Enforcing fully constituted trusts
Where a trust has been fully constituted, whether in consequence of a settlor’s declaration or through an effective transfer of the intended trust property to trustees, the beneficiaries are immediately entitled to the equitable interest in the property held on trust for them. They can seek the aid of equity to compel the trustees to perform the trust obligations by virtue of their interest as beneficiaries, irrespective of whether they were volunteers or whether they had provided consideration to the settlor in return for the creation of the trust.
This can be seen from the following case. Paul v Paul (1882) 20 Ch D 742, CA, concerned a marriage settlement executed by parties who had since separated. Under the terms of the settlement as husband and wife they were entitled to enjoy the income derived from the trust property for life, with the remainder interest passing on their deaths to the children of the marriage. If there were no children and the wife predeceased her husband she enjoyed a general power to appoint over the trust property by will, subject to an express provision in default of appointment in favour of her next of kin. As there were no children, the husband and wife applied to have the capital of the trust paid over to themselves, arguing that the only other persons with any interest in it were the next of kin, who were volunteers. The Court of Appeal held that although the next of kin were volunteers, they enjoyed an immediate equitable interest in the capital because the trust was fully constituted and they were beneficiaries under it. As such, the trust could not be brought to an end without their consent.
Enforcing incompletely constituted trusts
Where a settlor has neither declared himself trustee of the trust property nor transferred it to trustees, the trust is said to be incompletely constituted. In reality no trust exists. The trust property is not subject to any obligations, and the legal and equitable ownership are not separated.
For more information on:
- Beneficiaries of an incompletely-constituted trust who have given valuable consideration
- Volunteer beneficiaries of an incompletely-constituted trust
- Volunteer beneficiaries of an incompletely-constituted trust who are able to obtain specific performance of a contract to create a trust