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Principles of Family Law - Essay Example

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This essay "Principles of Family Law" presents Khalil and Sadhia that have been married for 15 years and have 5 children Irfan, Safeena, Azeema, Junaid, and Asma. Sadia has discovered that she is 5 months pregnant. Sadia and the family traveled abroad and Sadhia contracted a serious infection…
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Principles of Family Law
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Khalil and Sadhia have been married for 15 years and have 5 children Irfan, Safeena, Azeema, Junaid, and Asma. Sadhia has discovered that she is 5 months pregnant. Recently Sadhia and the family travelled abroad and Sadhia contracted a serious infection which has not responded to treatment. She has recently written a book about their travelling experiences due to be published soon. Doctors have warned her that she may not survive the pregnancy and that the very fact of the pregnancy has increased the risk of the infection becoming worse. Sadhia and Khalil decide to prepare for the worst and agree that she should set up a trust as well as make a new will. They are both directors of Amex Textiles a company specialising in the manufacture and export of hand made fabrics. They also have a property development company. Sadhia owns 1,000 shares in Yorkshire Water and owns and runs a retail clothes shop. She also owns a number of freehold commercial properties in Bradford and London, in addition to a cottage in Devon and a cottage in Scotland. Khalil and Sadhia both executed wills and Sadhia instructed her solicitor to draw up a trust for her children. Sadhia is admitted to hospital shortly before the anticipated birth of the baby because her symptoms of infection were widespread and she needed constant medical care; she was advised by her consultant that she only has a few weeks to live. She calls her brother and her eldest children Irfan and Safeena to a family meeting in the hospital at which she says she wishes them both to take over the retail shop and run it together. Sadhia also says that Irfan is to have her recently acquired Audi estate car. Two weeks after the meeting Sadhia gives birth to a baby girl and dies shortly afterwards. Sadhia’s will contains the following dispositions: 1. I give to my husband Khalil my cottage in full confidence that he will do what is necessary to benefit our children. 2. I direct that my trustees shall hold the sum of £100,000 for the benefit of all my employees their relatives and dependants. 3. I give the sum of £50,000 to my Trustees on trust for the poor children in Kostan (a small village in India) 4. I give the sum of £2,000 to my assistant Peter for his loyal service. 5. I give to my trustees 220 shares in Yorkshire Water to be held on trust for my sister’s children to be used only for their education. 6. I give to my husband the balance standing to the credit of my Barclays bank account for his sole use and what is left or that he no longer needs shall be held on trust for the children in equal shares. 7. I give 10 Shipley Street and 25 Horton Grove to my trustees on trust for my sister Jameela and my friend Amy on condition that my sister may choose which house she would like to be held for her. 8.I give all the proceeds of my new book to be published in December 2008 to my trustees on trust for my children Asma, Junaid and my brother. 9.I give to my trustees my collection of original Indian prints upon trust for sale and I direct that they should allow any member of my family to choose one of the paintings before the collection is sold. The Trust Deed appoints Khalil, Irfan and Safeena as trustees and provides the following:- 1. I give the proceeds of sale of my classic mini cooper to my trustees who shall in their absolute discretion advance monies from time to time for the benefit of my children. 2. I give my diamond jewellery to my daughter Safeena on trust such jewellery to remain a family heirloom and held for my grandchildren and their grandchildren Advise the trustees with regard to the dispositions in the Will and Trust deed Advise Irfaan and Safeena as to their potential entitlement following the family meeting. In order to be able to advise the parties with regard to the dispositions in the will and the trust deed it is necessary to consider which of the bequests can be regarded as valid and which might fail due to having not been properly constituted. In an express trust the person making the bequest must adhere to certain formalities in order for the will and the trust document to be regarded as valid. In relation to determining the validity of the will an the trust deed the court will need to consider whether the requirement of the three certainties has been satisfied. One of the first considerations that will be made by the court will be in respect of the capacity of the person making the will. This is governed by the Family Law Reform Act 1969 s1(1) which stipulates that the person making the will must be over 18 and must be of a sound mind. It could be argued in a case such as this that the testatrix might not have the capacity to make the bequests due to her state of mind having discovered that the illness she has contracted is likely to be fatal. In addressing the formalities the court will consider whether the trust has been created inter vivos or by the will. In this case the trust comes into affect upon execution of the will and therefore the will would be regarded as creating the trust. In determining whether statutory provisions apply the court will examine the way the trust was created as well as whether the property subject to the trust relates to land or other property and whether the interest is a legal or an equitable interest. In this case it is necessary to discuss equitable interests since an equitable interest is created where the testator does not have absolute ownership. In the above the profits from the sale of the book would be regarded as an equitable interest as the testatrix does not have physical possession of this money at the time of her death. This could cause problems as there would be uncertainty in respect of the subject matter. Problems might also occur if the book fails to sell and so there are no profits available form this disposition. In previously tested cases the courts have taken the view that it is not possible to create a trust for property that the settler does not own at the time of making the bequest, even if the testator fully expects to have this property at a future time1. The courts apply this on the principle that there is a lack of certainty as to the subject matter of the bequest. In cases where the trust has been created by the will the court will determine the validity of the trust by reference to the Wills Act 1837 s9 which was amended by Administration of Justice Act 1982 s. 17. There is nothing to suggest that the will was not made in the correct manner so therefore it will be assumed that