The formalities of an express trust

What is a trust?

A trust arises when money or property is held on behalf of someone else (or a group of people) for specific purposes. The trustees have legal control of the trust money or property which is held on behalf of the beneficiaries. The trust must comply with the required legal formalities.

Some trusts are created during someone’s life time. A trust can also arise on someone’s death when, for instance, they leave property, a sum of money or other assets on trust for the benefit of others.

What are these formalities?

Where a trust arises on death under the terms of a will, the trust must comply with the formalities outlined in section 9 of the Wills Act 1837. This states that the will must be in writing, signed by the testator (creator of the will) and that it must be witnessed by at least two persons in the presence of the testator (the will maker).

Where a person intends to create a lifetime trust (an inter vivos trust) or wishes to assign their beneficial interest in property that they own, the formal requirements are set out in section 53 of the Law of Property Act 1925. The trust needs to be evidenced in writing (if it’s a declaration) or made in writing (if it’s a disposition); and be signed by the trustee.

Declarations of trusts

There are two forms of property that may be declared trust property under a trust: trusts of personalty (someone’s personal property), and trusts of land.

Trusts of personalty

Where the subject matter of the trust is personalty (physical objects that are not land, eg. vehicles or antiques) there are no formalities required. The trust can be created in writing but this is not a legal requirement.

Trusts of land

The formalities required in relation to a trust of land under section 53(1)(b) of the Law of property Act 1925 are:

“A declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such a trust”. Note that:

  1. The declaration need not be in writing: section 53 (1) (b) requires only evidence of writing in support. However, it is best to set it all down in writing to avoid the risk of a future dispute.
  2. The document declaring or affirming the trust must contain all the relevant items of property.
  3. The relevant documents must be signed ‘by some person who is able to declare the trust’.

‘Giving away’ an equitable interest to another person

A beneficiary under a trust of property may give away their beneficial interest to another person by:

  • assigning it to another person;
  • assigning it to a trustee on trust for the other person, or;
  • declaring themselves a trustee of the interest for that other person.

However, an agreement to transfer the beneficial interest must be in writing otherwise it will be void. The agreement need not be signed by the beneficiary themselves but may be signed on their behalf by a solicitor.

The beneficiary can instruct the trustee to hold the equitable interest on trust for a third party.

Where a beneficiary directs the trustee to hold his equitable interest on trust for a third party this is considered to be an agreement (disposition or assignment) under section 53(1)(c) and will be void if not declared in writing.

The beneficiary can also ask the trustee to declare a trust in favour of the third party instead of that original intended beneficiary. This must be made in writing by virtue of section 53 (1) (c).

The beneficiary can also declare a sub-trust arising from the original trust in favour of the third party. Where the trustee holds the property on trust for the beneficiary, it is for the beneficiary to declare himself a trustee of the equitable interest for the benefit of a third party. Again, this must be in writing.

In these cases, the benefits and liabilities in relation to the beneficial entitlement of the original beneficiary will be transferred to the third party (the new beneficiary) under the sub-trust. The beneficiaries therefore take on the role of the trustee holding the property on trust for the third party.