Valid Inter Vivos Trusts

Valid Inter Vivos Trusts

An inter vivos trust is where property transfers from one living person to another pursuant to a trust.

“A trust is the relationship that arises whenever a person called the trustee is compelled in equity to hold property, whether real or personal, and whether by legal or equitable title, for the benefit of some persons, of whom he may be one, and who are termed beneficiaries, or for some object permitted by law, in such a way that the real benefit of the property accrues, not to the trustees, but to the beneficiaries or other objects of the trust.” ( Waters Law of Trusts, 4th d. 2012, at page 3)

The creation of a valid inter vivos trust requires a valid active transfer to that clearly identified trustee.

The initial rule as to the formation of a valid trust was stated in Milroy v. Lord (1862) , 45 ER 1185:

“In order to render of voluntary settlement valid and effectual, the settler must have done everything which, according to the nature of the property compromised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him.”

In Milroy, the trustee was given share certificates in a power of attorney under which he could transfer the shares into his own name. The shares were such that legal title did not pass until the new owner’s name was entered into the share register, and that was not done until after the settlor’s death.
The court concluded it was not sufficient that the trustee was capable of transferring the shares. The transaction was incomplete without the actual transfer having occurred. The court would not compel the agent of the settlor to complete the transfer because he could not compel the settler to complete the transfer due to the death.

Accordingly, the court in Milroy refuse to hold that the settler held the legal title on trust for the trustee.

This strict test set out in Milroy, however has been relaxed over the years in such decisions as Pennington v. Waine (2002) 1 WLR 2075, where the English Court of Appeal held that it would have been unconscionable for the executors of the giftor to refuse to hand over share certificates, and found that the gift was valid when the share registry had not been updated in the name of the new owner, and the donor had completed the share transfer forms rather than handing them to her nephew.

In so concluding the court relaxed the rule in Milroy and imposed a trust on the setlorr such that she held the legal title to the shares in trust for the trustee until the transfer of ownership was completed.

With respect to land transfers, in Davidson v. Davidson (1946) 2 DLR 289 SCC the Supreme Court of Canada considered the language of the land title act, which is contained in section 20, and held that an unregistered transfer of land took effect on the day the transfer was executed and not on the day it was registered.

This was followed in Chung Estate v . Chan (1995) 4 BCLR 370, and affirmed in the BC Court of Appeal (1995) 13 BCLR 157, where the court held that the if the transfer has property completed a freehold transfer form, the opening words of section 20 – “except as against the person making it” – applied such that the form may be registered after the transferor’s death to affect the transfer of the property.

The court cases indicate that the intention of the transferor is crucial. If the transferor intends to transfer the property, the transfer will be complete when the transferor has relinquished control of the property and put the transferee in a position to complete the transfer.

A conveyance, whether absolute or in trust, is ineffective if the transferor does not surrender control of the property. A conveyance interest is incomplete unless the settler has passed the title to the property to the trustee by delivery of the subject matter of the trust or an instrument of transfer.

If the conveyance interest is completed by such delivery, the trust is not incomplete merely because the settlor reserves power to revoke, or to alter the trust. There is a sufficient surrender of control over the property if the settlor transfers the title to it to the trustee, even though he reserves power to undo what he had done.