THE LAW OF TRUSTS

INTRODUCTION

Definition of a Trust – What is it?

Difficulty has been found in providing a comprehensive definition of a trust, but

various attempts have been made.

Underhill’s definition

“An equitable obligation binding a person (who is called a trustee) to deal with
property over which he has control (which is called trust property), for the benefit of
persons (who are called beneficiaries or cestuis que trust), of whom he may himself
be one and any one of whom may enforce the obligation. ( Underhill & Hayton, Law of
Trusts and Trustees (14th ed.) p. 1. Definition approved by Cohen J. in Re Marshall’s Will
Trusts (1945) Ch. 217 at p. 219 and by Romer L. J. in Green v. Russel (1959) 2 Q.B. 226 at
p. 241.)

Lewin’s Definition (Lewin’s Trusts, 16th ed.), p.1

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It is based on a definition given by Mayo J. in Re Scott (1948) S.A.S.R. 193, 196)
“The word ‘trust’ refers to the duty or aggregate accumulation of obligations that rest
upon a person described as trustee. The responsibilities are in relation to property
held by him, or under his control. That property he will be compelled by a court in its
equitable jurisdiction to administer in the manner lawfully prescribed by the trust
instrument, or where there be no specific provision written or oral, or to the extent
that such provision is invalid or lacking, in accordance with equitable principles. As a
consequence the administration will be in such a manner that the consequential
benefits and advantages accrue, not to the trustee, but to the persons called cestuis
que trust, or beneficiaries, if there be any; if not, for some purpose which the law will

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recognize and enforce. A trustee may be a beneficiary, in which case advantages
will accrue in his favour to the extent of his beneficial interest”. 42

A recent statutory definition

The Hague Convention on the Law Applicable to Trusts and on their Recognition,
incorporated into English law by the Recognition of Trusts Act 1987, contains in
Article 2 the following definition of a trust:

“For the purposes of this Convention, the term ‘trust’ refers to the legal
relationships created - inter vivos or on death – by a person, the settlor, when
assets have been placed under the control of a trustee for the benefit of a
beneficiary or for a specified purpose. A trust has the following characteristics
– a. the assets constitute a separate fund and are not part of the trustee’s own
estate; b. title to the trust assets stands in the name of the trustee or in the
name of another person on behalf of the trustee; c. the trustee has the power
and the duty, in respect of which he is accountable, to manage, employ or
dispose of the assets in accordance with the terms of the trust and the special
duties imposed upon him by law. The reservation by the settlor of certain
rights and powers, and the fact that the trustee may himself have rights as
beneficiary are not necessarily inconsistent with the existence of a trust.”

No trust recognized by English law falls outside the four corners of this most recent
of the many attempts to define a trust.

Keeton’s definition (Keeton Law of Trusts (11th ed.), p. 2.)

“a trust is the relationship which arises whenever a person called the trustee is
compelled in equity to hold property for the benefit of some persons or for some
object in such a way that the real benefit of the property accrues not to the trustee
but to the beneficiaries or other objects of the trust”.

Snell points out that this is the more satisfactory definition as trusts encompass a
wider area e.g. public trusts in which objects in the real sense of the word cannot

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really be defined and not Underhill’s definition which does not encompass such
objects.

The Trustee Act (Cap 167) contains no standard definition. The definition therein is
a negative and inclusive one. Its purpose being to show the types of transactions to
which it applies and does not apply, rather than to define the term – S. 2 “trust” does
not include the duties incident to an estate conveyed by way of mortgage, but with
this exception, the expressions “trust” and “trustee” extend to implied and
constructive trusts, and to cases where the trustee has a beneficial interest in the
trust property, and to the duties incident to the office of personal representative, and
“trustee” where the context admits, includes a personal representative………..”

The Act is merely an enactment of equitable decisions over the years.

What is it not

“in the higher sense” “in the lower sense”

It should be clear from the definitions offered that the type of trust with which we are
concerned is an equitable obligation which is enforceable in courts. There is,
however, no magic in the word “trust”, as Lord O’Hagan once said, (Kinloch v
Secretary of State of India in Council (1882) 7 App. Cas 619 at p. 630) and it can
mean different things in different contexts. For example, a person may be in a
position of trust without being a trustee in the equitable sense, and terms such as
“anti-trust” (Laws against restraint of trade or commerce) or “trust territories” (territory
or colony placed under protection of a country by the U.N.) are not intended as
relating to a trust enforceable in a court of equity. By the same token, a trust in the
conventional legal sense may be created without using the word “trust”. In each case
it is necessary to consider whether such a trust was intended.

The issue of definition arose for decision in Tito v. Waddel (No. 2), (1977) Ch. 106.
which Megarry V. C. aptly described as “litigation on the grand scale.” The case
involved Ocean Island, a small island in the Pacific. It was called Banaba by its
inhabitants and they themselves were known as Banabans. The island was formerly
part of the Gilbert and Ellice Islands protectorate which subsequently became a
colony. At the beginning of the 20 th century phosphate was discovered on the island,
and royalties for mining the phosphate were paid to the islanders. As time passed

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the Banabans sought increases in the royalties. Some increases were paid but they
were considerably less than what the Banabans claimed. The Banabans continued
to make various claims politically and internationally but when they failed, brought
these proceedings. They claimed that the rates of royalty payable under certain
transactions had been less than the proper rates and accordingly that the Crown as
the responsible authority was subject to a trust or fiduciary duty for the benefit of the
Plaintiffs or their predecessors, and was liable for breach thereof.

The question whether there was a trust or fiduciary duty involved the construction of
various agreements and ordinances as well as other documentation. It was held that
there was not.

Essential elements of the decision:

1. Although the word “trust” was occasionally used with reference to the Crown
or its agents it did not create a trust enforceable in the courts (what Megarry
V. C. described as a “trust in the lower sense” or “true trust”) but rather a trust
“in the higher sense” by which was meant a government obligation which was
not enforceable in the courts.

2. Such a trust “in the higher sense” involved the discharge of duties under the
direction of the Crown. There might be many means available of persuading
the Crown, for example by international pressure, to honour its governmental
obligations, and it might be more than a mere obligation, but it was not
enforceable by the court.

3. Although various ordinances imposed statutory duties they did not impose
fiduciary obligations. It will be seen later that in some cases a person may be
in a fiduciary position even though he is not a trustee in the proper sense of
the word (for example, an agent or a partner or a company director) and he
will be liable if he is in breach of his fiduciary obligations. The relationship
from which the fiduciary obligations arise may be equitable or legal or
statutory, but it is required that it be a relationship with enforceable legal
consequences. However, as Megarry V. C. Held, “a trust in the higher sense

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 or governmental obligation lacks this characteristic and where the primary
obligation itself is one which the courts will not enforce, then ……it (cannot) of
itself give rise to a secondary obligation which is enforceable by the courts.”

4. If a duty is imposed by statute (such as the ordinances in this case) to perform

certain functions it does not, as a general rule, impose fiduciary obligations,
nor is it to be presumed to impose any. It has to be shown that the statute
imposes such obligations.

The course is concerned with “trusts in the lower sense” or “true trusts” and with
those situations which give rise to enforceable fiduciary obligations.

Uses:

The use is the predecessor of the modern trust in English Law. Even before the
Norman Conquest land was sometimes held by one person on behalf of another for
a particular purpose or use.

General uses originated around or before 1230 AD. Land was conveyed to A for the
use of B where for example, B was a community of Franciscan Friars which at the
time was not allowed to hold property. Uses later became more common as
conveyancing devices, often specifically to avoid common law restrictions. The
difficulty was that A had the legal title and common law only recognized legal title
and not the use. Clearly B was intended to enjoy the benefits of the property,
however. The chancellor from about the year 1400 ensured that B did get this
benefit by acting on the conscience of A. A who retained the legal title became
known as the “Feoffee to uses” and B the “cestui que use” and was regarded as the
equitable owner. This was a major landmark in the development of English property
law as it created a division of ownership into legal and equitable ownership and
developed two separate legal systems.

The use was used to avoid feudal dues or taxes; it was the medieval equivalent of a
“tax avoidance scheme”. On the death of a person who held land as a tenant in
knight service, an adult heir would have to pay the feudal lord a fixed sum before he

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could claim his inheritance and a year’s profits of the land in question, although after
1267 this latter sum only had to be paid if the feudal lord in question was the King.

All these disadvantages could be avoided if, before his death, the tenant in knight
service conveyed his land to third parties to the use of himself during the remainder
of his life and thereafter to the use of his heir.

Following his death, the third parties would transfer the land to the heir but, because
he had not actually received the land by way of inheritance, the feudal lord would not
be able to claim any of the rights mentioned above. The legal estate could be for
example vested in a number of feoffes to uses as joint tenants.

Secondly, as jointly held estates pass automatically to the survivors on the death of a
joint tenant it was therefore possible to avoid death duties and to ensure that a minor
never had title at common law while allowing equitable title to pass from say father,
to son to grandson etc.

Because the effect of uses was to deprive feudal lords in general and the King in
particular of a substantial proportion of their feudal revenues, uses were
understandably unpopular with the Crown which consequently attempted to abolish
the advantages of the use by the enactment of the Statute of Uses 1535 ( This
“executed” the use by transferring the legal title from the third parties to the beneficiary) .
However, the effect of this Statute was short-lived and by the Eighteenth Century the
use had returned under the name of the trust..

The Statute of Uses 1535

Soon a great proportion of land was held to uses and as one of the functions of the
use was to enable feudal taxes to be avoided the crown as supreme landlord was
greatly affected. Henry VIII decided to counter the device by the statute of uses
1535 whose effect was to convey the legal estate to the cestui que use in which case
the feotees to uses disappeared.

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The Act did not apply universally however. It did not apply to leaseholds or to cases
where the feoffees to uses had active duties to perform. To go around the statute a
solution was found about 1700 which was to employ a second use called a trust. An
example might be a conveyance to “S to the use of Y and his heirs in trust for Z and
his heirs”. The first use would be affected by the statute but the second use or the
trust would not be. Y held the legal title in trust for Z who became the equitable
owner. In later conveyances X would have been omitted completely. The effect of
the Statute in this regard may therefore be seen as to merely change the name of
the use to trust and to add a few words to conveyances. The terminology also
changed. The legal owner became known as the trustee and the equitable owner the
cestui que trust or beneficiary.

Feudal incidents or taxes could be avoided if the land is vested in a number of

feoffees to uses. The system was beneficial to feudal Lords so far as they were
tenants but not where they were Lords as they were then liable to pay feudal
incidents.

For what was it used?

Throughout its history the trust and before that the use has been used as a device to
circumvent inconvenient rules of law. In medieval times a “use”, which was the
forerunner of the trust, was brought into existence as a result of a transfer of property
by its owner to third parties to the use either of himself or some other beneficiary.

For example, from the thirteenth century; Statutes of Mortmain imposed prohibitions
on gifts of land to corporations (the usual donees were ecclesiastical foundations) in
an attempt to prevent land being taken out of circulation more or less permanently,
thus depriving feudal lords of their revenue therefrom. ( By this time most of the

feudal taxes worth collecting were levied on inheritances; ecclesiastical

foundations never died (hence the name Mortmain) (“dead hand”). These
statutes could often be avoided by taking advantage of a use.

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Another example is that before 1540, (Prior to the enactment of the Statute of Wills
1540) it was not possible to leave freehold land by will. However, if a landowner
wished to achieve the same result, he could convey the land during his lifetime to
third parties to the use of himself during the remainder of his life and thereafter to the
use of the intended beneficiary. The landowner would continue to derive the benefit
from his land for as long as he lived and on his death the intended beneficiary would
automatically become entitled.

In subsequent centuries the trust was used to tie up land or wealth for succeeding
generations of a family and to make provision for dependants. It also had other
purposes. For example, the common law rule, which was of general application, that
a married woman could not hold property in her own right during the marriage 17 could
be overcome by vesting that property in trustees to hold upon trust for her. Likewise,
unincorporated associations such as clubs, friendly societies and trade unions, which
are not themselves legal entities and so cannot hold property, would not have
developed as they have if it had not been possible for property to be held by trustees
on their behalf. Finally, from the last century, the trust has once again come to be
used as a means of creating “tax avoidance schemes”.

The principal uses of the trust today are these:

1. To enable property, particularly land, to be held for persons who cannot

themselves hold it. Thus the legal title to land cannot be vested in an infant
but there is no objection to land being held upon trust for an infant.

2. To enable a person to make provision for dependants privately. The most

obvious examples are provisions made by a man for his mistress or his
illegitimate child. During the lifetime there is no problem, but if a man provides
for a mistress or an illegitimate child by will, the circumstances may well leak
out, for when probate has been obtained a will becomes a public document,
and is open to public inspection. But a trust deed escapes publicity of this
sort. (secret trusts).

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3. To tie up property so that it can benefit persons in succession. An outright gift
may be made to a parent, in the hope that on the parent’s death that property
will go to his child, but there is no guarantee that it will do so. A gift to
trustees to hold on trust for the parent for life with remainder to the child will
ensure that the child derives a benefit.

4. To protect family property from wastrels. A person may feel that an outright
gift of money to a surviving spouse or child will lead to its being dissipated
(squandered or wasted). A gift of that money to trustees to hold upon trust to
pay either the income or only a limited proportion of the capital to the surviving
spouse or child will probably prevent this.

5. To make a gift to take effect in the future in the light of circumstances which
have not yet arisen and so are not yet known. If, for example, a person has
three young daughters, he may by will set up a trust whereby a sum of money
is given to trustees for them to distribute among the daughters, either as they
think fit, or having regard to stated factors. They might, for example, in due
course decide to give one-quarter each to two of the daughters who had
married well and one-half to the poorer unmarried daughter.

6. To make provision, particularly by will, for causes or for non-human objects.

By means of a trust money can be donated for the furtherance of education or
for the purpose of maintaining a beloved animal such as a favourite dog or
cat.

7. To provide pensions for retired employees and their dependants. Since the
Second World War pension schemes have become increasingly common and
are now regarded as an essential part of virtually every contract of
employment and an important factor for the self-employed.

8. To facilitate investment through unit trusts and investment trusts. The

objective of such trusts is to enable the small investor to acquire a small stake
in a large portfolio of investments and thus to spread his risk across a
substantial range of stocks and shares. Such portfolios are sufficiently large
for their investments to be supervised on a full-time basis.

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9. To minimize the incidence of income tax. There are numerous possible “tax
avoidance schemes” and a high proportion of them involve a trust in one way
or another. One example will suffice for the moment. A person with a high
income will pay income tax of 30 per cent on any investment income. If,
however, the investment is transferred to trustees on trust for five members of
his family, each of whom is only of modest means and so pays either no
income tax at all or income tax at a lower rate, a substantial saving of tax will
be made.

10. To protect the environment. In the United States of America, under the so-
called “public trust doctrine”, each State has a fiduciary obligation to ensure
that public lands which constitute the coastline, the bays of the sea, and the
tidal rivers and their beds are made continuously available for the members of
the public at large. In Canada, “the “trusteed” environmental fund” has been
developed so as to provide an assurance for the State that, following the
termination of some environmentally harmful activity such as mining or
logging, the post closure land reclamation will be adequately financed.

11. Client accounts.

12. Sinking fund trusts.

One of the great advantages of a trust is the flexibility of purpose for which it can be
used. Another is that the rules which govern a trust are by and large the same
whatever the purpose for which it is employed.

The use is the forerunner of the trust idea

Land is given to A on A’s undertaking to hold the same to the use of or for the benefit
of B. A gets legal title but it is unconscionable for him to keep it for his own benefit.
At Common Law there was no remedy. At Common Law A can exercise all the
rights which the estate gives to him.

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Why give it? B could be going on a crusade or a long voyage. B could be trying to
escape his creditors. B could be fearing that if convicted of a felony he could lose
his lands. B could be doing it for tax reasons.

The Common Law would not recognize any relationship between A and B despite
A’s undertaking.

