Creation of a trust

Introduction:
A trust is referred as an obligation by a person who wishes to transfer his
property that is either movable or immovable to a beneficiary of the property
through a mediator who acts as a trustee and holds the property for the benefit
of the trust. In short, an author of the trust or a settler transfers his movable or
immovable property to the trustee who holds the property for the benefit of a
third party that is considered as the beneficiary.
Definition of trust according to Maitland:
Trust is the greatest and the most distinctive achievement in the field of
jurisprudence. “trust happens when a person has rights which he is bound to
exercise upon behalf of another or for the accomplishment of some particular
purpose, his is said to have those rights in trust for that other and for that
purpose and he is called a trustee.
Relevant provision:
Section 3 to 6 of the trust act, 1882.
Definition of trust according to section 3 of the Trust Act, 1882:
A “trust” is an obligation annexed to the ownership of the property, and arising
out of a confidence reposed in and accepted by the owner, or declared and
accepted by him, for the benefit of another, or of another and the owner.
Author of the trust (section 3):
The person who reposes or declares the confidence is called the “author of the
trust”.
Trustee (section3):
The person who accepts the confidence is called the “trustee”.
Beneficiary (section 3):
The person for whose benefit the confidence is accepted is called the trustee.
Trust property (section 3):
The subject matter of the trust is called the “trust property” or “trust money”.
Beneficial interest (section 3):
The “beneficial interest” or “interest” of the beneficiary is his right against the
trustee as owner of the trust-property.
Instrument of trust (section 3):
The instrument, if any, by which the trust is declared is called the “instrument of
the trust”.
Creation of trust:
The most important requirement for the creation of an express trust is that the
settler displays a clear and unequivocal intention to create a trust rather than
some other, similar legal or equitable relationship. If no intention to create a trust
can be proven, or uncertainty as to the intention exists, an express trust cannot
arise. Secondly, the actual wording of the trust must be clear and accurate. There
must be clarity as to what property constitutes the trust property and who the
beneficiaries of the trust are. Finally, an express trust can only be valid if it
complies with the correct statutory, common law and equitable procedures set
up for the creation of express trusts.
Provisions related to creation of trust:
The provisions related to the creation of trust have been provided in section 4 to
10 of the trust Act, 1882.
Lawful purpose (section 4 of the Trust Act, 1882):
A trust may be created for any lawful purpose. The purpose of a trust is lawful
unless it is
(a) Forbidden by law
The purpose of the trust would be unlawful when it is forbidden by law.
(b) When the trust would defeat the provisions of law:
The purpose of the trust would be unlawful when it is of such a nature that,
if permitted, it would defeat the provisions of any law.
(c) Fraudulent:
The purpose of the trust is unlawful when it is fraudulent.
 (d) Injury to the person or property of another:
When it involves or implies injury to the person or property of another.
(e) Opposed to the public policy:
The court regards it as immoral or opposed to public policy.
Void trust (section 4):
Every trust of which the purpose is unlawful is void. And where a trust is created
for two purposes, of which one is lawful and the other unlawful, and the two
purposes cannot be separated, the whole trust is void.
Illustrations:
(a) A conveys property to B in trust to apply the profits to the nurture of
female foundlings to be trained up as prostitutes. The trust is void.
(b) A bequeaths property to B in trust to employ it in carrying on a smuggling
business, and out of the profits thereof to support A´s children. The trust is
void.
Trust of immovable property (section 5 of the trust act, 1882):
No trust in relation to immovable property is valid unless declared by a non-
testamentary instrument in writing signed by the author of the trust or the
trustee and registered, or by the will of the author of the trust or of the trustee.
Trust of movable property (section 5):
No trust in relation to movable property is valid unless declared by a non-
testamentary instrument in writing signed by the author of the trust or the
trustee and registered, or by the will of the author of the trust or of the trustee,
or unless the ownership of the property is transferred to the trustee.
Creation of trust (section 6):
Subject to the provisions of section 5, a trust is created when the author of the
trust indicates with reasonable certainty by any words or acts.
(a) Intention:
An intention on his part to create thereby a trust.
(b) The purpose of trust
 The purpose of the trust is also very necessary and important factor for the
creation of valid trust.
(c) The beneficiary
For the creation of valid trust it is requisite that there should be reasonable
certainty indicating the beneficiary.
(d) The trust-property, and (unless the trust is declared by will or the author of
the trust himself to be the trustee) transfers the trust-property to the
trustee.
Illustration:
(a) A bequeaths certain property to B, “having the fullest confidence that he
will dispose of it for the benefit of C”. This creates a trust so far as
regards A and C.
(b) A bequeaths certain property to B hoping he will continue it in the
family. This does not create a trust, as the beneficiary is not indicated
with reasonable certainty.
Essentials of a valid trust:
1. Certainty of intention:
A clear intention to create a trust, and not merely some other general
intention to confer some form of benefit, must be proven on the part of
the settlor before an express trust will be upheld. The word ‘trust’ need
not be used in the specific disposition. However, it must be proven that
the settlor intended to separate legal and equitable ownership, so that
one party (the trustee) becomes obliged to hold the trust property for
benefit of another (the beneficiary) (Re Armstrong (1960)). The
execution of a well drafted trust deed will generally remove any doubt
as to the certainty of intention to create a trust. Nevertheless, trust
deeds are not always executed (particularly where the trust is created
by oral declaration), and genuine doubt may exist as to whether a trust
has been created even where documentary evidence does exist.
Case law
Midland bank vs Wyatt
Facts: Mr.Wyatt created express trust of family home, making himself
trustee for his wife and children. However, he did not tell the
beneficiaries, and continued to use the property as his own.
Held:
It was held that the purported trust was a sham, intended to place his
property beyond the reach of his secured creditors, and that the trust
was void.
Declarations of trust
An express trust by declaration can only be enforced where it can be
clearly proven that the words of the settlor intended to create a trust.
Sometimes this is unclear. Whilst it is not necessary for a settlor to refer
expressly to the word trust, the words must indicate an intention to
separate out legal and equitable ownership. Words uttered in idle
conversation, without any accompanying acts evidencing the
seriousness of their intention, will generally provide insufficient
evidence of an intention to create a trust.
Jones vs Lock (1865)
Facts:
A father returned from a business trip and he was scolded for not
bringing back a present for his infant son. In a rage he wrote a cheque
out in favour of him as payee and thrust the cheque into the baby´s
hand. An issue arose as to whether a trust was created over the cheque
for the benefit of the baby.
Held:
There was nothing to indicate an intention to create a trust over the
cheque rather the father´s intention was to make a gift or simply make a
point to his wife.
Certainty of subject matter
Once an intention to create a trust has been established, consideration
must be given to the certainty of subject matter. One of the primary
questions to consider in this regard is whether or not the subject matter
of the trust is sufficiently identifiable. A trust cannot exist if there is
either no trust property or the trust property is not identifiable. In
Hunter v Moss (1994), the English Court of Appeal considered whether a
trust ‘over 5% of the issued capital of the company’ exhibited certainty
of subject matter because there was no indication as to which specific
shares the purported beneficiary was to have. Dillon LJ concluded that
the trust did exhibit certainty of subject matter and that, provided the
 nature and amount of shares being held under trust were clear, the
trust would be valid.
Subject of trust (section8):
The Subject-matter of a trust must be property transferable to the
beneficiary.

