REQUIREMENTS FOR CREATION OF TRUSTS

CONTENTS

1.0 Introduction

2.0 Objectives

• Main Content
• Requirements for Creating Inter Vivos and Will Trusts
• Constitution of Trusts
• Capacity to create Trust

4.0 Conclusion

5.0 Summary

6.0 Tutor-Marked Assignment (TMA)

7.0 References/Further Readings

INTRODUCTION

A treatment of the essentials or requirements of a valid trust is important to understanding issues relating to the creation of trusts. Although, generally, no formal requirement is compulsory for the creation of trusts as a result of the equitable nature of trusts. However some formalities may be necessary with  respect to some particular types of trust. Also, the mode of creation of the trust, whether inter vivos or by will, may determine the requirements to be complied with. A discussion of these issues is necessary in order to avoid  creating  ineffective trusts.

OBJECTIVES

In this Unit, you will be exposed to the essentials of trusts. In particular, you learn about what is required in creating inter vivos trusts and trusts by  will.  You will also learn about the constitution of trusts as a fundamental requirement in the creation of trusts. A by no means a crucial issue which cannot be wishes away in the consideration of trusts is legal capacity of a person to create a trust. This is equally connected to the issue of capacity to hold interest in real property. You will further learn about the capacity of corporations and statutory bodies to create   a trust. At the end of this Unit, you should be able to:

• Understand the legal capacity required to create a valid
• Analyze the position of law with respect to hold interest in land in different parts of the country
• Know what is required to create a trust inter vivos and by will
• Know the effect of lack of compliance with the requirements on the trust created.

MAIN CONTENT

Requirements for Creating Inter Vivos and Will Trusts

1.) Inter Vivos Trusts

No formality is required for the creation of a trust if the property involved is in personalties, i.e. tangible personal movable properties, such as vehicles, shoes, television, etc. including money. What is essential is that, the manifestation of the intention to create a trust on the part of the settlor must be very clear. See Paul v. Constance [1977] WLR 521. Mere intention  to benefit an imprecise person will  not be sufficient. See Jones v. Lock (1865) L.R. 1 Ch. App. 25.

If the property is realty (i.e. immovable property, such as land), the intention to benefit someone must be evidenced in writing as required by the Statute of Frauds, Section 7; which requires that any declaration of trust relating to land to be evidenced by a memorandum in writing signed by the party creating the trust. The position on the States forming the old Western Nigeria is captured by Section 78(1)(b) of the Property and Conveyancing Law, which provides to  the  same effect that any declaration in trust in respect of land or any interest therein must be evidenced and proved by some writing signed by some person who is able to declare such trust or by his will. See Forster v. Hale (1798) 3 Ves 696 per Arden M.R.

The addition of the words “signed by some person who is able to declare such trust or by his will”, is a clear indication that there are some persons who do not have capacity to declare inter vivos trust or by will. This is the reason why we have to treat the issue of capacity in separately in this unit, to enable you know those who have legal capacity and those who have not.

You must know that failure to comply with the above formalities may be fatal as the trust will be rendered unenforceable. Also note that, writing is not required in respect of constructive and resulting trusts in realty since these are implied and arise independently of the exercise of the will of the parties.

Note however that, the formality of writing is further required in respect of a disposition of an equitable interest in both personalty and realty under a  trust by the beneficiary. Failure to do so renders the disposition void. See Section 9 Statute of Frauds and Section 78(1)(C) of Property and Conveyancing Law.

2.) Trust by Will

In order to create a trust by will, some formalities are required both for the validity of the will and of the trust.

According to the law (The Will’s Act 1837 (Section 9) as amended by the Wills (Amendment) Act, 1957 and the Wills Law 1959 Cap. 133, Laws of Western Nigeria, 1959 applicable to the States forming the old Western Nigeria), these requirements are:

i.) The will must be in writing.

ii.) It must be signed by the testator or by some other person in his presence and by his direction.

iii.) The signature of the testator must be attested by two witnesses, who must be present together in the presence of the testator.

Failure to comply with the above provisions of the law will render the trust to be void and no interest will pass under the will. Exceptions to this are secret trusts, whereby irrespective of the non-compliance with the provisions of the law, dispositions made under such trusts can be enforced in equity.

SELF ASSESSMENT EXERCISE (SAE) 1

What are the requirements in creating a valid trust by will?

Constitution of Trusts

You must note that despite compliance with the provisions of law in creating a trust, coupled with the presence of clear intention of the testator to create a trust, such trust may run into trouble waters if the testator does not convey the property which is to be the subject matter of the trust to the trustee, a process called constitution of trust. The importance of this is that, the beneficiary upon conveyance of the trust property to the trustee, an equitable interest is created in his favour while the legal interest is vested in the trustee. Thus, where the settlor conveys no property, then the trust is said not to be constituted and no interest passes to the beneficiary.

This issue will further be examined in the next unit for clarity.

Capacity to Create Trust

In order to create a valid express trust, part of the requirements is the  legal  capacity of the settlor, whether individual, corporation or statutory bodies,  to  create it. Related to this is the capacity of a person to hold interest in real property. Where a person cannot hold interest in land, this will affect the capacity to create a trust. The situation of capacity to hold interest in land varies according to the operative law. The issues will now be examined as follows:

1.) Individual

At common law for instance, an infant is capable of holding a legal interest in landed property. However, a sale or disposition of such property is voidable and may be repudiated before the infant attains the age of majority or within a reasonable time after attaining the age of majority. At common law, 21 years was adopted as the age of majority and anyone below this age is an infant. Thus, the position of an infant or a minor who attempts to create a trust, especially in a situation where the trust is not in his interest, will have the same effect at common law.

