis causa, and proprietary estoppel.
• The role of evidential writing for trusts of land (Law of Property Act 1925, s 53(1)(b)) and its relationship to constitution.
• Practical pitfalls and recognised extensions, such as the settlor declaring themselves and others as trustees (Choithram), and fortuitous vesting (Re Ralli’s Will Trusts).

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What are the two main ways an express inter vivos trust can be constituted?
2. True or false: To transfer legal title to registered land, executing a deed of transfer (Form TR1) is sufficient.
3. Which equitable maxim generally prevents beneficiaries from enforcing an incompletely constituted trust if they have not provided consideration?
4. Which exception might allow a trust to be constituted if the settlor has done everything within their power to transfer the property, but the transfer requires a third party (like a company registrar) to complete it?

Introduction

For an express trust created during the settlor's lifetime (inter vivos) to be valid and enforceable by the beneficiaries, it must be completely constituted. Constitution refers to the process of vesting the legal title to the trust property in the trustees. Without constitution, the trust is incomplete and generally unenforceable, particularly if the beneficiaries are volunteers (i.e., they have not provided consideration). The concept of constitution sits alongside the three certainties (intention, subject matter, objects) and any applicable formalities for declaring a trust, notably the requirement for written evidence signed by the settlor to prove a declaration of trust of land (Law of Property Act 1925, s 53(1)(b)). Even where those preconditions are satisfied, beneficiaries cannot enforce a trust unless the trust property is properly vested in the trustees or the settlor has effectively declared themselves trustee. This article examines the methods of constitution and the exceptions where equity might enforce an incompletely constituted trust.

Constituting a Trust

There are two primary methods by which a settlor can constitute an express inter vivos trust:

1. Self-declaration as trustee: The settlor declares that they now hold specific property, which they already own, on trust for the beneficiaries.
2. Transfer to trustees: The settlor appoints one or more third parties as trustees and transfers the legal title to the trust property to them.

Self-Declaration as Trustee

If a settlor declares themselves trustee of property they already legally own, the trust is constituted automatically upon a valid declaration (assuming the three certainties are present and any relevant formalities for the declaration itself are met). The legal title already resides with the settlor (now trustee), and the declaration itself separates the equitable interest, vesting it in the beneficiaries. No further transfer of property is required. Where the trust property is land (or an interest in land), the declaration must be evidenced in writing signed by the settlor to be enforceable (Law of Property Act 1925, s 53(1)(b)). By contrast, a declaration of trust of personalty requires no formal writing, and constitution occurs immediately on declaration, provided the settlor genuinely intends to act as trustee and the declaration is not a sham. The courts will evaluate the whole context and may look beyond the words used to determine true intention.

Transfer to Trustees

If the settlor appoints third parties as trustees, the trust is only constituted once the legal title to the trust property is effectively transferred from the settlor to the trustees. The method of transfer depends entirely on the nature of the property involved. Constitution is not achieved merely by executing a trust instrument naming trustees and beneficiaries: the trustees must acquire legal title using the correct conveyancing or transfer mechanism applicable to the asset in question.

Key Term: Constitution
The vesting of legal title to the trust property in the appointed trustee(s), making the trust enforceable.

Formalities for Transferring Property

The specific steps required to transfer legal title vary:

• Registered Land: Requires a deed of transfer (e.g., Form TR1 for whole title, TP1 for part) executed by the settlor, followed by registration of the trustees as the new proprietors at HM Land Registry. Legal title only passes upon registration. Execution of the TR1 alone is not sufficient; the application to register must be completed, and the transferee’s details must be entered on the register. Where a trust of land is declared without transferring title (self-declaration), the declaration must be evidenced in signed writing (LPA 1925, s 53(1)(b)) to be enforceable.
• Shares in a Private Company: Requires the settlor to execute a stock transfer form in favour of the trustees and deliver it, along with the relevant share certificate(s), to the company. Legal title passes only when the trustees are registered as the new members (shareholders) in the company's register of members. For shares settled through the CREST system (dematerialised securities), different electronic procedures apply; however, constitution still hinges on registration of the transferee as the holder.
• Chattels (Tangible Personal Property): Requires either physical delivery of the items with clear intention to transfer ownership, or the execution of a deed of gift transferring ownership. Mere words without delivery or deed will not pass title.
• Money (Cash/Bank Account Balance): Transfer of cash occurs upon delivery. Transfer of money in a bank account occurs when the funds are credited to the trustees' account following the settlor's instructions to their bank. A cheque requires clearing before title passes: if the donor dies before clearing, title does not pass, and the attempted gift fails.

