How gifts are made is an important part of Equity and Trusts. The difference between a trust and a gift is that when a gift is made, it is not held by another person for their benefit. It is transferred straight away.
The case of Milroy v Lord stated that a Donor/Settlor could be trying to do 1 of three things:
- Make a gift
- Make a trust with himself as a trustee
- Make a gift with a 3rd party as a trustee.
On the face, this looks clear which is which, however the difference between 1 and 2 is an important one as they have different requirements when they are being created. This blog post is focusing on gifts alone.
In order to make a valid Gift, there must be the 3 certainties (Intention, Subject Matter, Objects) present, a transfer of property, and the recipient must be over the age of 18 and have full mental capacity.
These principles will be looked at more closely when discussing how to create an express trust.
Transfer of property
In order to transfer different types of property, different requirements are necessary. If the Transfer if not valid, then the whole trust may fail and render the gift or trust void.
These are known as ‘personalty’ and are physical items that may be gifted to another person. This could for instance be Paintings, Musical Instruments, Antiques. Any tangible item of value that wishes to be transferred to the Donee.
The case of Jaffa states that one way it a valid transfer may have taken place is it physically hand it over. If it is in the Donee’s physical possession, this will be sufficient to render the property transferred (as some may deem obvious).
The other way is to execute a deed of transfer. This is governed by Section 1 LP(MP)A (signed Witnessed Delivered and clear on the face that it is a deed). By executing a deed, it is triggering automatic vesting and means that regardless of where the property is, it will be deemed to have been transferred to the Donee.
Due to land being very high value, a lot of these requirements are found in stature. In order to Transfer land, it needs to be transferred by way of Deed (S52 LPA) and this of course needs to comply with section 1 LP(MP)A for the deed to be executed validly.
In addition, the Title of the property must be changed at land registry. The land will not have changed legal title until land registry has changed their name and therefore it takes longer for the property to vest. This can take up to 3 weeks.
Shares in a Company
Another common way item that has special rules for transfer are company shares. Public companies (PLC) can all be bought and sold using the online System of CREST. This makes the transfer of shares easier for these companies.
Private companies (LTD) however have a different requirement. Many LTD companies do not have an online registration method and have a physical copy of the register of all the shareholders. In order to transfer shares in one of these companies, a Stock Transfer form must be filled out. This must then either be given to the Donee or the Company. The Legal title to the shares will only officially be valid once the company changes the title of the shares on their register. If the Stock transfer form is given to the Donee, they will have to inform the company of the change in title.
Money is not classed as Personality. High amounts of money need some sort of validation to ensure that the transaction is safe. Therefore, the physical giving of money is not enough. Cheque’s are valid ways for gifting money, however they must be cashed in order to actually change title. In recent years as bank transfers have become more common, this has also become excepted as a valid method of transfer. In order to transfer large sums of money otherwise, it must be done by way of a deed.
Equitable Interest in Property
In is possible to gift an equitable interest in a property. This must be done (s52(1)(B) LPA) by way of signed writing. No transfer actually takes place, however the Donee will then assume the rights of a beneficiary.
The general principles of equity govern whether these gifts can be validated. 3 of the general principles are that ‘Equity will not assist a volunteer’ and `Equity will not perfect an Imperfect gift’. These principles were quoted in the case of Milroy v Lord. However, because equity is all about fairness and giving rise to their other principles, there are always exceptions.
Every Effort Test
This was the exception that was used in the case of Milroy v Lord, and states that if the Donor did everything in their power to transfer property, the equity will give rise to their gift. For example, if a man executed a deed and sent it off, and all that must have been done is for Land registry to change name on the title, then this will be enough to satisfy every effort test.
In the case of Re Rose, because the document to change shares was sent to an accountant, who had not processed them yet, it means that the donor was at the point where she could ring the accountant and get them not to process the change of shares yet. Therefore. they had not gone beyond the point of no return and were could not rely on the every effort test.
This has a high standard and requires the Donee to have done everything they could and past the point of no return.
This is a way of giving rise to a gift, which has a lower standard as the every effort test. The case of Pennington v Waine allowed equity to perfect the gift and assist the volunteer if:
- There was a promise of transfer of the property
- The donee acted in relation to the knowledge that they were receiving the property,
- And it would be unconscionable for them to deny them the property.
Therefore, if we looked at the situation in Re Rose, if we could identify that the donee did something which he wouldn’t have done if he wasn’t going to receive the shares, then they could potentially rely on the Pennington v Waine justification
The more recent case of Curtis V Pembroke stated that this method has been developed along with all areas of law and should more resemble that of Proprietary estoppel (Assurance, Reliance, Detriment).
Strong v Bird
This case also allowed, in very specific circumstances for there to be the perfecting of an imperfect gift. There were 4 conditions that must be met in relation to this:
- The Donor intended to make an immediate lifetime gift which was unconditional
- This intention was carried on until their death
- The Gift was not perfect
- The Donee acquired legal title to the property through administration of the donor’s will when they died.
This case was applied in Re Freeland and is also another way in which equity will assist a volunteer and perfect an imperfect gift.
Vandervell v IRC
This case is not really to be seen as a way that equity will assist, it is more that the gift has been made perfect because of an exception in the law. For this to apply, there must be:
- A bare trust
- The beneficiaries instructed the trustee to transfer the legal and equitable title to the property to someone else
- The trustees must comply and do it.
If one of these 4 ways can be supplied to the set of facts of a client, equity may be able to assist a volunteer and perfect the imperfect gift.
By Woodrow Cox