The Chancellor steps in to ensure that B gets the beneficial interest even if the legal
title remains in A. The Chancellor is acting in personam and not only against A but
against any other person who may take the land from A. A is seen as owner at law
and B as owner in equity. A is the feoffee to uses, B the cestui que use.

The nature of a Trust:

 A person holds property for the benefit of another or for some purposes other
than his own.
 Normally the creator of a trust is either a settlor or a testator but there need
not always be a testator or settlor for a trust to arise e.g. where a person dies
intestate the administraror or administratrix becomes a trustee for the benefit
of all the heirs entitled.
 Normally a trustee invests the capital or the initial trust fund and the income
generated from the investment is used for the heirs’ benefit. As to authorized
investments under Cap 167, see Section 4 thereof. See also Cap 288 – Local
Authorities as Trustees of Land.
 Common law did not allow the beneficiary to bring an action against the
Trustee so equity stepped in to enforce an equitable as opposed to a legal
title.
 A separate and enforceable right distinct from the legal right is created and
from this flow all sorts of rights and obligations.
 NB: Equity however will not enforce an illegal trust e.g. a trust “au contraire”
public policy, morality or statute as equity follows the law and has the same
end as law which is “to do right”.

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Distinction from other legal concepts

1. Contract

A contract differs from a trust although very often there can be a contractual basis of
some of the characteristic obligations of a trust, e.g. a trust to pay a debt. There may
also be a contract to create a trust. A contract gives rise to personal obligations
enforceable at law or equity while a trust gives rise to a proprietary relationship.

Differences: In the majority of trusts there is no element of consideration which is an

essential prerequisite to a contractual relationship except where there is a deed; but
there can be cases where a settlor inter vivos can enforce a trust deed versus the
trustee in case of a breach of trust.

Normally breach of trust is actionable by a stranger to the trust deed whereas a

contract is only actionable by the parties to it (privity of contract theory).

The general rule is that a contract is not enforceable by a person who is not a party
to the contract, whereas a trust can be enforced by a beneficiary who is not (indeed
he rarely is) a party to the instrument creating the trust. See Midland Silicones v.
Scruttons (1962) A.C. 446 and Beswick v. Beswick (1968) A.C. 58. on the doctrine of
privity of contract. The rigidity of the rule itself has been mitigated in some (though
rather small and uncertain) degree by recourse to the concept of the trust. Although
the rule remains intact that only a person who is a party to a contract can sue upon
it, yet if one of the parties expressly or impliedly contracts as trustee for a third party
the latter is entitled to the benefit of that contract. If a contracting party enters into a
contract as trustee for a third party, the third party, as beneficiary of the trust, will be
entitled to the benefit of the contract. In the event that the other party breaches the
contract, the machinery for its enforcement may take a number of forms: (a) The
trustee can recover on behalf of the third party. (b) The third party beneficiary can
sue as cestui que trust joining the trustee as co-plaintiff and, (c) if the trustee

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declines to be joined in that capacity, he can be joined with the other party to the
contract as a co-defendant.

No difficulty will arise if there is an express declaration of trust, or an assignment of

the benefit of the contract to trustees. The real difficulty is to know when a trust is to
be implied. In Re Flavell (1883) 25 Ch.D. 89 where articles of partnership provided
that an annuity should be paid by the surviving partner to the widow of his co-partner
it was held that this created a trust of the annuity in favour of the widow which was
free from the claims of the co-partner’s creditors.

The principles at stake were later discussed in Harmer v. Armstrong (1934) Ch. 65
where there was a contract for the sale of the copyright in certain periodicals and the
plaintiff for whose benefit the contract had been made claimed specific performance
of the contract. The Court of Appeal held that the Plaintiff as cestui que trust of the
agreement could himself specifically enforce it. Lawrence L.J. stated that there
were two distinct rules as to neither of which there could be any reasonable doubt (i)
that the law does not recognize any jus quaesitum tertio (automatic right) arising by
way of contract; (ii) that such a right may be conferred by way of a proprietary
interest under a trust. However, there are other cases where the court has declined
to imply the existence of a trust although it might be thought that if the court had
been so disposed the implication could easily have been made and it is therefore by
no means easy to determine when a trust will be implied. In Vadepitte v. Preferred
Accident Insurance Corpn. Of New York (1933) A.C. 70 a car owner had insured his
car in British Columbia against third party risks with the defendant and it was agreed
that the policy should cover all persons driving with his consent. His daughter, while
driving the car with his consent, injured the plaintiff and the plaintiff obtained
judgment against her in an action of negligence. The judgement was not satisfied.
Under the relevant Act in British Columbia a plaintiff, if he failed to recover his
damages against a guilty motorist, could avail himself of any rights which the
motorist enjoyed against the insurance company. The question was whether the
daughter was a beneficiary under the policy. As she was not a party to the contract
of insurance: the result, therefore, depended on the presence or absence of a trust.

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The Privy Council held that no trust had been proved: the intention to create a trust
had to be affirmatively shown and this had not been done.

A similar result occurred in Re Schebsman (1944) Ch. 83. A company agreed with
its employee, in consideration of his retirement, to pay certain sums to him and after
his death to his wife and child. He went bankrupt and soon afterwards died. The
question was whether the trustee in bankruptcy could “intercept” the money which
the employers were willing to pay to the wife and child. The Court of Appeal held
that the employee had not entered into the contract as a trustee for his wife and
child. Du Parcq L.J. said that unless an intention to create a trust is clearly to be
collected from the language used and the circumstances of the case the court ought
not to be “astute” to discover implications of such an intention.

A like reluctance to imply a trust was manifested in Swain v. The Law Society (1982)
3 W.L.R. 261. This case concerned the master policy which The Law Society had
arranged under statutory powers for indemnity insurance. It had been agreed that a
proportion of the commission earned by the insurance brokers in arranging the
insurance should be paid to The Law Society which would apply it for the benefit of
the profession as a whole.

Two solicitors were dissatisfied with the scheme and claimed (inter alia) that The
Law Society was a trustee of the benefit of the master policy contract for the benefit
of all individual solicitors and was, therefore, accountable for the proportion of the
commission which it received. Reliance was placed on the fact that the policy
contract stated that the policy was entered into “on behalf of” solicitors and former
solicitors, and these words, it was claimed, imputed an intention to create a trust.
The House of Lords (reversing the Court of Appeal) rejected this argument. It was
held that these words clearly did not express a trust and they did not necessarily
imply a trust. As Lord Brightman said, “it would indeed, be surprising if a society of
lawyers, who above all might be expected to make their intention clear in a
document they compose, should have failed to express the existence of a trust if that
was what they intended to create”.

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These cases indicate that it may, in practice, be extremely difficult to provide a test
by which it can be determined whether a contracting party is entering into a contract
as trustee for a third party. Indeed the view has been expressed that the way in
which the court will decide a novel case is almost entirely unpredictable (Williams
(1944) M.L.R. 123).

The suggestion has also been made, as a reason for this difficulty, that trusteeship is
too highly charged with magic to admit of an accurate test. “There is a vast deal of
magic in words and among the words most highly charged with magic to be found is
the word “trustee”.

The courts are now reluctant to interpret a contract as creating a trust. It is certainly
unwise to place any reliance on the trust concept as providing a loophole in the
principle of privity of contract.

Trust and Debt

The general rule is that a liability cannot, without more, be the subject matter of a
trust.

Exceptions to the rule are firstly, that a debtor will be able to create a valid trust of
the sum which he owes in favour of his creditor or of a third party if he segregates
the appropriate sum from his other assets and makes an express declaration of trust
in respect of the duly segregated assets. The effect of the creation of such a trust
will be to give its beneficiary an advantage over the other creditors of the debtor in
the event of the debtor’s bankruptcy – this is because the proprietary right of the
beneficiary will enjoy priority over the purely personal rights of any unsecured
creditors.

Thirdly, there is in principle no reason why the same transaction should not give rise
both to a trust and to a debt; a loan for a specific purpose can be made on terms that
the sum advanced will be held on trust for the lender unless and until that purpose is

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carried out. What is crucial in such circumstances is the intention of the parties. In
Barclays Bank v. Quistclose Investments (1970) A.C. 567 a company which was
substantially indebted to the bank needed funds in order to pay a dividend on its
shares. Quistclose Investments advanced the necessary funds on the basis that
they were only to be used for this purpose and they were paid into a separate
account at the bank, which was made aware of the arrangement. The company
went into liquidation before the dividend had been paid. If Quistclose Investments
was no more than a creditor of the company, then the funds in the bank belonged to
the company and the bank would be entitled to set off the credit balance of the
account against the substantially greater indebtness of the company. If, on the other
hand, the funds were held on trust for Quistclose Investments, its proprietary interest
therein would enjoy priority over the rights of the bank. The House of Lords held that
arrangements for the payment of a person’s creditors by a third person give rise to “a
relationship of a fiduciary character or trust, in favour, as a primary trust, of the
creditors, and secondarily, if the primary trust fails, of the third person”. Once the
primary purpose was fulfilled, the third person would be no more than an unsecured
creditor. However, there was “no difficulty in recognizing the co-existence in one
transaction of legal and equitable rights and remedies”.

Since the purpose for which the funds had been advanced had failed, the funds were
still held on trust for Quistclose Investments, whose beneficial interest was binding
on the bank because it had been aware of the basis on which the funds had been
transferred. In Carreras Rothmans v. Freeman Matthews Treasure (1985) Ch. 207,
Peter Gibson J. Stated That:

“the principle in all these cases is that equity fastens on the conscience of the
person who receives from another property transferred for a specific purpose
only and not therefore for the recipient’s own purposes, so that such person
will not be permitted to treat the property as his own or to use it for other than
the stated purpose”.

Fourthly, while it seems tolerably clear that the common intention of the parties is an
essential prerequisite of what has become known as a “Quistclose Tust,” it is equally

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possible for proprietary rights to be conferred on someone who would normally be no
more than an unsecured creditor as a result of the unilateral act of one of the parties.
E.g. 1. It is clearly possible for a purchaser who is paying for goods in advance to
specify that the funds remitted are to remain his property in equity unless and until
the goods are actually supplied. Such a reservation will clearly bind the vendor and
his trustee in bankruptcy but will not, however, bind any bank in which the funds
have been deposited unless they are clearly segregated in what the bank knows to
be a trust account.

2. In Re Kayford 1975 I W.L.R. 279 a mail-order company in financial difficulties

became concerned as to its ability to provide the goods for which its customers were
paying in advance. It consequently opened what was called a “Customers’ Trust
Deposit Account” into which all purchase monies received from customers were paid
and were withdrawn only as and when their orders could be fulfilled. Shortly
afterwards the company went into liquidation. Megarry J. held that the funds in this
bank account were held on trust for the customers; by paying into the trust account,
the company had prevented the customers from ever becoming creditors so no
question of a preference arose.

Trust and Bailment

A bailment is a delivery of personal chattels to a bailee subject to a condition that

they be returned to the bailor or as he directs, when the purpose of bailment has
been carried out.

In the popular sense of the word trust;

The position of bailee is similar to a trustee’s in the sense that both are “entrusted”
with another’s property. The trustee’s duty to take care of trust property is roughly
comparable with the duty of a gratuitous bailee, though generally the trustee’s duties
are more onerous.

In fact Blackstone in his commentaries, Bk II 451 defines bailment rather confusingly

as a delivery of goods “upon trust” – perhaps due to the similarities.

17
Differences

a) Most importantly, a bailee obtains only possession of and “special property” in

the goods bailed, a trustee takes title to the trust property.
b) Consequently, a bailee cannot (except in a sale in market overt, by virtue of
estoppel or under special legislations such as the Factors Acts) pass a title to
the chattels valid –vs- the bailor, whereas a bona fide purchaser who
purchases the legal estate from a trustee for value without notice of trust,
acquires a good title.
c) Bailment is a common law notion, worked out in proceedings for common law
relief, such as actions for conversion, detinue or breach of contract, whereas
the trust relationship is purely equitable.
d) Agreement.
e) Bailment applies only to personal property capable of delivery, whereas a
trust may arise in respect of any kind of real or personal property and whether
tangible or intangible.
f) A bailment is enforced by the bailor, but generally a trust is enforced by the
beneficiary rather than the settlor.

In Maitland’s Equity pp. 45 ff, it has been said that where A delivers his chattel to B
with a limited purpose, it may be difficult to decide whether a trust or bailment was
intended . The question may be tested, it seems, by asking whether A intended to
part with the title as well as possession. A mere parting with possession, creating a
bailment will be more common.

Trust and Agency

An agency arises where a person called the agent has express or implied authority
to act on behalf of another, called the principal, and consents to do so. The Agent is
normally treated as an accounting fiduciary party. He binds the Principal vis-à-viz 3 rd
parties.

18
Similarities:
 Both act for another’s benefit
 Their fiduciary roles prevent them from allowing personal interest and duty to
conflict and from purchasing the property of the person to whom the fiduciary
duty is owed.
 Both are normally obliged to act personally – i.e. no delegation.

Contrasts:
The Trustee in exercise of his office will contract as principal and cannot bind the
beneficiaries unless they have constituted him both Trustee and Agent.
Although the Trustee has a right of recoupment and indemnity against the
beneficiaries for any properly incurred expenses and creditors may subrogate to
those rights in certain circumstances, there is no direct contractual link between the
Beneficiary and 3rd parties comparable to the link between the Principal and 3 rd
parties.

Agency is normally terminated on death and by the Principal acting unilaterally if

there is no contract or the contract permits him to do so. A trust cannot be revoked
unless the trust instrument reserves a power of revocation. See Mallot VS Wilson
(1930) 2 Ch 494.

However, the Beneficiaries if sui juris, unanimous and together entitled, may demand
that the trust property be distributed and consequently that the trust be terminated.
Normally, the Principal may give binding directions to his Agent but Beneficiaries
cannot control the exercise by a Trustee of his discretions – Re Brockbank (1948)
Ch. 206, 1948 All E.R. 287;

The central distinction between Agency and Trust is in relation to property. An agent
does not per se hold any property for his Principal. Many agents do not obtain items
of property at all and those who do so, acquire possession but not title. On the other

19
hand there can be no trust unless title to the trust property vests in the Trustee or in
another party on behalf of the Trustee.

Note that trust and agency may overlap. A trust may be created under which the
Trustee undertakes a contractual obligation to act on behalf of the Beneficiary e.g.
the vesting of company shares in a nominee for a fee. Conversely an Agent may
become a Trustee, if for instance, he acquires title to property to be held for the
benefit of his principal.

It has been said that an Agent becomes a Trustee for his Principal if he obtains title
to the property for the Principal’s benefit. On the face of it, a clear proposition but
not easy to gauge in practice especially if what is involved is a chattel or money
whose title may be transferred by mere delivery of possession with an intention to
transfer it.

In Cohen vs. Cohen (1929) CLR 91, a wife sued her estranged husband for several
sums of money and was met with a defence based on a statute of limitation. The
defence would succeed unless the claims arose under a trust, or had been
acknowledged within the limitation period applicable to personal claims. The
relevant claims were as follows:-

9,000 marks – being money and the sale price of chattels sold on her behalf by an
agent in Germany. In order to overcome difficulties which attended the transfer of
funds from Germany to England, where she lived, the wife arranged for her husband
to collect the 9,000 marks and use it to purchase goods in Germany for his business
and then to import the goods and he would repay her out of his own funds in
England.

£123 being the sale price of surplus furniture of the wife sold after the marriage the
husband having retained the amount.

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£80 – being settlement of an insurance claim arising from the loss of the wife’s
jewellery and retained by the husband.

She succeeded on all the claims the court finding that the husband stood in a
fiduciary relationship with regard to the wife’s property in the circumstances and was
therefore a trustee for her benefit.