The common law age of majority is 21 years and this position has been restated by some State laws in the Federation, e.g. Section 2 of the Infants Law, Cap. 49 Laws of Western Region states that, an infant is someone under the age of twenty one years. This has been adopted and now applicable in States forming the  old  Western Region of Nigeria. Consequently, any person of 21 years of age  and  above is regarded as of full age and has the capacity to hold legal interest in real property. Although, some statutory provisions have specified 18 years as “age of majority” or “full age”, see for example, section 277 of the Child’s Right Act, Sections 29 (4)(a) and 35(1)(d) of the 1999 Constitution, and Section 20(1)(a) of the Companies and Allied Matters Act, the age of majority in Nigeria for other purposes nevertheless remains 21 years. See the Court of Appeal decision in Elias v. Elias [2001] 9 N.W.L.R. (Part 718) p. 429. With respect to the States where the Settled Act, 1882 operates in Nigeria, and an infant has interest in a real property, such land becomes a settled land. Thus, the infant becomes a tenant for life and the statutory powers vested in the infant as tenant for life will be exercised on his behalf by the trustees of that settlement.

However, in some other States in Nigeria forming the old Western and Mid- Western Nigeria, an infant cannot hold a legal interest in real property and where land was conveyed to an infant, which will result in the creation of a trust for sale  in favour of the infant.

It follows from the above that an infant cannot create a trust of real property or create a valid will except such an infant is a soldier at war or mariners at sea. An infant can however create a trust over both legal and equitable interest in pure personality and over equitable interest only in real property.

ii.) People with Mental Disability

People with mental disability also cannot validly create or have a trust enforced directly against them, since their mental deficiency may itself encumber their ability to validly dispose their properties or make will. Some of the things that may invalidate such trusts are the possible contradicting instructions of the insane settlor/testator or that he/she does not appreciate the nature or effect of such instructions. See Re Beaney [1978] 1 W.L.R. 770. It is however possible to approach the courts for directions in respect of the settlement to be made on the property of an insane person. See for example Section 180 of the Property and Conveyancing Law for example, Section 180 of the Property and Conveyancing Law. If the trust was created during the time that such an insane settlor was in his lucid period and he/she fully understands the nature of his act and the  consequences of the same, such trust may be upheld as valid.

iii.) Statutory and Incorporated Companies

Statutory bodies and incorporated companies can also create trusts if the power to do so is contained in their enabling law and memorandum of  association,  otherwise any trust created will be declared ultra vires. By virtue of Section 38(1) of the Companies and Allied Matters Act, incorporated companies have all the powers of a natural person of full age and capacity in the execution of its business and objects. In effect, they can create trusts without such powers being expressly contained in their memo, the power to do so may be limited by their memorandum of association or by law.

SELF ASSESSMENT EXERCISE (SAE) 2

Capacity to hold interest in real  property is sufficiently connected to the  capacity to create a valid trust. Discuss.

CONCLUSION

Compliance with the requirements for the creation of a trust is sine qua non if such trust is not to be declared invalid. From the examination of these requirements above, you will realize clearly that creating or settling a trust is something that should be given to professionals to handle in order to perfect the intricacies, including ensuring that there is legal capacity on the part of the settlor/trustee, and avoid pitfalls which can render the trust from been declared void by the courts.

SUMMARY

In this Unit, you have been familiarized with the essentials of a creating a valid trust, which examined various issues relating thereto. Requirements for creating a trust inter vivos and by will were examined, constitution of trust and legal capacity to create a trust were also examined. You will observe the requirements of the law, which makes writing mandatory in creating either inter vivos or will trusts. Also, a disposition of equitable interest in both realty and personalty requires writing. The legal capacity of individuals, people with mental disability and corporations were also examined and you can see that for corporation to create a trust, such power need not be expressly contained in their memorandum of association since in Nigeria, incorporated bodies have the powers of a natural person.

In the next Unit, you will be introduced to the constitution of trusts and its exceptions.

TUTOR-MARKED ASSIGNMENT (TMA)

1. Discuss the capacity of an infant to create a valid trust at common law, in the States covered by the Settled Land Act 1862 and the in the States covered by the Property and Conveyancing
2. What are the essentials in order to create a valid inter vivos trust?

REFERENCES/FURTHER READINGS

Banire, Muiz. (2002). The Nigerian Law of Trusts. Lagos: Excel Publications.

Fabunmi, J.O. (2006). Equity and Trusts in Nigeria. Ile-Ife: Obafemi Awolowo University Press Ltd.

Jegede, M.I. (1999). Law of Trusts, Bankruptcy and Administration of Estate.

Lagos: MIJ Professional Publishers Limited.

Microsoft Encarta (2006). Encarta Dictionary Tools, CD Format, Microsoft Corporation.

Smith, I.O. (1999). Practical Approach to Law of Real Property in Nigeria. Lagos: ECOWATCH Publications (Nigeria) Limited.

The Child’s Right Act, Cap. C50, Laws of the Federation of Nigeria 2004. The Constitution of the Federal Republic of Nigeria 1999.

The Companies and Allied Matters Act, Cap. C20, Laws of the Federation of  - Nigeria 2004.

The Infants Law, Cap. 49 Laws of Western Region of Nigeria, 1959.

 

The Property and Conveyancing Law, Cap. 100 Laws of Ogun State 1978.