Enforcing fully constituted trusts
A valid declaration of trust becomes fully constituted when legal title to the trust property is transferred to the trustee. Where a trust has been fully constituted, 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.
In Paul v Paul (1882) 20 Ch D 742, CA, a marriage settlement was 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. The trust could not be brought to an end without their consent.
Enforcing incompletely constituted trusts
Where a settlor has neither declared themselves 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. The settlor remains the absolute owner. The beneficiaries therefore enjoy no entitlement to the putative trust property, nor can they enforce the trust obligations against the intended trustees.
In substance, the beneficiaries are merely the victims of the settlor’s unfulfilled promise to create a trust in their favour. In such circumstances, the question arises as to whether there are any means by which the beneficiaries can compel the settlor to carry out the promise to subject the property to a trust in their favour. The basic principle is that if the intended beneficiaries have provided valuable consideration in return for the settlor’s promise to create a trust in their favour, equity will compel the settlor to constitute the trust. However, if they are volunteers (ie, provided no consideration), the rule that ‘equity will not assist a volunteer’ operates to prevent them compelling the settlor to constitute the trust.
Beneficiaries of an incompletely-constituted trust who have given valuable consideration
Where the beneficiaries have given valuable consideration, equity will come to their assistance and compel the settlor to constitute the trust. Equity does not take the same view of consideration as the common law and will not enforce a promise made in return for merely nominal consideration. Instead equity requires ‘valuable consideration’ (ie, either ‘money or money’s worth’ or marriage consideration). As well as excluding nominal consideration, it also excludes a deed (a covenant) which is enforceable at common law by the covenantee even where no consideration has been provided. The ability of equity to compel the creation of trusts which are not completely constituted on behalf of those who have been provided valuable consideration can be illustrated from the context of marriage settlements.
Volunteer beneficiaries of an incompletely-constituted trust
Where the beneficiaries of an incompletely constituted trust are volunteers who have provided no valuable consideration in return for the settlor’s promise to create a trust, equity will not compel the constitution of the trust. Equity will not act to complete an imperfect gift. This limitation prevented the enforcement of a trust in Re Plumptree’s Marriage Settlement (1910), which also concerned a wife’s covenant in her marriage settlement to transfer any after-acquired property to the trustees. She was subsequently given certain stocks by her husband, but they were never transferred to the trustees of the marriage settlement. On her death, her next of kin sought to enforce the trust. It was held that they were unable to do so because they were outside of the scope of the marriage consideration and therefore volunteers in equity. The stocks therefore remained free of the marriage settlement trusts and formed part of her estate.
Volunteer beneficiaries of an incompletely-constituted trust who are able to obtain specific performance of a contract to create a trust
Where a settlor has entered a contract with a third party, promising to settle specified property on trust for beneficiaries, the beneficiaries will generally be unable to obtain specific performance because they are volunteers. However, in exceptional circumstances the beneficiaries might be able to stand in the position of the third party to whom the contractual promise was made and thus obtain specific performance and enforce the trust.