The court followed Burdick vs Garrick (1870) L.R. 5 CL. 233: Where attorneys who
had been authorized to sell and buy property had set up the statute in vain. Giffard
L.J. said at 243;

“there was a very special power of attorney, under which the Agents were authorized
to receive and invest to buy real estate, otherwise to deal with the property but under
no circumstances could the money be called theirs, under no circumstances had
they the right to apply the money to their own use, or to keep it otherwise than to a
distinct and separate account, throughout the whole of the time that this agency
lasted the money was the money of the Principal and not in any sense theirs. Under
these circumstances, I have no hesitation in saying that there was in the plainest
possible terms, a direct trust created………. I do not hesitate to say that where the
duty of persons is to receive property and to hold it for another, and to keep it until it
is called for they cannot discharge themselves from that trust by pleading lapse of
time”.

ESTATES OF DECEASED PERSONS

In a sense the legal personal representative – an executor in the case of a person

nominated as such in a will, otherwise an administrator, of a deceased person’s
estate is a trustee for the creditors and beneficiaries claiming under the deceased;
he holds the real and personal estate for their benefit and not his own. But it would
be an error to equate their legal position, because certain differences still persist,
primarily as the result of other statutory enactments.

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Under the Trustee Act an administrator of an estate is a trustee. However, the two
relations should not be treated as being exactly the same although the personal
representative may become at trustee in the full sense.

In Re Cockburn’s Wills Trust (Cockburn vs. Lewis) 1957 ch. 438 3 persons were
appointed executors and trustees of a will of whom 2 predeceased the testator and
the 3rd renounced probate. 2 administrators with the will annexed were appointed,
who carried out their duties for a period of 10 years. A question arose relating to a
scheme for the purpose of distributing the residuary estate, and a summons was
taken out to determine whether the administrators who had cleared the estate and
completed the administration in the ordinary way, were trustees for the purposes of
the will and at liberty to exercise the powers and discretions thereby conferred on the
trustees for the time being of the will. HELD that the administrators, having duly
completed their duties as administrators, had the power under the Act to appoint new
trustees of the will to act in their place and that if they did not so appoint new
trustees to execute the trusts of the will they themselves would become trustees in
the full sense.

Per Danckwertz J. at 439, 440

“whether persons are executors or administrators, once they have completed the
administration in due course they become trustees holding for the beneficiaries
either on an intestacy or under the terms of the will, and are bound to carry out the
duties of trustees, though in the case of personal representatives, they cannot be
compelled to go on indefinitely acting as trustees, and are entitled to appoint new
trustees in their place and thus clear themselves from those duties which were not
expressly conferred on them under the terms of the testator’s will and which for that
purpose, they are not bound to accept.”

The functions of personal representatives are also different from those of trustees.
The duty of trustees is to administer a trust on behalf of beneficiaries, some of whom
may be minors or unborn, and this may be a long continuing process, since many

22
years may elapse before a trust is brought to an end. On the other hand, the primary
duty of personal representatives is to wind up the estate by paying debts and taxes,
and applying the net residue to the persons benefically entitled to it under the will or
intestacy or to trustees who may be themselves, to hold on trust. Furthermore,
whereas a beneficiary has an equitable interest in the trust property as soon as the
trust takes effect, a legatee or devisee or person entitled in intestacy has no
proprietary interest (legal or equitable) whilst the assets of the estate remain in the
course of administration. All he has is a right to require the deceased’s estate to be
duly administered by the personal representatives. See Commissioner of Stamp
Duties (Queensland) v. Livingstone (1965) A.C. 694: Re Leigh’s Will Trusts (1970)
Ch. 227.

In Re Leigh’s W.T. (1970) Ch. 227 it was held that the nature of the interest of a
beneficiary under a will is a right to require the estate to be duly administered which
right is a chose in action which is transmissible.

In Commissioner of Stamp Duties vs Livingstone (1965) A.C. 694 it was held that the
executor takes both legal and equitable title subject to his fiduciary duties to the
Beneficiaries and creditors of the testator for whose benefit he is to administer the
estate.

A beneficiary under a trust acquires proprietary rights immediately the trust comes
into operation while a legatee or person entitled on intestacy does not acquire any
such rights whilst the assets of the estate remain in the course of administration.
See also Sections. 20 and 21 of Cap 22 as to limitation periods.

It follows that although a personal representative has, like a trustee, fiduciary duties
to perform, those duties are owed to the estate as a whole; it does not, therefore,
necessarily follow that the duty of an executor in the course of administering an
estate is subject to the trustee’s duty of holding the balance evenly between the
beneficiaries

Trust and Power

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A trust is an obligation on the trustee which is mandatory once accepted while a
power is discretionary normally. So for example a trust in favour of X and Y must be
carried out to the letter, e.g. if money is to be paid to the beneficiaries in equal
shares, it will not matter whether one needs it more than the other. The Trustee is
bound to distribute it as directed.

In Re Baden’s Deed Trusts (1973) Ch 90 the House of Lords said,

“as to powers, although the trustees may, and normally will, be under a fiduciary duty
to consider whether or in what way they should exercise their power, the court will
not normally compel its exercise. It will intervene if the trustees exceed their power,
and possibly if they are proved to have exercised it capriciously. But in the case of a
trust power, if the trustees do not exercise it, the court will do so in a manner best
calculated to give effect to the Settlor’s or testator’s intentions.”

It is not always easy to decide whether it is a mere power or a trust power. It is a

question of construction, whether or not the settlor has shown an intention to benefit
the objects of the power, which sometimes may depend on a few words or mere
straws in the wind as Herman L. J. said in Re Baden’s Deed Trusts and as the
leading case of Mcphail V. Doulton (1971) AC 424 illustrates: - the deed in question
provided that the Trustees should apply the net income in making payments at their
absolute discretion “to or for the benefit of any of the officers and employees or ex-
officers or ex-employees of the company or to any relatives or dependants of any
such persons in such amounts or on such conditions (if any) as they think fit.” At first
instance Goff J. (1967) I WLR 457, held it created a power and the court of appeal
agreed by a majority. The House of Lords however held unanimously that it was a
trust power and accordingly took effect as a trust, the clearly expressed scheme of
the deed pointed to a mandatory construction according to their Lordships.

A power is an authority given to a person either by instrument or by statute to deal

with or dispose of property in which he may not have any beneficial interest in two
main forms; 1) those giving power of disposition over property such as a power of
appointment and 2) those which give power to deal with property in a particular
manner. Under power of appointment the owner of certain property gives power to

24
another to appoint the property to some third parties e.g. K.Shs.1,000,000/- to the
Agent for life and the remainder to whomsoever he shall appoint.

Differences:

1. A trust is imperative while a power is discretionary e.g. trust for sale and
power of sale. If shares are left to trustees or executors upon trust for sale
they must sell even if they have power to postpone the sale. If they only have
a power of sale they can decide whether to sell or not to sell and are under no
obligation to sell.

2. A trust is always equitable whereas a power can be legal e.g. a Power of

Attorney to transfer land on behalf of the Vendor. However, the majority of
powers are equitable.

3. A trustee is always under a fiduciary duty. The holder of a power may or may
not be under such duty in relation to the power.

4. A power may be released by the holder but a trustee may not release his
trust.

A donee of a power is somewhat like an absolute owner except that he cannot

dispose of the property otherwise than in keeping with the directions of the power.

In discretionary trusts members of the class of possible beneficiaries have no

defined interest in the property unless and until the trustees’ discretion is exercised
in their favour but they have sufficient locus standi to enforce the trust. At their
instance (beneficiaries) the court will restrain the trustees from acting contrary to the
terms of the trust instrument. If they refuse to distribute the court can remove them
and appoint other trustees in their place or distribute the property itself. Unlike a
donee of a mere power the trustee in a discretionary trust does not have absolute
discretion. In considering the exercise of his discretion the trustee must survey the
entire field of objects and consider each individual case responsibly on its merits –
See per Lord Wilberforce in McPhail vs Doulton (1971) AC 424 and more recently

25
Turner vs Turner (1984) Ch 100 where trustees simply acted on the instructions of
the settlor and did not exercise their discretion but effectively delegated it to him.
Meryne Davis J. held the appointments they had made to be invalid.

See Re Hay’s (1982) I WLR 1202 on the view that both concepts should be treated
similarly per Megarry V. C.

In both cases the donee or trustee can also be objects or beneficiaries.

NATURE OF BENEFICIARIES’ INTERESTS & RIGHTS

At Common Law the only rights recognized were the legal rights in the trustee –
equity stepped in to recognize a beneficial interest in the beneficiary and allowed the
beneficiary to enforce it. The interests of a beneficiary are therefore equitable. The
enteries have given rise to various rights in favour of the beneficiary.

They include rights:-

 To apply for a receiver to be appointed over trust property
 To apply for court’s sanction of unauthorized transactions
 To apply for injunction
 To a charge on property bought partly with trust money
 To follow trust property
 To impeach sale sometimes
 To inspect and take copies of accounts etc
 To join trustees as defendants
 To sue in the trustee’s name
 To sue the trustee
 To take property bought out of trust monies
 When sui juris to bring the trust to an end

In re an Application by Jiwa and others (1967) E.A. 749 an application was made by
Trustees for the court’s approval of a variation of a Trust of Land, the Beneficiaries

26
being all sui juris and consenting. The Trust Deed required the land to be sold; while
the parties wished it transferred directly to the Beneficiaries.

HELD: There is no power in Tanzania for a court to vary a trust but the court has no
power to insist upon execution of the trusts if the cancellation of the settlement is
desired by all the parties if they are sui juris.

See also Schalit Vs. Nadler Ltd (1933) All E.R. 708 where it was held in the relevant
part that “the right of a cestui que trust whose trustee had demised property subject
to the trust was not to the rent but to an account from the Trustee of the profits
received from the demise; and, therefore, the cestui que trust in the present case
was not entitled to distrain and the distress was illegal.”

WHAT PROPERTY MAY BE HELD IN TRUST?

The subject matter of a trust may be real or personal property.

A trust can be not only of a legal interest but also of an equitable interest in the
property. So for example A can have property conveyed to her as Trustee for B and
B can transfer her interest in the property to C to hold in trust for D. The legal
interest remains in A and the subject matter of the second trust is the equitable
interest.

In Lord Strathcona SS Co. vs. Dominion Coal Co. (1926) AC 108, 124 it was said:

“The scope of the trusts recognized in equity is unlimited. There can be a trust of a
chattel or of a chose in action, or of a right or obligation under an ordinary legal
contract, just as much as a trust of land. A ship owner might declare himself a
Trustee of his obligations under a charter party.”

CLASSIFICATION OF TRUSTS

There are no hard and fast categories but the following classes are convenient:-

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i) Express Trusts:
An express trust is one created by an express declaration of the person in
whom the property is vested. This could be by will, deed, writing not under
seal or even parol. What matters is that there is intent and conduct creating
the trust e.g. A conveys property to C on trust for B or C who owns property
declares himself the trustee of it for the beneficiary.

An express trust is also called a declared trust.

ii) Implied Trusts:

An implied trust is one that arises from the presumed as opposed to the expressed
intention of the owner of the property. E.g. if A conveys property to C to be held on
certain trusts which fail, there is an implied trust that C holds on an implied or
resulting trust for A’s estate.

Sometimes these are called presumptive trusts or as in our case resulting trusts.

iii) Constructive Trusts:

A Constructive Trust is a trust imposed by equity though it is neither the express nor
the presumed intention of the owner. Equity will impose such a trust when it would
be an abuse of confidence for the holder of the property to hold it for his own benefit,
e.g. Keech vs. Sandford (1726). The Trustee of leasehold property using his
position, induced the landlord to renew the lease to him on determination of the
lease. It was held that this was an attempt to obtain a personal advantage for
himself which was antagonistic to the Beneficiary’s interest and in bad faith. He was
directed to hold the new lease on the same trusts he held the old lease. The
situation has arisen in what has been called the “customary trust view” of land
registration under the RLA, see cases such as Muguthu vs Muguthu etc in your land
law.

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NB: The line between a Constructive Trust and an Implied Trust may at times be
very blurred and indeed very often a Constructive Trust is used to mean an Implied
Trust.

Trusts may also be classified between Private Trusts and Public or Charitable
Trusts.

iv) Private Trusts:

A trust is private if it is for the benefit of an individual or a class (a defined but limited
group of beneficiaries) i.e. it can be enforced by the individual or individuals. It is
private even though there may be some benefit conferred thereby to the public at
large.

v) Public Trusts:

A public trust promotes the public welfare as an object and is public even if it
incidentally confers a benefit on an individual or a class of individuals. A private trust
can be enforced by the beneficiaries whereas normally only the Attorney General or
other public officer empowered by law to do so can enforce a public trust.

vi) Trusts of Perfect and Imperfect Obligations (exceptions to beneficiary

principle).

A trust not enforceable by any beneficiary or on the beneficiary’s behalf or by

specific objects are called trusts of imperfect obligations. The courts are rather
reluctant to uphold these e.g. a trust “to take care of my dog simba” but some have
been enforced e.g. a trust to maintain a tomb. There have been borderline cases
that courts have upheld but later refused to follow as precedent e.g. a trust to
enhance grounds for hunting.

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In the case of a trust of perfect obligation, the objects are specific and capable of
enforcing the trust.

Vii) Express Private Trusts

Capacity to create:
If a person has a power of disposition over a particular type of property he can create
a trust of it. He must be of age and of sound mind. He may also create a trust of
certain types of property he cannot dispose e.g. a pension that is non-assignable by
its terms.

A trust will be set aside if it can be shown that the settlor did not understand the
nature of his act. The burden of proof will normally lie with the person seeking to set
aside the trust but where there is a long history of mental illness the burden is easily
discharged and it is then for the other side to prove that the trust was made during a
lucid interval – Cleare vs. Cleare (1869) 1 P & D 655.

THE THREE CERTAINTIES OF A TRUST:

In the leading case of Knight vs Knight (1840) 3 Beav 148, 173, 49 E.R. 58 Lord
Langdale laid down that thee certainties are required for the creation of trust as
follows:-

1. The words used must be so phrased that, taken as a whole, they may be
deemed to be imperative.
2. The subject matter of the trust must be certain
3. The person or objects intended to be benefited must also be certain.

Certainty of Words/Intention

Equity looks to the intent rather than to the form (see cases on debt and trust) so no
particular form is necessary for the creation of a trust but the intent must be manifest
from the instrument or circumstances.

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Even precatory words can give rise to a trust if it can be shown from the construction
of the document that a trust was intended. E.g. a hope, a desire, a wish to do
something with the income or property. It is all a matter of construction for the court
looking at the whole of the document to ascertain whether a trust has been intended
or not, thus Lindley L.J. said in Re Hamilton (1895) 2 Ch. 370, 373 of a will:

“you must take the will which you have to construe and see what it means, and if you
come to the conclusion that no trust was intended you say so, although previous
judges have said the contrary on some wills more or less similar to the one you have
to construe”.

The modern trend would seem to be to negative such an intention where such words
occur but each case depends on its particular set of circumstances.

In Re Adams and Kensignton Vestry (1884) 27 Ch. D 394 a testator gave all his real
and personal estate to his wife “in full confidence that she would do what was right
as to the disposal thereof between his children”.

It was held that under these words the widow took an absolute interest in the
property unfettered by any trust in favour of the children. The court also said that
some cases had gone very far and unjustifiably imposed upon words a meaning
beyond that which they would bear if looked at alone.

What is meant by “certainty of words” is certainty of intention to create a trust

appearing from the words in the instrument.

In Re Diggles (1888) 39 Ch. D. 253 a testatrix gave all her property to her daughter,
her heirs and assigns and said “and it is my desire that she allows to A. G. an
annuity of £25 during her life”. The Court of Appeal held that no trust to pay this
money had been imposed on the daughter.

No trust was created either in Lambe -vs- Eames (1871) E.R. 6 Ch. App. 57 using
the words “have confidence” and Re Hamilton (1895) 2 Ch. 370 by the word “wish”,

31
nor in Re Williams (1897) 2 Ch. 12 by “fullest trust and confidence” and neither in Re
Connoly (1910) 1 Ch. 219 by the words “specially desire”.