Until these specific formalities are completed, the trust remains incompletely constituted. In practice, particular attention should be given to steps that depend on a third party (for example, HM Land Registry or a company registrar), as constitution in equity may still be recognised once the settlor has put the transfer beyond their control, as discussed below.

Equity Will Not Assist a Volunteer

The general rule, often expressed through the maxim 'equity will not assist a volunteer' or 'equity will not perfect an imperfect gift', is that if a settlor intends to constitute a trust by transferring property to trustees but fails to correctly transfer the legal title according to the required formalities, equity will not step in to complete the transfer.

Key Term: Volunteer
A person who has not provided valuable consideration (money or money's worth) for a promise or transfer. Beneficiaries under a trust are typically volunteers.

Consequently, if a trust is incompletely constituted because the settlor failed to properly transfer the property, the beneficiaries (as volunteers) usually cannot compel the settlor (or their personal representatives after death) to complete the transfer. The intended trust fails, and the property remains with the settlor or forms part of their estate upon death. If consideration has been provided (for example, by a purchaser or pursuant to a binding contract), equity may enforce the obligation, but volunteer beneficiaries cannot obtain specific performance to compel constitution. It is also worth noting that trustees generally cannot sue to enforce a covenant to settle property merely to assist volunteer beneficiaries; the classic approach is that neither the trustees nor volunteers can require completion of an imperfect gift into trust. Contractual routes, such as the Contracts (Rights of Third Parties) Act 1999, may occasionally allow a beneficiary to claim damages for breach of a covenant to settle, but they do not typically result in the court ordering transfer of legal title to constitute a trust.

Exceptions to the Maxim

Despite the general rule, equity has developed exceptions where an intended trust may be enforced even if incompletely constituted.

The 'Every Effort' Test (Rule in Re Rose)

If the settlor has done everything necessary for them to do to transfer the property and has put it beyond their control, equity may regard the transfer as complete, even if some further action by a third party (like registration by the Land Registry or a company) is required. The emphasis is on whether the settlor has passed the point of no return: for registered land, execution and delivery of the transfer and submission for registration; for shares, execution of the stock transfer form and delivery with the certificate to the company. If the transfer documents remain under the settlor’s control, the test is not met.

Worked Example 1.1

Sarah decides to put her shares in Tech Innovate Ltd (a private company) on trust for her nephew, Ben. She appoints Tom as the trustee. Sarah completes and signs the stock transfer form and hands it, along with her share certificate, to Tom, instructing him to arrange registration with the company. Before Tom sends the documents to the company, Sarah unexpectedly dies. Her will leaves everything to charity. Is the trust for Ben valid?

Answer:
Yes, likely. Sarah did everything in her power to transfer the shares. She executed the correct form and delivered it with the certificate to the trustee, putting the transfer beyond her control. The only remaining step was registration by the company (a third party). Applying the rule in Re Rose, equity may perfect the gift, and the trust for Ben is likely constituted in equity. The shares would not pass to the charity under her will.

Worked Example 1.2

Assume the same facts as Worked Example 1.1, except Sarah completed the stock transfer form but kept it and the share certificate in her desk drawer, intending to give it to Tom next week. She dies before doing so. Is the trust valid?

Answer:
No. Sarah had not done everything in her power to transfer the shares. The documents remained within her control. The 'every effort' test is not satisfied. The trust is incompletely constituted and fails. The shares pass to the charity under her will.

Worked Example 1.3

David owes his aunt, Mary, £5,000. Mary tells David, "Don't worry about the £5,000, I forgive the debt", and consistently treats the debt as forgiven until her death. Mary's will appoints David as her sole executor. Can David rely on the rule in Strong v Bird?

Answer:
Yes. Mary showed a clear intention to make an immediate release of the debt, and this intention continued until her death. David becoming her executor vests the legal right to sue for the debt in him, which perfects the release. The debt is discharged.

Further equitable principles relevant to constitution

Two further principles are particularly important in practice.

