Introduction; Methods of creating trusts; Notes on Westdeutsche, Effect of Westdeutsche; Westdeutsche problem
Back to trusts home page; Back to legal home page; Back to home page
This page was last updated on 26 Oct 96.
Mail Paul Todd : SLAPNT@cf.ac.uk
Until the decision of the House of Lords in Westdeutsche v Islington BC [1996] 2 All ER 961, the process of creation of a trust was often described in terms of the separation of legal and equitable titles. Before the creation of the trust, the settlor had both legal and equitable title. Afterwards, legal title was vested in the trustee (or trustees), and equitable title in the beneficiary (or beneficiaries).
A trust inevitably involves the separation of legal and equitable title. Before Westdeutsche, it was also sometimes argued that the converse was also true, that is to say, that the separation of legal and equitable title necessarily implied the existence of a trust.
Nature of equitable title , Effect of Westdeutsche , Back to top of page
Variations on this theme are also possible. The usual situation is for a settlor to transfer property to the trustee(s) on express trusts, but the settlor can also declare himself or herself trustee of the property, without the necessity for any transfer. The equitable title created by a trust is permanent, however, and declaration of self as trustee will not be lightly inferred, in the absence of an intention by the settlor permanently to deprive himself or herself of an interest in the property, in favour of the beneficiary (or beneficiaries). Furthermore, an intention to make a gift to the beneficiary (or beneficiaries) will not suffice, because trusteeship involves onerous obligations, whereas a donor retains no responsibility for the property once the gift has been made.
Nature of equitable title , Effect of Westdeutsche , Back to top of page
The following are all possible methods of creating trusts:
1. Trusts may be created expressly (as above).
2. The resulting trust, where the settlor is also beneficiary. Until Westdeutsche v Islington BC, it was arguable that these could arise automatically whenever the settlor had parted with legal but not with equitable title. However, it now seems likely that this view is too broad, and that the resulting trust can arise only in the two circumstances envisaged by Lord Browne-Wilkinson in Westdeutsche.
3. The constructive trust, which is imposed by a court independently of the intention of the parties, because the conscience of the constructive trustee is affected.
4. Some trusts are imposed by statute, as where there are concurrent beneficial interests in land (on the nature of these trusts, see the Trusts of Land and Appointment of Trustees Act 1996, altering significantly the earlier trust for sale legislation in the Law of Property Act 1925).
The main effects of Westdeutsche on the creation of trusts are these (from the majority speech of Lord Browne-Wilkinson):
1. Resulting trusts do not arise automatically, but only where the conscience of the recipient is affected. If it is not (as in Westdeutsche itself), both legal and equitable title will pass to the recipient.
2. It is not true that there will always be a trust when there is a separation of legal and equitable title.
3. Before the creation of a trust, there is no separate equitable title, since legal title is capable of encompassing its incidents.
Back to introduction , Back to top of page , Back to trusts home page
Back to legal home page , Back to home page
Mr and Mrs Omega purchased a house, legal title to which was conveyed to Mr Omega alone, but with Mrs Omega providing half the purchase price. Mrs Omega intended thereby to obtain a beneficial interest in the property, but Mr Omega thought that the money was a gift. 6 months later Mr Omega mortgaged the property in favour of Alpha Bank, and has since defaulted on the repayments.
Does Mrs Omega have an interest, and if so does Alpha take subject to it - discuss on the alternative bases that title to the land is registered and (alternatively) that it is unregistered land. Would further facts help, and if so what?
What do you think?
Mrs Omega has no interest; Mrs Omega has a half share; If Omega has an interest, it binds the bank; If Mrs Omega has an interest, it does not bind the bank
Nature of equitable title; Effect of Westdeutsche
Back to introduction; Back to top of page; Back to trusts home page; Back to legal home page; Back to home page
This page was last updated on 26 Oct 96.
SLAPNT@cf.ac.uk