On the other hand in Comiskey vs Bowring – Hanbury (1905) AC 84 the testator

gave all his property to his wife “absolutely in full confidence” that she will make such
use of it as I would have made myself and that at her death she will devise it to such
one or more of my nieces as she may think fit”. The House of Lords held that on a
true construction of the whole will, the words “in full confidence” created a trust.
Compare this with Re Adams and Kensington Vestry.

In Re Steele’s wills Trusts (1948) Ch. 603 a trust was held created by the word
“request”. So in the final analysis the problem should be one of the constructing the
whole instrument.

Certainty of Subject Matter

The trust property or trust fund must be certain. It is uncertain to say for example,
“the bulk of my said residuary estate”; what part of the estate? i.e. what is included is
not clear.

The actual interest that the beneficiaries are to have must also be certain. Thus
even though the trust fund may be certain if the exact interests to be taken by each
beneficiary is not specified the trust may fail and a resulting trust in favour of the
settlor will arise so that for example, to say that ‘I leave to A, B, C, and D one house
each from among my houses is a bad trust.

The maxims of equity will in certain cases come in to remedy the defect e.g. “equality
is equity”, and in that case the fund will be divided equally. Equity tries to save a
trust by finding a way to cure the uncertainty so where the maxim is applicable equity
will apply “equality is equity” to divide in equal proportions.

NB:
There is no uncertainty if the settlor does not specify the exact interest but confers
upon the trustees a discretionary power to apply the trust fund or pay it among a

32
class of persons as they think fit. The discretionary power provides the absolute
certainty.

Even if part of the trust is uncertain a certain part is still good and in certain
circumstances if the uncertain part fails it goes to the person entitled to the certain
part – e.g. Curtis vs. Rippon (1820) 5 Madd. 434. The testator left all his property to
his wife “trusting that she would, in fear of God, and in love of the children committed
to her care, make such use of it as should be for her own and their spiritual and
temporal good, remembering always, according to the circumstances, the church of
God and the poor.” The beneficial interest was therefore to be taken by an
ascertained beneficiary subject to the rights of others to unascertained portions of it.
The rights of the latter were held to fail and the ascertained beneficiary took the
entirety.

In Re Kolb’s Wills Trusts (1962) Ch. 531 the construction of an investment clause in
a will where the testator referred, to among other things, investment in “blue-chip”:
securities was in issue. The term “blue-chip” securities is often used to denote
shares in large public companies thought to be entirely safe, but is not a term of art
and it lacks precision. Cross J. held that the term depended essentially on the
standard applied by the testator and should not be regarded as an objective quality
of the investment. If the testator had made his trustees the judges of the standard to
be applied, then all would have been well, but as he did not, that part of the clause in
which the term was contained was void.

Contrast this with the rather dubious decision in Re Golay’s Wills Trusts (1965) 1
WLR 969 where the Testator by will directed the trustees to let the trustee “enjoy one
of my flats during her lifetime and to receive a reasonable income from my other
properties.” The question was what was meant by “reasonable”. Ungoed-Thomas
J., in upholding the gift, held that the yardstick of “reasonable income” indicated by
the testator was not what he or some other specified person subjectively considered
to be reasonable, but what he identified objectively as “reasonable income,” and the
court could therefore quantify that income. The decision is difficult to reconcile with
the reasoning of Cross J in Re Kolb’s Wills Trust which is preferred.

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Certainty of Objects

Who has locus standi? Who stands to benefit:

The test of certainty here is that objects be certain or capable of being rendered
certain. The test was restrictively interpreted in I.R.C vs Broadway Cottages Trust
(1955) Ch 678 to require that the trustees should at any time be able to make a full
list of the beneficiaries and if the class was unascertainable at any time, the trust
would fail for uncertainty. With regard to trust powers in favour of a discretionary
class of objects, this test was later discarded by the House of Lords in McPhail vs
Doulton 1971 AC 424 and a new test, identical to that used in powers, was
formulated. The test is whether it can be said of any given person whether or not
she is a member of the class. Some difficulties remain, in particular whether the new
test applies to fixed trusts as well as to discretionary trusts.

There is an important exception to the rule that the objects be certain. This is the
charitable trust where provided that a paramount general intention of charity is
manifested, certainty in the charitable objects is not essential to validity. In such a
case a Cy-prés Scheme may be made enabling the funds to be devoted to definite
charitable purposes.

Effect of Uncertainty

Words: If an intention to create a trust cannot be derived from the words used in the
instrument the donee will take the property beneficially as in Re Hamilton (1895) 2
Ch. 370.

Subject Matter: If the actual trust property is uncertain the transaction will fail “in
limine”. In such circumstances there is nothing certain on which the trust can fasten
– see Palmer v. Simmonds (1854) 2 Drew 221; 61 E.R.704.

34
If it is the beneficial interest to be taken by the Beneficiaries which is uncertain there
will be a resulting in favour of the settlor, or in favour of the settlor’s estate if dead,
or in favour of the residuary legatee, or in cases where part is certain to the person
entitled to the certain part. Sometimes, the maxim “equality is equity” will be applied
to divide equally.

SECRET TRUSTS

When a person dies his will becomes open to public inspection and secret trusts
usually arise when a testator wishes to make provision for somebody but does not
want the whole world to know about it, sometimes because the provision is for the
testator’s mistress or illegitimate children.

Basis of Secret Trusts

The doctrine of secret trusts was originally based on equity’s maxim that equity will
not allow a statute to be used as a cloak or engine of fraud. The statute referred to
for this purpose was the Wills Act 1837.

Wills Act 1837, S. 9 (S. 11 LSA)

No will shall be valid unless (a) it is in writing and signed by the testator or by some
other person in his presence and by his direction; and (b) it appears that the testator
intended by his signature to give effect to the will; and (c) the signature is made or
acknowledged by the testator in the presence of two or more witnesses present at
the time; and (d) each witness either, (i) attests and signs the will or (ii)

35
acknowledges his signature in the presence of the testator (but not necessarily in the
presence of any other witness), but no form of attestation shall be necessary. A will
executed without these formalities is void; this applies to an equitable interest and to
a legal estate disposed of by the will.

However under the doctrine of secret trusts:-

If a testator makes a gift of property in his will on the strength of a promise by the
recipient that he will hold that property on trust for a third party, equity will prevent
any attempt by the recipient to rely on the absence of any mention of this trust in the
will, and despite the testator’s failure to comply with Section 11 of the Law of
Succession Act.

A secret trust is therefore essentially an equitable obligation communicated to an

intended trustee in the testator’s lifetime. In enforcing such a trust it might be
thought that equity directly contradicts the terms of section 9 of the Wills Act 1837,
but this is not so, because the basis of the doctrine of secret trusts is that the trust
operates outside the will: indeed, the Act is not concerned with the trust at all. As
Viscount Sumner said in the leading case of Blackwell v. Blackwell (1929) A. C. 318,
335.

“For the prevention of fraud equity fastens on the conscience of the legatee a
trust which otherwise would be inoperative: in other words, it makes him do
what the will has nothing to do with, it lets him take what the will gives him,
and then makes him apply it as the Court of Conscience directs, and it does
so in order to give effect to the wishes of the testator, which would not
otherwise be effectual.”

The basis of the secret trust is therefore the existence of a validly executed will
which passes the title of property to the intended trustee and the acceptance by the
latter of an equitable obligation during the testator’s lifetime. This is illustrated by Re
Young (1951) Ch. 344. Here one of the intended beneficiaries under a secret trust
had witnessed the will and the question was whether he forfeited his legacy under
section 15 of the Wills Act 1837. This provides that a witness to a will cannot take a
benefit under it (S. 13(2) Law of Succession Act). Danckwerts J. held there was no

36
forfeiture because the whole theory of the formation of a secret trust was that the Act
had nothing to do with the matter.

The forms required by the Wills Act were to be entirely disregarded because the
beneficiary did not take by virtue of a gift in the will but by virtue of a secret trust
imposed on an apparent beneficiary who did take under the will and who was bound
by the trust.

In Re Gardner (No. 2), (1923) 2 Ch. 230 it was held for the same reason, that the
interest of a secret beneficiary who predeceased the testator will lapse and also that
the trust could not take effect until the testator’s death and the secret beneficiary
would have no interest until that date.

Fully Secret Trusts

These are trusts that are fully concealed by the testator. They will arise where on
the face of the will the alleged trustee takes absolutely and beneficially. If property is
given by will to X absolutely and a communication is made to X by the testator during
his lifetime that he is to hold the property on specified trusts, and provided also that
X accepts the trust, a fully secret trust which is enforceable will come into being. In
Ottaway v. Norman (1972) Ch. 698, 711, Brightman J. stated the essential
requirements of a secret trust as follows:

1. the intention of the testator to subject the primary donee to an obligation in

favour of the secondary donee;

2. communication of that intention to the primary donee; and

3. the acceptance of that obligation by the primary donee either expressly or by

acquiescence. By “primary donee” the judge referred to the person on whom
such a trust was imposed, and by “secondary donee” he referred to the
beneficiary under that trust.

37
Evidence, oral or written, is admissible to show the terms of a trust. In McCormick v.
Grogan (1869) L.R. 4 H.L. 82 Lord Westbury said that the “clearest and most
indisputable evidence” was required to set up a secret trust contrary to the absolute
terms of a disposition, words which indicate a very high standard of proof. However
this was interpreted by Brightman J. in Ottaway v. Norman (1972) Ch. 698 at p. 712
to mean merely that “clear evidence” is needed before the court will assume that the
testator did not mean what he said but intended that the gift should be held by the
apparent beneficiary subject to a secret trust.

In this case it was held that the evidence was sufficiently cogent to establish that the
alleged trustee was under an obligation to dispose of a bungalow by will in favour of
the secret beneficiary. Brightman J. was also of the opinion that the standard of
proof to establish a secret trust was “perhaps” analogous to that which the court
requires for the rectification of a written instrument. On the other hand, in Re
Snowden (1979) Ch. 528, Megarry V.-C considered that the standard of proof for
rectification was not the appropriate analogy. He thought that, in the absence of
fraud or other special circumstances, the standard of proof of a secret trust was
merely the ordinary civil standard of proof (namely, on a balance of probability) to
establish an ordinary trust.

The testatrix had left her residuary estate to her brother who subsequently died
leaving his estate to his only son. There was some evidence that the testatrix had
said that the brother would “know what to do” and “would deal with everything” for
her, but it was held that although there was some arrangement between the parties it
amounted only to a moral obligation which was not intended to be binding and
accordingly the brother took the residue free from any secret trust and on his death it
passed to his son absolutely.

The doctrine of fully secret trusts has a fairly lengthy history: its basis was
established as long ago as the eighteenth century. Thus, in Drakeford v. Wilks
(1747) 3 Atk. 539, the testatrix bequeathed a bond to the plaintiff. She was then
induced to make a new will by which she bequeathed the bond to a third party on the
strength of a promise by him that on his death the bond would go to the plaintiff. It
was held that the plaintiff could compel the performance of the trust.

38
General principles:

1. It is essential to show the testator did in fact communicate the trust during his
lifetime to the legatee and that the latter expressly or impliedly accepted it. If
the legatee only hears of the trust after the testator’s death the secret trust will
fail and he will take absolutely (assuming that the gift is to him in absolute
terms). In Wallgrave v. Tebbs (1855) 2 K. & J. 313 the legatees only knew of
the trusts after the testator’s death, and since they took absolutely on the face
of the will, the absolute bequest to them could not be impeached.

2. The communication of the trust and its acceptance may be made either before
or after the date of the will provided it is made during the life of the testator.

3. If the fully secret trust is accepted by the trustee as trustee, but the actual
objects are not communicated during the testator’s life, the trust will not take
effect and the trustee will hold the property for the residuary legatee or, if
there is no gift of residue in the will, in favour of the persons entitled on
intestacy. In Re Boyes (1884) 26 Ch. D. 531 the testator made an absolute
gift of property to his executor. The testator had previously told him that he
wished him to hold the property according to directions which he would
communicate by letter. He agreed. These directions were not, however,
given to the executor, but after his death two unattested documents were
found in which the testator stated that he wished a particular person to have
the property. Kay J. decided that the executor held the property for the
testator’s next-of-kin, there being no gift of residue in this case.

4. Communication and acceptance of the trust may be effected constructively.

In Re Boyes Kay J. expressed the view that a trust put in writing and placed in
the trustees’ hands in a sealed envelope would constitute communication and
acceptance at the date of delivery for this purpose. In Re keen (1937) the
Court of Appeal accepted this view which was a case of half-secret trust.

39
5. It is, of course, required that the property which forms the subject of the
intended secret trust should be certain: this is a rule which applies generally in
the law of trusts.

Half-Secrets Trusts

These arise where the trustee takes as trustee on the face of the will, but the terms
of the trust are not in fact specified. If property is, for example, given to a person
upon trust “for purposes which I have communicated to him” or “for purposes with
which he is fully acquainted,” a half-secret trust will arise.

Principles:

1. It is clearly established that evidence cannot be adduced to contradict the

terms of the will. If the will points to a future communication, e.g. “to my
trustees for purposes which I will communicate to them,” evidence cannot be
admitted of communications made before the will was executed. Similarly, if
the will points to a contemporaneous or past communication, evidence cannot
be admitted of a communication after the will was executed.
NB: It should, however, be noticed at this stage that it appears, in the present
state of case law, that future communications, whether or not the will points to
them, are not, in any event, admissible.

2. Where the communication of the trust is made before or at the same time as
the execution of the will, evidence is admissible to show the terms of the trust
and the trustee is bound by it. In Blackwell v. Blackwell (1929) A. C. 318 a
testator by codicil bequeathed a legacy to five persons upon trust to invest at
their discretion and “to apply the income……..for the purposes indicated by
me to them” and to apply capital “to such person or persons indicated by me
to them.” Before the codicil was executed the objects of the trust were
communicated to the five persons. The House of Lords held that evidence of

40
 the communication was admissible to show the terms of the trust and the
trustees were bound.

3. The principle governing communication made subsequently to the will, yet

before the testator’s death, is extremely difficult to state. In Re Keen (1937)
Ch. 236 a decision of the Court of Appeal, but from which unfortunately, it is a
matter of some difficulty to extract the precise ratio decidendi; the facts were
that the testator gave a sum of money to his executors “to be held upon trust
and disposed of by them among such person, persons or charities as may be
notified by me to them or either of them during my lifetime.” Shortly before the
will the testator had given one of the executors a sealed envelope containing
the name of the intended beneficiary and directed that it was not to be opened
before his death. The view expressed in Re Boyes (1884) 26 Ch. D. 531 was
accepted that the handing over of the sealed envelope was a sufficient
communication at the date of delivery. Therefore the communication was
made before the will. This necessarily meant considering the words used in
the will in light of the first governing rule mentioned above that evidence is not
admissible to contradict the terms of the will, so that if a will points to a future
communication evidence is inadmissible of a communication before the will is
executed and vice versa. The court held that the terms of the will quoted
above could only be considered as pointing to a future definition of trusts
which had not at the date of the will been established; in other words, the will
pointed to a future communication. In fact, as already held, the trusts had
been communicated before the will, the handing over of a sealed envelope
being a sufficient communication of this purpose. Accordingly, by reason of
the terms of the will, evidence of a communication made before the will was
executed was not admissible. If this is the only ground of the decision there
can be no dispute with it. But Lord Wright M. R. went on to discuss the
question on a broader basis and held that, even if the words of the will could
be construed as pointing to a past as well as a future communication, they
would be equally ineffective on the grounds that no testator can validly
reserve to himself a power to make future unattested dispositions. If this
statement is to be treated as part of the ratio decidendi (and from the general
tenor of the judgment it may well be so) it means that communications made

41
 after the will but during the testator’s lifetime are not in any event admissible
to show the terms of the trust, or, stated in other words, that a half-secret trust
will not be effectual if the terms of the trust are communicated subsequently to
the execution of the will.

