Tutorial 2-1

Introduction

This tutorial is designed to help you work out whether property has been successfully transferred to a trustee, so that it can form the subject matter of the trust. We suggest you print out a copy of the flow chart below, to have in front of you as you work through the tutorial. The red font on the flowchart highlights the step/s that have described in the text immediately above the flowchart.

Constitution of  a Trust

As you know from lectures, there can be no valid trust if there is no trust property. A trust must be over "something", ie some form of property recognised by the law. Virtually any kind of property can qualify as trust property. It can be legal or equitable property, it can be part of an interest or the whole interest.

However, in the case of a trust by transfer, if the property is not effectively assigned to the trustee, it will not form part of the trust property. If there is no other trust property the trust will fail. (Trusts by declaration do not need to comply with transfer rules, because nothing is being transferred - the owner is declaring him/herself trustee, and he or she already holds title.)

Thus, the first question to be answered is whether the thing being transferred to the trustee is property at all. It could be a mere personal right, an existing property right or a future right to property. A mere personal right cannot be transferred and therefore cannot be trust property. Present property can form the subject of a trust. A future property right can form the subject of a trust if value is given for its transfer. If no value is given, it cannot form the subject matter of a trust. (This is because equity will not enforce such a transfer in favour of a volunteer).

MERE PERSONAL RIGHT, PRESENT PROPERTY OR FUTURE PROPERTY

An example of a mere personal right is right of access over land. A personal right of access over land cannot be transferred, and therefore cannot form the subject of a trust by transfer.

An example of present property is land. Valid trust property can include:

• Land,
• Chattels
• Shares
• Intellectual property
• Bills of exchange
• Debts or other legal choses in action
• Equitable interests such as partnership interests

Present property can form trust property whether the assignment is by gift or for value.

Property is ‘future property’ either because it does not yet exist, or although it exists, it is not yet owned by the person assigning it. For example, a purchaser might like to order a car that has not yet been constructed. If the purchaser pays for the future property right, (eg, pay a deposit) then equity will force the car dealer to transfer it to the purchaser when it comes into its hands. If consideration is given for it, a future property right can be trust property. But any attempt to give the right away for no value would mean that equity would not enforce the gift, and it would not form part of the trust property.

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