• Where a settlor declares themselves and others to be trustees, equity may require constitution to be treated as complete in equity despite an incomplete transfer of legal title to all trustees, because the settlor’s conscience is bound by their declaration. This addresses situations where the settlor already holds legal title and declares that they, together with others, are trustees.
• If trust property fortuitously vests in a person who is the intended trustee by another route (for example, by becoming the settlor’s personal representative), the trust may be treated as constituted, even though the original mode of constitution failed. This is sometimes called indirect or fortuitous vesting.

Worked Example 1.4

Asha signs a letter declaring, “I hold my 1,000 shares in Emerald Tea Ltd on trust for my niece. My brother and I will act as trustees.” She dies before completing any stock transfer and the shares remain registered in her sole name. Her brother is willing to act. Has the trust been constituted?

Answer:
In equity, yes. Because Asha declared herself as one of the trustees, her conscience was bound immediately, and equity will not allow her (or her estate) to resile. Although legal title was not transferred into joint names before death, the trust is treated as effective in equity, and the shares should be transferred into the names of the surviving trustees for the niece’s benefit.

Worked Example 1.5

Khalid executes a TR1 transferring his registered freehold to trustees to hold on trust for his daughter and sends the signed TR1 and AP1 to Land Registry. He dies before registration is completed. Is the trust constituted?

Answer:
Most likely in equity. Khalid did everything required of him (executed the deed and submitted for registration). Registration is a third-party act. Applying Re Rose-type reasoning to registered land, equity should treat the transfer as complete as between the parties, and the daughter’s equitable interest will be recognised. Legal title will pass on completion of registration.

The Rule in Strong v Bird

If a donor intends to make an immediate lifetime gift of property to a donee (or intends to release a debt owed by the donee), but the gift is imperfect because the property is not properly transferred (or the debt formally released), the gift may be perfected if:

1. The donor's intention to make the immediate gift/release continued unchanged until the donor's death.
2. The intended donee becomes the donor's executor or administrator.

The vesting of the property in the donee in their capacity as personal representative can perfect the intended gift/release. This rule has also been applied where an intended trustee becomes the settlor's personal representative (Re Ralli's Will Trusts). If the donor performs acts inconsistent with the continued intention (for example, disposing of the property differently or revoking the intended transfer), the rule will not apply.

Key Term: Personal Representative
A general term for an executor (appointed by will) or an administrator (appointed by the court where there is no valid will or no executor willing/able to act) who administers a deceased person's estate.

Worked Example 1.6

Lucia wishes to give her savings account balance to her godson if she dies from a scheduled operation. She hands him the passbook and says, “This is yours if I don’t recover.” She dies from complications. Her will leaves her estate to her siblings. Is the gift effective?

Answer:
Yes, as a donatio mortis causa. The gift was made in contemplation of death, was conditional on death, and Lucia delivered the essential indicia of title (the passbook) to the godson. The gift takes effect on death, outside the will.

Donatio Mortis Causa (DMC)

A DMC is a gift made during the donor's lifetime, in contemplation of imminent death, intended to take effect only upon the donor's death. It is automatically revoked if the donor recovers.

Key Term: Donatio Mortis Causa
A gift made by a living person in contemplation of their impending death, delivered to the donee, and intended to take effect only upon the donor's death.

Three requirements must be met:

1. The gift must be made in contemplation (though not necessarily expectation) of impending death from a known cause.
2. The gift must be conditional on death (i.e., it is revocable if the donor recovers).
3. There must be delivery of the subject matter to the donee, or the means of controlling it (e.g., keys to a car, passbook for a savings account), or essential evidence of title (e.g., title deeds for unregistered land).

Caution is required in applying DMC to registered land: modern cases have narrowed the scope of DMC generally and emphasise that mere old age or a general apprehension of mortality is insufficient. Delivery of title deeds may constitute indicia of title for unregistered land; registered land typically requires registration to pass legal title, so DMC relating to registered land is difficult to achieve.

Worked Example 1.7

Noah hands his adult grandson the title deeds to his unregistered cottage, saying, “If I die from this illness, the cottage is yours.” He dies from the illness. Is the gift valid?