There are also dicta, although these are clearly obiter, in Blackwell v.
Blackwell which are apparently to the same effect.

In view of the foregoing it is no easy task to state the true principles on

subsequent communications. There is no doubt that judicial opinion is against
their admissibility. However, it is submitted that this opinion is fallacious. The
basis of secret trusts, half-secret as well as fully secret, is that the trusts
operate outside the will.

A further reason for saying that a subsequent communication should be

possible is that such a communication, is as has been seen, effectual in a fully
secret trust and it might be thought somewhat inconsistent if this is not
possible in a half-secret trust.

It appears that there has been some confusion in Re Keen and the other
cases between the equitable doctrine of secret trusts and the probate doctrine
of incorporation by reference. This doctrine of probate means that it is
possible to incorporate in a will, which has been validly made, a document
which is not executed in accordance with the Wills Act. For the doctrine to
apply, however, the document must be in existence at the date of the will and
must be specifically referred to in the will. But this rule is concerned purely
with the validity of the will itself and the documents to be incorporated within it;
it does not or should not relate to secret trusts which, according to true
principle, operate outside the will.

4. Those named as trustees, and they will, of course, be named as such in a

half-secret trust, cannot generally take beneficially. If a half-secret trust fails
for any reason the trustees will hold the property on trust for the residuary

42
 legatee if there is a gift of residue in the will; if there is no such residuary gift
they will hold for those entitled on intestacy. In principle if the trustees are
themselves so entitled, they should be able to take beneficially. However, it
has been stated that they are prohibited from doing so. In Re Rees (1950)
Ch. 204 the trustee was named as such on the face of the will and directed to
dispose of the estate in accordance with the testator’s directions. The Court
of Appeal held that he could not adduce evidence to show that he was, in fact,
intended to be one of the beneficiaries and went on to state that a half-secret
trustee can never take beneficially. This seems unnecessarily harsh but is
recognized as the law at present.

5. If a testator wishes to carry out his purpose by making a number of secret

trusts piecemeal he must take the trustees into his confidence as to every
addition to the secret object. Thus, in Re Colin Cooper (1939) Ch. 811, a
testator by will bequeathed £5,000 to two trustees “upon trusts already
communicated to them.” He had in fact communicated the nature of such
trusts to the trustees. By a further will he purported to increase the sum to be
devoted to the secret trust to £10,000 without informing the trustees. The
result was that although the first instalment of £5,000 could be devoted to the
secret trusts, the second instalment could not.

CHARITABLE TRUSTS

Distinction from Private Trusts:-

Aimed to benefit society at large or an appreciable portion of it. A private trust is

aimed to benefit defined persons or defined classes of persons.

In general, charitable trusts are subject to the same rules as private trusts, but
because of their public nature they enjoy a number of advantages which are not
shared by private trusts, e.g. they are not strictly subject to the rule –vs- perpetuities,
they enjoy income tax exemption over their investment income, they will not fail for
uncertainty of objects if exclusively charitable.

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Three requirements have emerged:
 Charitable nature
 Public benefit
 Exclusively charitable

Charitable Nature
The definition of charity adopted by the courts has been drawn from the preamble of
the Statute of Elizabeth, 1601 (43 Eliz. 1 C. 4). In this preamble a list of charitable
objects was set out as follows:-

“The relieve of aged, impotent and poor people; the maintenance of sick and
maimed soldiers and mariners, schools of learning, free schools and schools in
universities; the repair of bridges, ports, havens, causeways, churches, sea-banks
and highways; the education and preferment of orphans; the relief, stock or
maintenance for houses of correction; the marriage of poor maids; the supportation,
aid and help of young tradesmen, handicraftsmen and persons decayed; the relief or
redemption of prisoners or captives; and the aid or care of any poor inhabitants
concerning payment of fifteens, setting out of soldiers and other taxes”.

The statute itself was repealed in 1888 by the Mortmain and Charitable Uses Act but
the preamble was repeated in Section 13 (2) of the 1888 Act. The 1888 Act was
repealed by the Charities Act 1960 but the preamble remains a guide to courts as to
the legal meaning of charity.

As can be seen from the list in the preamble it was styled to meet the needs of the
time and should therefore not be seen as a sacrosanct or closed list. The spirit of
the preamble has been used extensively to extend charitable objects by analogy into
new situations.

The continued relevance of the preamble was affirmed in Scottish Burial Reform and
Cremation Society v. Glasgow City Corporation (1968) AC. 138 where cremation

44
was held to be a charitable purpose, and Lord Wilberforce said “that what must be
regarded is not the wording of the preamble, but the effect of decisions given by the
courts as to its scope, decisions which have endeavoured to keep the law as to
charities moving according as new social needs arise or old ones become obsolete
or satisfied. Likewise in Incorporated Council of Law Reporting for England and
Wales v. A-G (1972) Ch. 73, the Court of Appeal in affirming the charitable status of
the council specifically held that the publication or dissemination of law reports was a
purpose beneficial to the community being within the spirit and intendment of the
preamble to the statute of Elizabeth.

In re Pemsel – Commissioner of Income Tax v. Pemsel (1891) AC 53, lands in

England were conveyed by deed in 1813 to trustees upon trust after payment of
costs and outgoings to apply ½ of the rents and profits for the general purposes of
maintaining supporting and advancing the missionary establishments among
heathen nations of the Protestant Episcopal Church, commonly known as the
Moravian Church; and to applying the remaining ½ for purposes which were
admitted in argument to be charitable within the meaning of the relevant Act. On a
claim for the allowance in respect of the whole trust it was held by a majority that the
words “charitable purposes” in the Act were not restricted to the meaning of relief
from poverty but must be construed according to the legal and technical meaning
given to those words by English law and by legislation applicable to Scotland and the
allowance ought to be granted.

Lord MacNaghten stated at page 583

“Charity in its legal sense comprises four principal divisions:-

1. Trusts for the relief of poverty;

2. Trusts for the advancement of education;
3. Trusts for the advancement of religion
4. Trusts for other purposes beneficial to the community not falling under any of
the preceding heads.

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The trusts last referred to are not less charitable in the eye of the law, because
incidentally they benefit the rich as well as the poor, and indeed, every charity that
deserves the name must do so either directly or indirectly.” e.g. a hospital.

What is quite clear is that for a trust to be termed charitable it must benefit or be
intended to benefit the public at large. So in Re Hobourn Air Raid Distress Fund
(1946) Ch. 194 an emergency fund which had been built up during the war had been
used partly for comforts for ex-employees serving in the forces, and later for
employees who had suffered distress from air-raids. It was held that because of the
absence of a public element no charitable trust had been created and the surplus
funds, over which the application had been made to the court, should be returned to
the contributors.

In Oppenheim v. Tobacco Securities Trust Co. Ltd 1951 AC 297, trustees were
directed under a settlement to apply monies in providing for the education of children
of employees or ex-employees of BAT or any of its sub-subsidiary or allied
companies. The employees numbered over 110,000. The House of Lords held that
although the group of persons indicated was numerous, the nexus between them
was employment by a particular employer and it therefore followed that the trust did
not satisfy the test of public benefit which was required to establish it as charitable.

In Re Compton (1945) Ch. 123 a trust for the education of the descendants of three
named persons was held not to be a valid charitable trust, because the beneficiaries
were identified by reference to a personal relationship and it therefore, lacked the
quality of a public trust. It was a family trust and not one for the benefit of a section
of the public. So an aggregate of individuals ascertained by reference to some
personal tie (e.g. blood or contract) such as the relations of a particular individual,
the members of a particular family or the members of a particular association, does
not amount to the public or a section thereof for the purpose of the general rule and
will not, accordingly, rank as legally charitable; see per Jenkins L. J. in Re
Scarisbrick (1952) Ch. 622, 649; 70 E.R. 365

TRUSTS FOR THE RELIEF OF POVERTY – Exception to Public Benefit Rule.

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“Poverty” does not connote destitution. It can cover, for example, the provision of
flats at economic rents to benefit aged persons of small means or to assist widows
and orphans of the deceased officers of a bank as in Re Coulthurst (1951) Ch. 661
or for the assistance of poor emigrants as in Barclay v. Maskelyne (1858) 4 Jur. N.
S. 1294.

Conversely a person is not necessarily poor merely because he cannot afford to

provide for himself the advantages that the trust will give him. Thus a trust to provide
dwellings for the “working classes” – Re Saunder’s Wills Trusts (1954) Ch. 265 was
held not charitable and so too a trust to encourage emigration generally – Re Sidney
(1908) 1 Ch. 488 which was a bequest in trust for “such charitable uses or for such
emigration uses, or partly for such charitable uses and partly for such emigration
uses” as trustees may think fit. The trust was held void for uncertainty and Cozens –
Hardy M. R. felt that emigration uses “are not necessarily objects of general public
utility”.

In Re Saunder’s, a testator directed that his trustee should apply certain property “in
any manner in which he considers to be in furtherance of any general charitable
intention with regard to the disposal thereof, namely, to provide dwellings for the
working classes and their families resident in the area of Pembroke Dock,
Pembrokeshire Wales, ….” It was held:

(i) the gift for the working classes was not a gift for the relief of poverty and
was therefore not a charitable one;

(ii) notwithstanding the testator’s reference to his “general charitable

intention”, no such intention was to be inferred, as the phrase as used by
the testator was referable only to the particular non-charitable purpose of
erecting houses for the working classes.

In Sheikh Fazal etc. Trust v. Commissioner of Income Tax (1957) E. A. 616 in which
the Pemsel case was applied the words “for the benefit or towards the relief of poor

47
and needy Muslims in Mecca and/or Medina” were held to constitute a charitable or
public trust within the meaning of the Income Tax Act.

Trusts under this head are not subject to the general rule that charitable trusts be for
the public benefit.

TRUSTS FOR THE ADVANCEMENT OF EDUCATION

The general rule – there must be an intention that learning should be imparted, not
simply that it be accumulated. The tendency is however to widen the field of
education. The general rule appears to have been adopted by Harman J. in Re
Shaw 1957 I WLR 729.

It is clear however that advancement of education is broader than the concept of a

classroom or a formal institution. However, there must be an element of instruction
and improvement.

(i) Examples of what has been held charitable under this rubric include:-
(ii) The foundation of lectureships in an university
(iii) Carol singing
(iv) “For education, self control, oratory, deportment and the arts of personal
contact in Ireland” Re Shaws (1952) Ch. 163.
(v) The endowment of a national theatre – Re Shakespeare Memorial Trust
(1923) Ch. 398.
(vi) Reviving classical drama.
(vii) Production of a dictionary – Re Stanford (1924) 1 Ch. 73.
(viii) Publication of law reports.
(ix) Prizes for sports at an educational establishment Re Marriette (1951) 2
Ch. 284.
(x) Publication of vernacular newspapers – Re Tanganyika National
Newspapers Ltd (1959) E.A. 1057.

Those held not be charitable include;

48
 1. To found a college for training spiritualistic mediums – Re Hummeltenberg
(1923) 1 Ch. 2137.
2. Preserving a useless collection of pictures and furniture as a museum – Re
Pinion (1965) Ch. 85.
3. Political purposes which are put forward as educational purposes – Re
Hopkinson, Llyds Bank Ltd v. Baker (1949) 1 All E.R. 346.

Our courts seem to be able to adjust the rule to suit the local circumstances as
demonstrated by Re Tanganyika National Newspapers Ltd (1959) E.A. 1057.

In Re Hopkins’ Wills Trusts (1965) Ch. 669 the testatrix had given her residuary
estate to the “Francis Bacon Society” to be applied towards finding the “Bacon-
Shakespeare” manuscripts. One of the main objects of the society was “to
encourage the general study of the evidence of Francis Bacon’s authorship of plays
commonly ascribed to Shakespeare”. The terms of the will were held to mean that
the money was to be used to search for manuscripts of plays commonly ascribed to
Shakespeare but believed by the testatrix and the society to have been written by
Bacon. The judge held that the purposes of search or research for original
manuscripts of England’s greatest dramatist were within the law’s conception of a
charitable purpose on two grounds; as being for education and as being for other
purposes beneficial to the community within the fourth head of Lord MacNaghten’s
classification, because it was a gift for the improvement of the country’s literary
heritage Of Harman J.’s dictum in Re Shaw it was said that if the object was merely
the increase of knowledge that in itself was not charitable unless combined with
teaching or education. Wilberforce J. was unwilling to treat these words as meaning
that the promotion of academic research was not a charitable purpose unless the
researchers were engaged in teaching or education in the conventional sense.

He spelt out the requirements that must be satisfied by “research”.

(i) It must be of educational value to the researcher.

49
 (ii) It must be so directed as to lead to something which will pass into the
store of educational material.
(iii) It must be so as to improve the sum of communicable knowledge in an
area which education may cover.

It is therefore clear that “education” should be used in a much wider sense than used
by Harman J. It certainly extends beyond teaching, e.g. in Re Dupree’s Deed Trusts
(1945) Ch. 16 a trust for the encouragement of chess playing among the boys and
youths of Portsmonth was upheld as charitable. See also Re Tanganyika National
Newspapers Ltd (1959) EA 1057.

TRUSTS FOR THE ADVANCEMENT OF RELIGION

There is a large measure of tolerance in equity and as long as the purpose is not
subversive of all religions or morality it will be upheld as charitable.

In Thornton v. Howe (1862) 31 Beav 14; 54 E.R. 1042 Sir John Romilly M. R.
recognized as charitable a trust for the publication of the work of Joanna Southcott
even though he evidently thought her doctrines were ridiculous. But there appear to
be limits to the courts latitude; so in Yeap Cheh Neo v. Ong Cheng Neo (1875) L.R.
381 the Privy Council held that a trust requiring ancestor worship was not charitable.
The courts’ concern appear to be only monotheistic religions.

Like other charities, with the exception of trusts for relief of poverty, the religious
purpose must be for the benefit of the public, thus in Gilmour v. Coats (1949) A.C.
426 a trust fund to be applied to the purposes of a Carmelite Convent which
comprised an association of strictly cloistered and purely contemplative nuns who
did not engage in any activities for people outside the convent failed. The House of
Lords held that:

 The benefit of intercessory prayer could not be proved in law

 The element of edification was too vague and intangible.

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Examples of trusts held as charitable under this head include:-

1. Support for a religious order or community e.g. a monastery or convent – Re

Banfield (1968) I WLR 846.
2. The saying of prayers for the dead – Re Caus (1934) Ch. 162.
3. The improvement of musical services in the church.
4. “A gift for God’s work”, has also been held to constitute a valid trust – Re
Barker’s WT (1948) 64 TLR 273.
5. The repair of a churchyard or burial ground even if for a particular sect.
6. Repair of headstones in a graveyard or part of a church including a specific
monument in it.

Those held not charitable under this head include:-

 Trust for the upkeep of a particular tomb

 To establish “a Catholic Daily Newspaper” (only partly conducive to religion) –
Roman Catholic, Archbishop of Melbourne v. Lawlor 51 CLR 1.
 Trust requiring ancestor worship – see Yeap Chea Neo.

It is essential that the trust be exclusively charitable. It will fail if it mixes religious
objects with some other non-charitable purpose – thus in Dunne v. Byrne (1912) AC
407 where a gift was made to the Roman Catholic Archbishop of Brisbane and his
successors to be used “as they judge most conducive to the good of religion in the
diocese” was held to be too wide and therefore failed. So too a gift for “parish work”
– Farley v. Westminister Bank (1939) AC 430.

In the White Paper of May 1989 under the heading “Charities:- A Framework for the
Future – Charities Act 1992; it was noted:

“Anxieties have been expressed in particular about a number of organizations whose

influence over their followers, especially the young, is seen as destructive of family
life and in some cases, as tantamount to brainwashing.”