Certainty of Object

Who can become beneficiary under section 9:

Every person who is capable of holding the property may be beneficiary.

The object of a trust may be the beneficiary or cause. The rule is that the object
must be clearly identified or identifiable with certainty and the interest they are
to take in the trust property must be discoverable. Thus, where there is
uncertainty as to the object, the trust fails.

The rule regarding certainty object will however be inapplicable in two instances.
First, when the trust is a discretionary one, giving power to the trustee to decide
who the beneficiaries will be, the trust may be held valid but on the condition that
the trustee must have expressly stated an identified or identifiable class of people
from which the beneficiaries will be drawn. Second, charitable trusts can still be
applied where the object is uncertain, through the application of the cy-pres rule.

Where the object of a trust is uncertain, the trust fails and the property inures in a
resulting trust for the estate of the settlor.

TRANSFER OF TRUST PROPERTY:

Transfer of trust property is essential to trustee. Although, it is not necessary

where the author of trust is himself a trustee.

MODE OF TRANSFER:

In case of immovable property:

Through non-testamentary or a testamentary instrument it must be:

a- Written
b- b- Signed by author of the trust
c- c- Registered e.g under sec:17 of Registration Act,1908

In case of movable property:

Must comply with the conditions mentioned aforesaid or through the ownership
of the property is transferred to trustee.

Competency of trust author:

Under section 7:

A trust may be created

(a) By every person competent to contract, and

(b) With the permission of a principal Civil Court of original jurisdiction, by or on

behalf of a minor;

But subject in each case to the law for the time being in force as to the
circumstances and extent in and to which the author of the trust may dispose of
the trust property.

Competency of trustee:

According to section 10:

Every person capable of holding property may be a trustee; but, where the trust
involves the exercise of discretion, he cannot execute it unless he is competent to
contract.
Acceptance to trust - A trust is accepted by any words or acts of the trustee
indicating with reasonable certainty such acceptance.

No one is bound to accept trust.

Disclaimer of trust - Instead of accepting a trust, the intended trustee may,

within a reasonable period, disclaim it and such disclaimer shall prevent the
trustproperty from vesting in him.

Conclusion:

To conclude that a trust is unlawful if it is fraudulent, forbidden by law, immoral

or opposed to public policy etc. for the creation of the trust it is necessary that
the author of the trust should indicate with reasonable certainty his intention to
create trust, the purpose of trust, beneficiary and trust property. After it the
transfer of the property to trustee must be followed. Every person who is capable
of holding property may be trustee.