Answer:
Likely valid as a DMC. The gift was made in contemplation of death, conditional on death, and the deeds were delivered as indicia of title for unregistered land. The cottage passes outside the will.

Worked Example 1.8

Priya promises her niece a painting and writes a note stating she intends to gift it immediately, but later gives the painting to a friend instead. Priya dies and her niece is executor. Can the niece claim the painting under Strong v Bird?

Answer:
No. The original intention to make an immediate gift did not continue unchanged until death; Priya’s later inconsistent act of giving the painting to someone else defeats the application of the rule.

Worked Example 1.9

The settlor intended to settle assets on trust for her nephew and named Chloe as trustee, but failed to transfer the assets. On the settlor’s death, Chloe, as executrix, collects the assets into the estate. Does the trust become constituted?

Answer:
Yes, under indirect constitution principles. The intended trustee (Chloe) now holds legal title as personal representative; equity treats the trust as constituted, and the trustee holds on the declared trusts rather than absolutely.

Proprietary Estoppel

Proprietary estoppel may arise where a property owner encourages another person (the claimant) to believe they have or will acquire an interest in the property, and the claimant acts to their detriment in reasonable reliance on that assurance. If it would be unconscionable for the owner to deny the claimant's interest, equity may intervene.

Key Term: Proprietary Estoppel
An equitable doctrine preventing a property owner from denying rights to another person whom they have encouraged to believe they have an interest in the property, and who has acted detrimentally in reliance on that belief.

The court has discretion in awarding a remedy, aiming to satisfy the equity raised by the claimant's detrimental reliance, which might range from financial compensation to the transfer of the property itself. While proprietary estoppel can, in effect, “perfect” an imperfect gift in equity by recognising an equity to enforce an expectation where it would be unjust to do otherwise, the remedy is tailored to the circumstances and may be less than the full interest promised.

Worked Example 1.10

Leo repeatedly tells his caregiver, Ava, “This house will be yours,” and encourages her to give up paid work to look after him full-time and to pay for improvements. After Leo’s death, his will leaves the house to a charity. Can Ava claim the house?

Answer:
Ava has a strong proprietary estoppel claim. There was an assurance, reliance, and detriment. The court may award her an interest in (or transfer of) the house sufficient to satisfy the equity, even though the will purports to leave the house elsewhere.

Notes on Unconscionability and gifts

Some cases have suggested that equity may treat a gift as complete in equity where it would be unconscionable for a donor to go back on their intention, even if formalities remain outstanding. This reasoning is controversial and has not been clearly extended to incompletely constituted trusts. For SQE1 purposes, rely primarily on established principles: Re Rose (every effort), Strong v Bird, DMC, and proprietary estoppel. Where a settlor declares themselves as trustee together with others, the Choithram principle will assist in treating the trust as effective in equity despite gaps in formal transfer to all trustees.

Key Point Checklist

This article has covered the following key knowledge points:

• Constitution is essential for the validity of an express inter vivos trust; it involves vesting legal title in the trustees.
• Trusts can be constituted by the settlor declaring themselves trustee or by transferring the property to third-party trustees.
• Transferring legal title requires specific formalities depending on the type of property (land, shares, chattels, money).
• For registered land, legal title passes only on registration of the transferee at HM Land Registry; for private company shares, title passes only on the company’s register being updated.
• Equity generally will not enforce an incompletely constituted trust in favour of a volunteer beneficiary ('equity will not assist a volunteer').
• Exceptions exist where equity may perfect an imperfect transfer: the 'every effort' test (Re Rose), the rule in Strong v Bird, donationes mortis causa (DMCs), and proprietary estoppel.
• A settlor declaring themselves among the trustees can render the trust effective in equity (principle similar to Choithram), though formal transfer to co-trustees may follow later.
• Fortuitous vesting (for example, intended trustee becoming personal representative) can indirectly constitute a trust (Re Ralli’s Will Trusts).
• DMC is narrowly construed: it requires contemplation of death from a known cause, conditionality, and delivery of indicia of title; it rarely applies to registered land.
• Contractual routes may yield damages but typically do not compel constitution of a trust for volunteers; trustees cannot generally enforce a covenant to settle property merely to assist volunteers.

Key Terms and Concepts

• Constitution
• Volunteer
• Personal Representative
• Donatio Mortis Causa
• Proprietary Estoppel