Other Purposes Beneficial to the Community

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This is a residuary class in Lord MacNaghten’s classification and provides the most
varied set of decisions of trusts held charitable as a result.

Any object within this group must still be within the statute of Elizabeth or at least
within the spirit of the statute. So although it is a vague and general class it does not
cover every public utility.

The courts approach the category on the tests of whether it is within the statute and
whether it is beneficial to the public.

Examples of trusts held charitable under this head include:-

1. A trust for the protection of animals – Re Wedgewood (1915) 1 Ch. 113.

2. A trust for the provision of a fire brigade
3. Trusts for hospitals but not a nursing home for private profit
4. The defence of the country – Re Driffill (1950) Ch. 92.
5. A trust for an animal hospital – London University v. Yarrow (1857) 1 De G. &
J. 72
6. Home for lost dogs – Re Douglas (1887) 37 Ch.D 472. Emphasis here was
laid on public utility which is not the normal trend in animal trusts.

A gift for the suppression of vivisection has been held not to be charitable although it
was once charitable – National Anti-Vivisection Society v. I.R.C. (1948) A.C. 31 – on
the ground that the benefit of suppressing vivisection did not outweigh the benefit to
be derived from it.

Among the most important charities under this classification are Recreational Trusts.
In England these are now governed by the Recreational Charities Act of 1958.

The Act was enacted after what was felt to be an inconvenient decision by the House
of Lords in I.R.C. v. Baddeley (1955) AC 572 – the case concerned certain trusts “for
the promotion of the moral, social and physical well-being of persons resident in
West Ham and Leyton who for the time being are members or likely to become

52
members of the Methodist church by the provision of facilities for moral, social and
physical training and recreation.” The House of Lords decided that the trusts failed
because they were expressed in a language so vague as to permit the property to be
used for purposes which the law did not recognize as charitable and also because
they did not satisfy the necessary test of public benefit.

The decision threatened the validity of many trusts which had for a long time enjoyed
charitable status e.g. women’s institutions, boys clubs, miners welfare trusts, village
halls etc, and therefore the need for legislative intervention.

The Act provides that it shall be and shall be deemed always to have been charitable
to provide, or assist in providing, facilities for re-creation or other leisure time
occupations if the facilities are provided in the interests of social welfare – S. 1(1).

The sub-section contains an overriding proviso that the trust must be for public
benefit. The requirement that facilities must be provided in the interest of social
welfare is not satisfied unless:

i) It is provided with the object of improving the conditions of life for the persons
for whom the facilities are primarily intended and
ii) Either
a. the persons have need for such facilities by reason of their age, youth,
infirmity or disablement, poverty or social and economic circumstances
or
b. the facilities are to be available to the members or female members of
the public at large.

Part 2 here is rather confusing but it would appear that if the class falls in part 2(a) it
does not matter how large the class is but if the Beneficiaries do not fall into any of
these classes the facilities must be available to the whole public and a trust in favour
of a limited class would fail.

In conclusion therefore it can only be said that each charitable trust must promote a
public benefit but not everything that promotes a public benefit is such a trust; so a

53
private trust which may benefit the public does not thus become a public trust as it is
for private purposes.

“Public” refers to the public in general or a section of it, i.e. a trust will be charitable if
it confers a public benefit even though only a limited number of people can avail
themselves of the benefit. The courts of Chancery defined it thus: “on the one hand
a form of relief extended to the whole community yet by its very nature
advantageous only to the few” and on the other hand a form of relief accorded to a
selected few out of a larger number equally able and willing to take advantage of it.
The first is charitable and there is a public benefit while the second does not have a
public benefit.

Whether the gift is charitable or not is a question of evidence to be decided upon by

the court. The opinion of the donor that he gives his gift to the public is not material.
There is however an exception to the principle that the charitable trust must be for
public benefit and that is a trust for the relief of poverty. Such a trust in favour of
one’s relations or members of a club or employees, although having a restricted
class of beneficiaries is nonetheless charitable. The exception is well established
but is anomalous and will not be extended by analogy e.g. a trust for the education of
one’s relatives has been rejected.

The Exclusive Nature of Charity

Subject to the Charitable Trusts (Validation) Act 1954 it is essential that the trustees
be bound to devote the funds to charitable purposes exclusively even if these are not
expressed specifically but in a general way. In Hunter v. A.G. 1899 AC 309 it was
held that a gift does not create a valid charitable trust unless every object or purpose
is wholly charitable.

Therefore if there are joint purposes or alternative purposes which can be non-
charitable the gift will fail.

54
The settlor may for example, join the word “charitable” with another adjective such as
“benevolent” or “philanthropic”. It has been argued that if the word “and” is used to
join the two e.g. “for charitable and benevolent purposes” the gift would succeed as
it could only be applied to such benevolent purposes as are charitable. It might also
be thought that if the word “or” is used the gift would fail because the property could
be applied to benevolent purposes that are not charitable. A gift “for such charitable
or deserving purposes which my executor may select” will fail because the executor
without committing any breach of trust may apply the property either partly or wholly
to a non-charitable object.

It is all a question of construction however, the word “and” may have been used
disjunctively and the word “or” conjunctively.

In Houston v. Burns (1918) AC 337 the gift was made for “public benevolent or
charitable” purposes in a Scottish parish. The gift according to the House of Lords
failed as not being charitable because the words were wide enough to justify the
trustees in disposing of the fund to non-charitable purposes.

In Chichester Diocese Fund and Board of Finance (Inc.) v. Simpson (1944) AC 341
the words used were “charitable or benevolent” and the same result as in Houston v.
Burns occurred. Here the trustees had paid the money, which was considerable, to
various charities, not anticipating litigation by the next of kin which in fact occurred.
Their case to recover the money from the charities themselves also went to the
House of Lords in the leading case of Re Diplock (1948) Ch. 465.

In AG of Bahamas v. Royal Trust Co. (1986) 3 All E.R. 323 the Priv Council held not
charitable a bequest for “any purposes for and/or connected with the education and
welfare of Bahamian children and young people”, on grounds that education and
welfare should be interpreted disjunctively; and that a trust for welfare was not
charitable.

In Webb v. O’Doherty, the Times 11.2.91 officers of a students’ union were

restrained from making any payments to the National Student Committee to stop
war in the Gulf, or to the Cambridge Committee to stop war in the Gulf, whose

55
purposes were not charitable. The union was an educational charity, and the officers
were therefore entitled to use its property only for charitable purposes, even though
there was nothing in the constitution forbidding such payments.

Ref: Khanna, when “and” means “or” 1940 56 L.Q.R 458 – whether or has been
used disjunctively or conjunctively.

On the other hand, compound charitable purposes are valid – e.g. a gift for
“educational or charitable or religious” purposes is valid as each of these is
exclusively charitable anyway – see Public Trustee v. Ward (1941) Ch. 308.

Exceptions to the Exclusively Charitable Rule:-

(a) Apportionment

Trustees may be given power or duty to apportion the property between

charitable and non-charitable purposes. If the trustees do not divide the
amount the court will apply the maxim equality is equity and divide in half
between the charitable and non-charitable purposes.

(b) Power of Variation

Where the trustees have power to revoke charitable trusts and to declare
substitute non-charitable ones, the mere existence of the unexercised power
does not render the original trusts non-charitable.

(c) Incidental or Ancillary Non-Charitable Purposes

If a purpose is incidental to the achievement of a purpose which is charitable it

will not destroy the gift, e.g. Royal College of Surgeons v. National Provincial
Bank Ltd (1952) AC 631, the House of Lords held that the college in law was

56
 a charity since its object, as recited in the Charter, was “the advancement,
promotion and encouragement of the study and practice of surgery”, the
professional protection of its members provided for in its by-laws being merely
ancillary to that object.

In Re Coxen (1948) Ch. 747 the testator entrusted to the court of Aldermen of the
city of London the management of a large fund for the benefit of ortheopaedic
hospitals and directed that an annual sum not exceeding £100 be applied for a
dinner for the court upon their meeting for the trust business. This dinner was held
by Jenkins J. to be purely ancillary to the primary charitable trust and for the better
administration of it.

Ancillary or incidental purposes must be distinguished from purposes which are

subsidiary and not merely incidental. Thus in Oxford Group v. IRC (1949) 2 All E.R.
537, the Court of Appeal held that one of the objects set out in the Groups
Memorandum of Association i.e. to support “any charitable or benevolent”
associations actually conferred powers which were so wide that they could not be
regarded as charitable; they were not merely ancillary to the main objects, admitted
to be charitable and also set out elsewhere in the Memorandum. The Group did not
therefore constitute a charity.

As a result of this decision which was thought to affect a large number of charities
the Nathan Committee recommended some amendment to the law which brought
about the Charitable Trusts (Validation) Act 1954, which however did not go as far as
completely reversing the decision.

The general intendment of it is to allow variation of such a vague gift so that it is

wholly charitable – see Re Chitty’s W. T. (1970) Ch. 254.

PPROFIT MAKING TRUSTS

Generally, it is not compatible with charitable status to actively seek profit as a
primary objective. Fees may however be charged and incidental acquisition of profit
should not disqualify. In Scottish Burial Reform and Cremation Society Ltd v.
Glasgow City Corporation (1968) AC 138, the House of Lords held the society

57
charitable (under the 4th head in re Pemsel) whose main object was the promotion
of sanitary methods of disposing of the dead. The society charged fees but was not
profit making.
Cy-pres
Under Section 62 of Cap 21 the High Court is given the supervisory jurisdiction over
public charitable trusts. Section 62 can be invoked:

(a) Where there is an alleged breach of trust,

(b) Where a direction of the court is deemed necessary for the
administration of any such trust.

Who can bring the suit?

(a) The Attorney-General

(b) Two or more persons who have an interest in the trust with the express
consent of the Attorney General.

Who is sued?

The trustees but sometimes the suit may be non-contentious, e.g. where only a
direction is being sought in which case the trustees can bring the suit themselves –
this will be a declaratory suit under Order 2 Rule 7 of the Civil Procedure Rules.

Action can only be brought in the High Court.

What are the remedies or orders?
Section 62
(a) Removing any trustee – see also Section 42 of Cap 167, Trustee Act.
(b) Appointing a new Trustee.
(c) Vesting any property in the trustee – See Section 45 – 55 of Cap 167.
(d) Directing accounts and inquiries – the trustee is accountable to the
beneficiaries and the beneficiaries are entitled to accounts and information.
(e) Declaring what proportion of the fund shall be allocated to any particular
object of the trust.

58
 (f) Authorising the whole or any part of the trust property to be let, sold,
mortgaged or exchanged.
(g) Setting up a scheme:- Sometimes purposes for which the trust is set up
cannot be achieved in the prescribed manner in the will or trust deed. If it is a
private trust and the objects are impossible the trust will fail and there will be a
resulting trust for the settlor or testator’s estate. If it is a public charitable trust
even if it is initially impossible or it subsequently becomes so, in many cases
the trust does not fail as a result of the Cy-prés doctrine. Instead of allowing
such a trust to fail the court will apply the doctrine of Cy- prés (“near to it”) and
apply the property to charitable objects as close as possible to the original
trust.

Operation of the cy-prés doctrine is by what are called Schemes:- Section 62 (g).
For cy-prés to operate two conditions must be met:

1. There must be a paramount intention of charity. The donor must show a clear
intention to pass on the property to charity instead of the usual beneficiaries.
This is however not a universal rule and applies only where the original trust
has failed ab initio. If the trust subsequently becomes unattainable but was
operational it will not fail because of the absence of a general charitable
intention. In such a case and also in the case of unidentified donors the funds
will apply cy-prés.

A general intention towards charity can be resisted if there is a contrary indication

either express or implied in the will or trust deed. If the gift is for a particular purpose
only and that fails then there is no room for application of cy-prés and the whole gift
fails – see Re Wilson (1913) 1 Ch. 314, 320.

Cy-Prés is an Anglo-Norman phrase which meant something like “as near as

possible”. The doctrine of cy-prés in charity law lays down that where property given
on trust for charitable purposes cannot be used in the precise manner intended by
the donor, the courts (and in the U.K. also the Charity Commissioners) may make a

59
scheme for the application of the property to purposes resembling as closely as
possible those originally intended by the donor.

The idea is not to frustrate the intention of the donor (who cannot be consulted
where the gift is testamentary).

Initial Failure

Re Harwood 1936 Ch. 285 concerned a gift to the Peace Society in Belfast which
could not be shown to have ever existed. Farwell J. found that there was an
intention to benefit societies aimed at promoting peace and the gift was therefore
applied cy-prés. The second gift in The will was to the Wisbech Peace Society
which had once existed but had ceased to exist prior to testator’s death was held to
have lapsed. Q. Whether peace promotion is charitable?

In Re Satterthwaite (1966) I WLR 277 – a will listed a number of organizations

concerned with animal welfare. The list was created carelessly from the London
telephone directory; the testatrix’s chief concern being to divert her estate to animal
charities, as she hated the entire human race. One of the institutions named, i.e. the
London Animal Hospital had in fact never existed. The Court of Appeal nevertheless
held the gift to be applicable cy-prés as a general intention could be discerned from
the testatrix’s known attitude to the human race and all the bequests were allocated
to genuine animal charities.

A body could cease to exist yet no failure e.g. Re Faraker – (1902) 2 Ch. 488 “a gift
to Mrs. Bailey’s Charity, Rother Waithe” passed to a new charity formed by an
amalgamation of Bailey’s Charity with several others.

Another approach is to find that the gift was made for the purpose of the named
charity rather than to the body itself e.g. Re Fingers W. T. (1972) Ch. 286 where gifts
were made to the National Radium Commission, an unincorporated association and
to the National Council for Maternity and Child Welfare which was incorporated.
Both had ceased to exist by the time of the testatrix’s death. The gift to the Radium
Commission was interpreted as a gift to its purposes and since these still continued

60
the gift did not fail. The other would have failed as a gift to a corporate charity
except that there was a general charitable intention and it could therefore also be
applied cy-prés.

In Biscoe v. Jackson (1887) 35 Ch. D. 460 money was to be applied towards

establishment of a soup kitchen in Shoreditch and a cottage hospital there. It was
not possible to apply the gift in the manner indicated. The Court of Appeal held that
there was sufficient general intention of charity for the benefit of the poor of
Shoreditch to entitle the court to execute the trust cy-prés. It was decided in effect
that the direction to establish a soup kitchen and a cottage hospital was only one
means of benefiting the poor of Shoreditch whom there was a general intention of
benefiting. – See Re Lysaght (1966) Ch. 191 (race)

The second condition for the application of the cy-prés doctrine is that the trusts
have become impossible or impracticable to carry out or alternatively that a surplus
remained after carrying out the purpose.

It may be impossible because the beneficiaries no longer exist or cannot be

identified or because the property is generating no income. Impossibility has been
interpreted widely. In Re Dominion Students Hall Trust (1947) Ch. 183 the charity in
question was restricted to Dominion students of European origin, yet the objects
were stated to be promotion of a community of interest in the Empire. An application
was made to court to delete the words “of European Origin”. Evershed J. held that
the retention of the words amounted to a colour bar which would defeat the object of
the charity and that the word “impossible” should be construed widely and covered
this case.

Sometimes a trust generates surplus income so that the objects are achieved but
there are left over funds. The cy-prés doctrine will be applied to give the excess to
similar charities or objects e.g. in Re North Devon and West Somerset Relief Fund
(1953) I WLR 1260 where a surplus remained out of funds subscribed for the relief of
the flood disaster at Lynmouth.

A gift may also be impracticable e.g. funds are insufficient.

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THE WAKF (WAQF)
Waqf (to bind the property)

It is a trust for charitable purposes established under Islamic Law and widely
established in the East African Courts and other Islamic jurisdiction. It is therefore
tied up to purposes related to religion.

Like in all other trusts the donor gives and the trustees take and then the purposes
are identified and administered.

Essentials of Waqf:

1. It must be a final gift to charity

2. The donor must divest himself of his right in the property
3. It must be an irrevocable and absolute gift
4. It must be perpetual

With regard to the first essential the purposes can be any object which
Mohammedan Law would approve of:-

The objects must fall within the Sheriat. The public or a section of the public and
other groups approved by equity will qualify, but in a Walf even family members and
specific groups which equity would normally exclude as not charitable will qualify e.g.
“for education of members of the family”.

With regard to two and three this is a fundamental part of a wakf – a gift as trust fund
under a wakf cannot be contingent. It must not only be an absolute gift but the donor
must actually divest himself of the property. No resulting trust to the donor or his
estate can arise.

With regard to four a waqf is a trust in perpetuity. Contrary to a trust in equity,

perpetuity is not only permitted; it is a characteristic of a Wakf and so even if the
donor does not mention anything the law will deal with the gift as a perpetual trust.

62
Under Section 88 of the Registered Land Act a transfer shall not limit disposal of real
property otherwise it shall be void, but Section 88 (4) makes exception for purposes
of a waqf which conflicts with this rule.

The administration of a Waqf

The waqf is administered by trustees called Mutawalis. Any person may be

appointed a mutawali including the donor but he may not by reason of that retain any
right in the property.

Kermali and others v. Dhalla & Others 1957 E.A. 168

Abdoo & Others v. Saleh 1964 E.A. 115

Supervision:-

A wakf being a public trust is subject to Section 62 of the Civil Procedure Act – See
Kermali v. Dhalla (1957) E.A. 168 where a wakf was held public and an action which
had been brought under the equivalent of Section 62 asking for removal of trustees
was refused in the exercise of the court’s discretion – See also Abdoo v. Saleh for
the question of the A.G’s consent.

The waqf is also governed by the Wakf Commissioners Act (Cap 109).

TRUSTEES

In general the ability to be a trustee is co-extensive with ability to own property. If an

alien can hold land then he can be a trustee. Capacity to be a trustee is now
extended to corporations. A very large number of trust corporations have arisen and
every big bank for example, has a trustee department. A trust corporation is defined
in Section 2 of the Trustee Act (Cap. 167) as:-

63
 1. The public trustee
2. A corporation appointed by the court
3. A trust corporation as defined by the Law of Succession Act (Cap 160)
Section 3(1).

Certain administrative conveniences attach to trust corporations, so for example,

they need not give security to the High Court upon taking out letters of administration
or probate. The court considers that they are good for the money except under the
Law of Succession Act where the corporation has a subscribed capital of less than
K.Shs.500,000/= - see proviso to Section 3(1).

An infant cannot be appointed a trustee and any purported conveyance to one as

trustee will give rise only to a declaration of trust and a resulting trust in favour of the
settlor.

If the appointed trustees are partly infant and partly adult then only the adults will
take as trustees.

Number of Trustees

Section 36 of Cap 167 – Not more than four with the exception of a charitable trust.
For land settled under a trust deed or where a trust for sale arises the maximum
number of trustees should be four. If more than four are appointed then only the first
four named who are able and willing to act will alone be trustees. This applies only
to trusts which came into effect after the commencement of the Trustee Act – 16 th
November 1929.
The rule does not apply to trusts of land for charitable, ecclesiastical and public
purposes or where net proceeds of sale of the land are held for those purposes.

The saying goes that “equity does not want for a trustee”. A trust can be validly
brought into being even if these are no trustees, e.g. because they have failed to be
appointed or have renounced their duties as such or have died or are unable to act
for any other reason, e.g. insanity or bankruptcy. In such a case the trust will
continue and the court can appoint trustees.

64
Appointment Of New Trustees

Initial trustees are normally named either in the will or the trust deed or by the
personal representatives of the testator or settlor and in very rare cases by the court.

Subsequent trustees are appointed either by the surviving trustees or by the terms of
the will or deed or by the court.

Once the trust is constituted the settlor has no power to appoint trustees unless he
has reserved to himself such a power. The deed may vest or reserve power to some
specific persons to name new trustees. Normally the power will be vested in the
surviving trustee or trustees.

The beneficiaries themselves cannot appoint new trustees. The power to appoint
may be:-

a) An express power under the deed or will or

b) A statutory power under the Trustee Act or
c) By the court.

Trustee Act Powers

By its Section 37 the Act creates a power in the person who is nominated to appoint
or if there is no such person in the surviving trustees to appoint in writing new
trustees in substitution. This power becomes exercisable where the outgoing trustee
is:
i). Dead
ii). Remains outside Kenya for more than 12 months
iii). Wants to be discharged from the trust
iv). Refuses to act or disclaims
v). Is unfit to act e.g. due to bankruptcy or other loss of capacity
vi). Is ab initio incapable of acting e.g. a corporation that has been
dissolved or wound up

65
 vii). Is an infant
viii). Has been removed under a valid power in the trust instrument

In addition to these powers there is power vested in the court under Section 42 to
appoint new trustees. The power is exercised:-

a) When it is expedient to appoint a new trustee or new trustees

b) Where it is found inexpedient, difficult or impracticable to appoint without the
court’s assistance.

The court may additionally appoint even in circumstances where Section 37 would
have been invoked in certain types of circumstances under Section 42(2). These
powers do not however empower the court to appoint an executor or administrator
which powers are specifically and exclusively dealt with under the Law of Succession
Act (Cap 160) Sections 51 – 55.

The Public Trustee under the Public Trustee Act (Cap 168) is a corporation sole and
is therefore self-perpetuating and does not need substitution by individuals. Other
government offices like the Permanent Secretary in the Treasury are also
corporations sole.

HOW TRUSTEESHIP ENDS

a) Disclaimer

A person appointed as a trustee is not bound to act as such unless he has

received consideration. If the trustee has accepted the trust he cannot
thereafter disclaim it (Re Lister (1926) Ch. 149). A disclaimer must be of the
whole and not just a part of the trust for it to be effective.

66
 Effect of Disclaimer:-

If there are other trustees the property will vest in them. If the disclaiming
trustee was a sole trustee or if all the trustees disclaim then if inter vivos the
settlor himself will be trustee, if by will the personal representatives will hold
on trust. If the instrument creating the trust vests someone with power to
appoint new trustees he may use it to fill the gap. If all else fails the court will
appoint.

b) By Retirement

Formerly a trustee could not retire save under stringent express powers or by
order of the court or by consent of all the beneficiaries if they are sui juris.
Application may be now made to the court and the court will first examine if
there are sufficient surviving trustees to continue the trust before allowing
retirement.

c) On appointment of new trustees e.g. where the terms of office of a trustee

is fixed.

c) On Removal by the court either by statutory power or under its inherent

jurisdiction. (See Letterstedt v Broers (1884) App. Cas. 371 – Trust and
respect between the trustee and the beneficiaries had broken down and even
though no evidence of misconduct had been alleged by the beneficiaries the
court allowed the application for removal.
d) Loss of Capacity

DUTIES, DISCRETIONS AND POWERS OF TRUSTEES

Snell points out that:-

“The office of a trustee is onerous. A trust is an office necessary in the concerns
between man and man and if faithfully discharged attended with no small degree of
trouble and anxiety so that is it is an act of great kindness in any one to accept it”.

67
A trustee has to perform many duties, in doing so he must observe the utmost
diligence. In addition he must comply with the provisions of statute, of equity, of the
court and of the trust instrument itself.

However the trustee also exercises discretions:- e.g. where to invest the trust fund
and how much to advance to a beneficiary.

In carrying out his duties the trustee must act honestly and must use such diligence
as a prudent man of business would exercise in dealing with his own affairs. He
must do his best to enlarge and not endanger the trust fund. His is an active task
and not merely a passive one of keeping the assets.

He must not commit fraud in dealing with the trust fund or profit himself out of it. The
courts take the view that a prudent man of business will act profitably and so should
a trustee.

The Principal Duties Are:-

The Trustee must keep the trust property in a state of security. He must firstly
reduce it into his possession; secondly he must invest it whenever there is a surplus,
thirdly he must pay the expenses and debts of the estate and any legacies.

The Trust must also keep accounts and records.

When the trustee invests he must invest only in authorized investments, i.e., in those
investments authorized by the will or trust deed or by S.4 of the Trustee Act or by
equity (case law).

The categories of investment and the manner in which they must be invested are
prescribed by the schedule to the Trustee Act. In choosing investments the trustee
is under a duty to take advice in the way prescribed in the schedule e.g. surveyor’s
and valuer’s advice.

68
The duty to invest in authorized investments is a duty to convert and invest. Assets
are converted into authorized investments if not already such. Alongside the duty to
convert and manage is the duty to keep accounts and records.

Control of the Trustee by the Beneficiaries:-

In carrying out his duties a trustee is guided by the trust instrument. He must carry
out the will of the settlor or testator, statute and the rules of Equity. The beneficiaries
cannot determine how the trustee’s duties must be exercised. However if all the
beneficiaries are sui juris then if they are all together entitled to the whole beneficial
interest they can put an end to the trust and direct the trustee to hand over or
distribute the property as they direct – see Saunders v. Vautier (1841) 10 L. J.
CL.354 – the beneficiary had attained the age of majority but the trust instrument
directed that the income continue to be accumulated. The beneficiary challenged it
and the court agreed because it considered that if the benefit was exclusively for the
beneficiary it was his property and the moment he was sui juris he could claim the
property and put an end to the trust, because a man who is sui juris may do what he
likes with his own property.

Control By The Court Over The Trustee’s performance:-

The court can always supervise the trustee and does so through its inherent powers
and through the powers set out in the Trustee Act (Cap.167).

The court does not administer the trust itself. What is does is to constantly supervise
the trust and has wide powers under the Act:-

1. In the management and administration itself:- e.g by approving a certain

sale or other transaction and in giving directions for the appointment of
new trustees – see Section 56.

2. To permit variation in the trust strictly within the Trustee Act. It can do this
on behalf of existing or unborn persons on whose behalf the court can

69
 approve or vary. The court will have the best interests of all the
beneficiaries in mind when considering variation.

Entitlement of Trustees:-

Trustees may not profit from the trust either directly or indirectly. They are generally
not entitled to remuneration for the care and trouble that they undertake. If the
trustee is an advocate he may not charge anything except disbursements.

Exceptions:-

1. By Agreement with the Beneficiaries if sui juris.

2. By express authority in the trust instrument; this is the safest course.

3. Through court order – by application

4. Advocate’s costs in litigation. If a trustee is an advocate and he acts on his

own behalf and on behalf of co-trustees then profit costs on successful
litigation may be retained by the Advocate trustee.

5. A trustee is entitled to be indemnified against actual expenses which have

been properly incurred in the trust administration – (trustee right of
recoupment) e.g. insurance premia, advocate’s costs, improvement of
property etc.

Powers of Trustees

Powers are conferred either by the Trust instrument or by the Trustee Act. The
Principal powers are:-

1. Sale

2. Partition

3. Delegation

4. Compromise

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 5. Maintenance and advancement

6. Appointment

Others include the power to insure under the Act.

Sale:- (Section 13, Cap.167)

The trust instrument may authorise trustees to sell. In its absence the trustee must
have statutory authority or alternatively an order of the court approving the sale. The
method of sale must be that which is to the best advantage of the beneficiaries. If
you apply for sale you must also state the method you will follow. Either by auction
or by private sale. The trustee must conduct himself in the best interest of the
beneficiaries and is accountable to them. He can sell in whole or in part (Section
13(2)).

Delegation:-

The office of the trustee is one of personal confidence and therefore in general it
cannot be delegated.

Exceptions:-

1. The trustee may now employ agents. It is really not a delegation but a
power to employ agents to do specific acts (Section 24). For example to
take legal action, to write up accounts, to take advice on investments and
to pay for those services out of the estate.

Nevertheless the trustee remains personally liable for any breach in the
trust although he may not be held liable for the negligence of the employed
agents if he has acted reasonably in relying on these qualified persons –
see Section 24(3).

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 2. Section 20 confers power to delegate trusts during absence abroad for
one month

Compromise:-

Under Section 16 (f) the court has power to sanction a compromise in respect of
disputed rights on application by the trustees (see Chapman v. Chapman 1954 AC
429). See also Re Downshire’s settled Estates 1953, All E. R. 103 for debate on
the extent of the meaning of the word “compromise”

Appointment:-

This is the exercise of the right to designate the person or persons to take the trust
property or parts thereof.

In Turner v. Turner 1984 Ch 100 1983, All E. R. 745 private trustees exercised
powers of appointment at the request of the settlor, not appreciating the duty to
consider the exercise of the power which attached to their office. They merely acted
on the instructions of the settlor and did not exercise their discretion. They were
held to have acted in breach of trust and most of the appointments they had made in
1967,1971 and 1976 were held void.

Maintenance:-

Power of court to order maintenance is based on the assumption that the intention to
provide sensibly for the family is paramount (see Re Downshire Settled Estates
(1953) Ch. 218, 238), 1953, All E. R. 103. The court orders maintenance in
disregard of the trusts where the immediate beneficiaries have no fund for their
present maintenance. An order for maintenance will obviously result in a variation of
the beneficial interests.

Advancement:-

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Consists of the payment or application of a capital sum in order to establish a person
in life, or to make a permanent provision for him (see Kernod v. Hayward 1957 Ch.
528 and Hardy v. Shaw 1975 2 All E.R. 1052). Advancement can be on more than
one occasion provided the amount advanced does not exceed one half of the
presumptive or vested share of the beneficiary. What is advanced must be brought
into account at the time of distribution.

TRUST ACCOUNTS

It is the duty of executors, administrators and trustees to keep accounts, inventory

and proper records of the property entrusted to their keeping (see Oath in Law
Succession Act in the sample affidavits for applications of Grants).

Corresponding rights on the part of the beneficiaries to ascertain how the funds have
been administered to inspect accounts and records, to take copies and generally to
full information regarding the administration of the funds.

Trustees duties in regard to accounts:

A. Accounts must be proper, faithful and accurate. If the trustee cannot himself
keep accounts his first duty will be to engage someone who can to do so.

a) Accounts of each trust must be kept separate from all other matters. A
trustee should not mix his own funds with the trust funds.

b) The accounts must contain particulars of all receipts and payments.

There must not be any suppression, concealment or overcharging. A
trustee will be held responsible for any improper accounts rendered in
his name and with his sanction even if not prepared by himself.

c) Both receipts and payments must be supported by vouchers and

invoices.

B. The Trustees must always have the accounts ready when called upon to
render them. The trustee is however entitled to prima facie evidence that the
person requiring production of the accounts is in fact a beneficiary. A mere

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 claimant who has not made out his title does not have the privileges of a
beneficiary.

Accounts and supporting documents must be preserved even after release

has been given. If a trustee destroys accounts especially when litigation is
pending the court will presume everything most unfavourable to him
consistent with the established facts.

C. A trustee should render to the beneficiary a statement of what he is entitled to

receive without request.

a) In the case of income at reasonable intervals

b) In the case of capital, when it falls into possession.

For a deed of release to effectively discharge a trustee, he must have fully

disclosed the beneficiaries rights and properly accounted to them.

D. A Trustee is under a duty to give the beneficiaries proper information as to the

investment of the trust fund (Re Tillot (1892) 1 Ch. 86).

E. A trustee under an express trust must inform a beneficiary who becomes

entitled to capital or income that he has an interest in the trust (Hawrksley v.
May 1955 3 ALL E.R. 353).

F. The Trustee must allow the beneficiaries

i). To inspect the accounts and the supporting documents as well as the
title documents related to the trust property. Inspection can be by the
beneficiary personally or his authorized agent such as an advocate or
auditor.
ii). To investigate the accounts. The trustee cannot bind the beneficiaries
by purporting to settle an amount payable to one of them unless the will
gives him specific authority to do so (Re Fish, (1893) e Ch. 413.
iii). To take copies of accounts and supporting documents. Copies
requested for must however be paid for.

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 A retiring trustee must produce all documents and entries related to the estate
or fund to his successor. This includes a corporate trustee who also acts as a
banker (Tiger v. Barclays Bank Ltd (1952) 1 ALL E.R. 85).

NB: In addition to the above advocates acting as trustees must comply with
the Advocates (Accounts) Rules.

As stated before, if a trustee cannot keep accounts he must employ someone who
can. In fact the trustees do not strictly speaking have to do any actual work
themselves even if expert assistance was not necessary (The Vickery (1931) 1 Ch.
572).

THE BENEFICIARY’S RIGHT TO INFORMATION

The right to demand information by the beneficiary is complimentary to the trustee’s

duty to give it and may be described as follows:

A. Full and accurate information as to the amount and state of the trust property,
how the trust fund has been dealt with and where it now is – Low v Bouverie
(1891) 3 Ch. 82. In Re Dartnall (1895) 1 Ch. 474, the beneficiary’s sole
interest in an estate which had been sworn at £12,000 was a one-ninth share
in remainder in a fund of £900. The beneficiary was held entitled to demand a
full list of the estate investments although the general statement as to the
position of the trust which had already been rendered to him was sufficient for
all practical purposes.

B. All reasonable information about matters relating to the trust which is or

should be in the trustee’s knowledge therefore, a beneficiary is entitled to see
an advocate’s opinion taken by the trustee as to his rights. However, the
beneficiary has no legal right to legal advice from the trustees – see Hawkesly
v May (1955) 3 ALL E.R. 353. Beneficiaries who bring an action disputing the
charges made by professional trustees under a charging clause are not

75
 obliged to say what they consider would have been reasonable remuneration
in the absence of an itemized account – Re Wells (1962) 2 ALL E.R. 826.

C. Information available to a registered shareholder in a company in which

shares are part of the assets of the trust. However, in this case the
beneficiaries’ rights are subject to the company’s articles of association.
Therefore a beneficiary cannot demand to see the books of the company
even where a trustee is a director and is entitled to see the books as such
director.

Trustees may however be compelled to vote in accordance with the beneficiaries’

instructions even to the extent of effecting a change in the company’s articles if the
trust holding is large enough. If the directors consider that the beneficiary’s
instructions are not in the best interests of the company they may apply to court to
determine the issue – Re Butt (1952) 1 ALL E.R. 167.

If beneficiaries ask for information which cannot be supplied without involving

expense, they must bear the cost unless it is properly payable out of the estate.
Trustees in such cases can ask for indemnity before taking any steps in the matter.

The Form of the Accounts.

The accounts discussed here are distinct from the accounts an advocate is required
to keep and which are governed by the Advocates (Accounts) Rules and the
Advocates (Accountant’s Certificate) Rules under Cap. 16.

The accounts discussed are such as those kept by an executor, administrator or

trustee. They will contain information and entries setting out all transactions relating
to the estate concerned. They belong to the trust and not as in the case of the
advocate’s business books to the advocate personally or his firm.

The trust accounts are not technical and are mostly intended for the purpose of
informing the beneficiary and the trustees themselves of the position of the estate.

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In the case of a deceased’s estate the information which the accounts to be
rendered in court in the case of dispute must contain may be summarized as follows:

1. An inventory of all the property which the deceased died possessed.

2. A list of the deceased’s debts.
3. An account of the deceased’s funeral and testamentary expenses.
4. Particulars of all receipts, i.e. the amount, the date, the person from whom,
and on what account each item was received.
5. Similar particulars of all payments and transfers of assets.
6. Particulars of all property held at the date of the account.
7. Particulars of outstanding encumbrances.

The requirements for a satisfactory system of trust accounts are therefore that it
must:
a) Contain a list of all assets and liabilities at the inception of the trust;
b) It must give a complete history of all subsequent transactions, both
capital and income;
c) It must provide a ready means of ascertaining the position of the trust
at any point in time;
d) It must show how the trust funds have been distributed;
e) Finally, it must be as simple as possible.

Except where assets are distributed in specie in proportion to the shares to which the
beneficiaries are entitled, the estate must be valued when a beneficiary becomes
entitled to receive a share of the residue. No valuation prior to this is required.

The Accounts and Records

The first step is to ascertain the terms of the will or trust instrument. A copy together
with any observations thereon should then be placed at the beginning of the
ESTATE BOOK. This is the book which binds together the various documents and
accounts which may be required to keep a proper record. Therefore when a

77
settlement is being prepared or as soon as grant of representation of a deceased’s
estate is issued sufficient blank sheets of paper with the appropriate columns should
be numbered and filed together to provide for such of the following as are likely to be
needed:

a) An index
b) A copy of the will or settlement and observations thereon
c) The memoranda
d) The schedule
e) A cash account
f) An income account
g) Special income accounts
h) Apportionment accounts
i) A distribution account.

Where there is no life interest only the first five items and probably the last item will
be required.

THE MEMORANDA consists of notes of various items of information which may

prove of value to the trustees, e.g., details of the testator’s family and domicile, the
bankruptcy of debtors and creditors, the death of beneficiaries and trust investment
decisions made. The memoranda though an essential part of the system is strictly
speaking not an account.

THE SCHEDULE: the original assets and liabilities of the estate are in the first place
listed here. It is divided into two parts; the assets being listed in Part I and the
liabilities in Part II. A line is drawn under the last item in each part and any assets
acquired or liabilities incurred by the estate after the testator’s death are entered
below the line in Part I or II as the case may be.

When an asset is sold or handed over in specie and when a liability is discharged a
note to that effect is made in the remarks column against the item. Inspection of the
remarks column therefore readily reveals which items are outstanding. The
schedule therefore reveals the assets and liabilities of the estate at all stages of the

78
trust’s existence with the exception of cash transactions which are recorded
elsewhere. The schedule also indicates what has become of the assets and
liabilities. Further details can be obtained by following up the remarks and
references against the items concerned:

The Cash Account

The cash account follows the traditional cash flow functions and form. All receipts
and payments out are best conducted through the cash account. Thus the cash
account operates as general cash book of the administration, but the cash account is
also the capital account in contrast to the income account. Thus cash belonging to
the remainder man which is not yet invested will be retained in the cash account.

In cases where there is no need to distinguish between capital and income the only
account properly so called is an ordinary cash account. Assets other than cash will
usually be handed over in specie to a specific or residuary legatee in so far as they
are not required for payment of the debts, legacies and testamentary expenses. A
note against the item in the schedule with an entry in the memoranda if further
explanation is necessary is sufficient to show what has been done. This simple
method is not applicable in the case of cash. Where several transactions are
involved as is likely to be the case, a reconciliation between the sum left by the
deceased and the balance at any particular stage in the administration can only be
satisfactorily effected by way of an account.

On coming under the executor’s or administrator’s control any cash balance at the
date of death will be debited to a cash account and beneath this will be entered all
receipts as and when they occur, e.g. upon sale of an asset. Payments will be
recorded in a similar manner on the credit side. Subject to cases where cash on
income account is kept separate, the cash balance at any particular time can be
ascertained by totaling the two sides and deducting one from the other. On the
winding up of the estate, any balance of cash will be handed over to the residuary
legatee and the entry of this amount on the credit side will automatically close the
account.

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By entering an asset in the schedule, the trustee acknowledges that he is aware of
its existence but not that he has rendered it into possession. Similarly, an entry in
Part II of the schedule indicates the trustee’s knowledge of a claim but is not an
admission of its validity.

On the other hand by debiting a sum to the cash account the trustee acknowledges
receipt and furnishes evidence of his responsibility to account for it. The cash and
bank balances should therefore not be discharged from the schedule and entered in
the cash account until the trustee is in a position to exercise control over them; i.e.
on registration of the grant of probate or letters with the bank or in the case of bank
notes and coins, when actual possession is obtained. When this is done the
appropriate entry should be made in the cash account, as it is the trustee’s duty to
keep the accounts up to date.

The trustee is the accounting party, he accounts to the beneficiaries for his receipts
and payments. When the trustee receives money belonging to the estate he
charges himself with it by making an entry on the debit (left hand) side of the account
indicating that he is pro tanto a debtor of the beneficiary.

A payment made on behalf of the estate reduces this “indebtedness” and brings the
trustee to the extent of the amount paid nearer to being a creditor of the beneficiary,
it is therefore entered on the credit side.

Since the trustees are the accounting parties, accounts sent to the beneficiaries
should be headed “The Trustees/Executors/Administrators in Account With the
Beneficiaries”.

The Form of the Cash Account:

It should be ruled with four columns on each side showing:

a) The consecutive number

b) The date
c) The particulars of the receipts or payments

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 d) The money column for cash

Example
IN THE ESTATE OF JOHN DOE(DECEASED)
The Executors in Account with the Beneficiaries.

CASH ACCOUNT
No. Date Particulars of Receipt Shs. No. Date Particulars of payment Shs.

1993 Assets 1993 Liabilities

1. 23/11 Cash in House 9,125.50 1. 30/11 NIC-sum placed on 20,000.00
deposit
2. 3/12 Current a/c at BBK. Moi 33,780.20 Debts due at death
Income 2. 5/12 Dr. Gikonyo 7,000.00
3. 10/12 Dividend of 20% on 1,000 3. 5/12 Lee Funeral Home 7,500.00
ordinary shares of BAT (K)
Ltd 50,800.00
Assets 4. 6/12 Funeral expenses 1,800.00
4. 31/12 Net proceeds of sale on 5. 6/12 Funeral Movers Ltd –
15.12.94 of 500 ordinary transport charges 1,500.00
shares in KBL 110,000.00
6. 30/12 Legacy: Evelyne Doe 150,000.00
7. 30/1 Balance paid to Res. Leg
widow Mildred Doe 15,905.70
203,705.70 203,705.70

The Distribution Account

When the trust is being administered the rest of the Estate book is functioning but
finally the trust will come to an end and the trustees have the task of handing over
the estate in accordance with the directions of the will or the law of succession.
Other events will have taken place, e.g. the tenant for life interest may already have
come to an end or the contingent interest of the remainder man may have fallen in
(i.e. the remainder man reaches the age of 25 which was a condition on the will).

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All the other accounts accordingly come to a close, if they already have not done so,
i.e. cash account, income account and schedule of assets and liability.

Steps – Accounting Treatment

 All on-going parts of the estate book must be closed by bringing down and
reducing them to assets and liabilities.
 Ascertaining the beneficiaries and their shares.
 Prepare the account to hand over the assets and liabilities in accordance with
the will or the law in the case of intestacy.

The manner in which the handing over takes place is recorded in the distribution.
The distribution account is the final account and although the estate book is not to be
closed, the substantial accounts are closed e.g. cash account and the schedule. The
memorandum is likely to go on.

The memorandum is not involved at the state of distribution. But each of the existing
assets and liabilities in the schedule are closed and transferred to the distribution
account. The cash account will normally have a balance in favour of its debit side.
This is transferred and brought down to the asset column of the distribution account.
The income account will probably have closed earlier as the tenant for life’s interest
is likely to have come to an end. But if there is still money in the income account,
this will be transferred to the cash account then posted to the distribution account.
Likewise, with the special income account. The investment account will be closed
and any investment will be transferred to the schedule of assets and then posted to
the assets column of the distribution account. Any balance in the apportionment
account will go to the cash account then to the distribution account.

If there are any costs of winding up, e.g., legal costs these will be reflected in the
liability side of the distribution account. The totals from liability are subtracted from
the totals of the assets and receipts and the difference will be the NET ESTATE.

The next step is for the trustee to establish who are the beneficiaries and the trustee
should ascertain the share of the beneficiaries looking at the will or the law of

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succession. If the net estate is made of money only, this is easily distributed. If
however the net estate consists of motor vehicles or houses which cannot be divided
the trustee may have to sell these assets and divide the money between the
beneficiaries unless the beneficiaries have reached agreement that the assets are to
be taken in specie by themselves or by some of them.

Steps:

1. Add up all the assets (including any advancement) to establish the gross
assets.
2. Add up the gross liabilities
3. Deduct the gross liabilities from the gross assets to give the net value of the
estate.

Gross Assets 270,000/=

Gross liabilities 51,000/=
Net Estate 219,000/=

Divide the net estate by the shares of the beneficiaries to give the net share of each
beneficiary.

219,000/= ÷3 =73,000/=

This is the net share for each beneficiary.

Having ascertained the value of each beneficiary the parties may agree on the
division of items in specie as well as division of money. Similarly, parties may
assume liability in specie where the liability attaches to some asset which they are
taking over – e.g. a property may have a mortgage.

If such an agreement is reached a party may receive more than his or her share. In
such event the party must pay into the estate such amounts in compensation as is
the difference between the share due to him and the actual value taken.

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If the beneficiaries fail to agree on any division in specie the estate must be
converted into money and then divided in the appropriate shares.

The closure of the distribution account does not mean the closure of the whole of the
estate book – for example the memorandum could remain open and similarly so can
the cash account in case any money is paid to the estate.

Example:

ABC deceased leaves his estate to W, X and Y in equal shares.

House Plot No. 123, Nyeri 200,000/= to W

300 ordinary shares in Bata Shoe Ltd 30,000/= to Y
Cash at Bank, Standard Bank 10,000/=
Personal effects 10,000/= to Y
Advancement to X 20,000/=
Mortgage to Savings & Loan Ltd 50,000/= by W
M/s B & Co. Advocates legal fees 1,000/=

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 THE ESTATE OF ABC DECEASED – DATE 1.4.86
THE DISTRIBUTION ACCOUNT
No. Particulars of Assets and Receipts K.Shs. No. Particulars of Liabilities & Payments K.Shs.
Assets transferred from schedule Liabilities transferred from schedule
1. House plot No. 123, Nyeri 200,000/= 1. Mortgage to Savings & Loan Ltd. Liability being assumed
by W. 50,000/=
2. 300 ordinary shares at Bata Shoe Co. Ltd 2. M/s B & Co. Advocates legal fees 1,000/=
30,000/=
3. Personal effects 10,000/= 3. W’s one third share
House Plot (No. 129) 200,000/=
Less Mortgage 50,000/=

4. Advancement to X 20,000/= 150,000/=

Less cash paid in by W 77,000/= 73,000/=

5. Balance transferred from cash account 10,000/= 4. Y’s one third share
270,000/= Personal effects 10,000/=
300 ordinary shares 30,000/=
cash from bank 10,000/=
cash from W 23,000/= 73,000/=
5. X’s one third share
Advancement 20,000/=
Cash from W 54,000/=
Less advocate’s fees 1,000/= 73,000/=
270,000/=

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THE INCOME ACCOUNT

Function of the income account is that it records the cash transactions affecting the
tenant for life. It is therefore a restrictive cash account and records, the receipts
which are of an income nature and the payments that are of income nature.

The income account is used through the cash account i.e., the cash account records
all receipts and all payments and the transfers that are made from the cash account
to the income account to record the income account transactions.

SPECIAL INCOME ACCOUNT

The estate may possess some specific income which is not to go to the tenant for life
but which has been specifically devised to a particular beneficiary other than the
tenant for life. There would therefore be two sets of accounts dealing with receipts
and payments of an income nature. The tenant for life account would be kept in the
income account and the specific devisee’s account would be kept in a special
income account. In all other respects the special income account functions like the
income account.

If there are more specific devisees then more special income accounts must be
opened and kept which can be called special income account No. 2 or 3 etc.

APPORTIONMENT ACCOUNT

Sometimes it is necessary to apportion income or expenditure between successive

beneficiaries, i.e. income for example may have to be divided between the person
entitled to income (tenant for life) and the remainder man who is entitled to capital
nature receipts.

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Receipts and payments can be of an income nature or a capital nature e.g. from a
house, the rent received would be a receipt of income nature. But if the house was
sold, the proceeds of the sale would be a receipt of a capital nature. The tenant for
life would normally be entitled to the rental. The remainder man would be entitled to
the proceeds of sale. But sometimes, receipts of either type may have to be
apportioned between income and capital, e.g. between the tenant for life and the
remainder man.

88