the formal requirements of the statutory provisions have been met. From here it is then necessary to consider the presence of the three certainties. These certainties include certainty of intention, certainty of subject matter and certainty of objects. Intention is usually inferred from the wording of the will. For this reason it is important that the person making the will ensures clarity with regard to all of the bequests so that it is obvious to the person administering the will that the person holding the property is obliged to hold it for the benefit of another. There is no requirement within law for the word trust to be used in the will in order for the court to determine that a trust has been duly created as was held by the court in the case of Re Kayford2. Difficulties have been posed for the courts with the use of ‘precatory’ words where the words express a hope or desire that the trustee will act in a certain way. In some cases the courts have treated the trusts as ineffective where precatory words have been used as was demonstrated in the case of Lamb v. Eames3 where the testator gave his estate to his widow “to be at her disposal in any way she may think best, for the benefit of herself and her family”. The use of the precatory words led to the finding that a trust had not been duly created and the property should be transferred to the widow absolutely. The courts reached similar decisions in Re Hamilton4 and Re Adams and the Kensington Vestry5. In the latter of these cases the testator included the wording ‘...in full confidence that she will do what is right as to the disposal thereof between my children, either in her lifetime or by will after her decease.” From this the court held that taking the will has a whole the testator intended the widow to have absolute ownership of the property. In some cases the courts have been able to give effect to the wishes of the testator despite the use of precatory words as was the case in Comisky v. Bowring-Hanbury6 where the testator had stated he was giving his wife “the whole of my real and personal estate...in full confidence that she will make such use of it as I should have made myself and that at her death she will devise it to such one or more or my nieces as she may think fit and in default of any disposition by her thereof by her will or testament I hereby direct that all my estate and property acquired by her under this my will shall at her death by equally divided among the surviving said nieces.” In reaching their decision the court stated that in this case it was obvious to the reader that the testator intended ‘to make a gift to his wife, with a gift over of the whole property at her death to such of the nieces as should survive her’ It is important to note that although precatory words can have the effect of creating a trust7 there is no obligation imposed on the recipient. Precatory words only impugn a moral obligation on the recipient8. As a result of this a trustee would be entitled to dispose of the trust property without distributing the items amongst the intended beneficiaries if they so desired. The second of the certainties that needs to be satisfied in order for the trust to succeed is that there must be certainty of the subject matter. In general terms a trust will fail if the court cannot determine the certainty of the subject. The courts have held the trust not to satisfy the test where the wording includes words such as “the bulk of my estate” or “such parts of my...estate as she shall not have sold”. This was the case in Sprange v. Barnard9 where the court was unable to determine how much would be regarded as ‘the remainder of the property’. In such cases the court usually takes the view that all the property be transferred to the named beneficiary. Problems have also been experienced in situations where the testator is only disposing of a portion of the property. Such a situation may arise in cases where the testator has a collection of several items but only wishes to distribute a portion of these amongst the named beneficiaries. In some instances the courts have held that the trust must fail due to lack of certainty of the subject matter as was the case in Re London Wines Co (Shippers) Limited10 where the court held that it is impossible to determine the specific property to be distributed. Similarly in Boyce v. Boyce11 the court were unable to determine the subject matter since the second beneficiary had failed to make an election before her death. As a result it was not possible for the courts to determine the interest of the first beneficiary. By contrast in Re Golay’s Will Trusts12 the court found the subject to be certain despite the fact that the items came from a larger amount then the amount to be distributed. In this case because the will allowed the executor to determine which items should be distributed the certainty of subject matter could be determined. The disposition in this case was concerned with the distribution of flats owned by the testator. It was the wish of the testator that the beneficiary should be allowed to have the enjoyment of one of the flats ‘during her lifetime and to receive a reasonable income from my other properties.’ The court stated that as the executors had the power to select one the trust was entitled to succeed. The court also stated that the words ‘reasonable income’ allowed the court to quantify such an amount if the executors were unable to determine to. If the courts can find both certainty of intention and subject matter they will then consider certainty of object. When determining the certainty of objects the court needs to be able to identify ascertainable beneficiaries. Uncertainty of the beneficiary can cause the trust to fail as the court requires clear identification of someone who has the locus standi to ensure the trust is adhered to13. Certainty of objects was considered in IRC v Broadway Cottages Trust14. Resulting from this case the courts have held that the objects must be fully ascertainable to prevent the trust from being declared void15. In order to advise in the above it is necessary to consider the different kinds of trust that can be created. Within the law of trusts the courts have recognised fixed trusts and discretionary trusts. In a fixed trust the beneficiaries acquire an equitable interest from the point of being identified as a beneficiary. With a discretionary trust the beneficiaries only acquire an interest when they have been selected by the trustees. One of the drawbacks with a discretionary trust is that an intended beneficiary might not receive anything if the trustees determine they do not meet the stipulated criteria Fixed trusts occur where the trustees have an obligation to distribute the trust property to named individuals or to members of a certain group. Sir William Grant MR in Morice v Bishop of Durham16 made the comment that Every trust must have a definite object. There must be someone in whose favour the court can decree specific performance. This was reaffirmed by Lord Parker of Waddington in Bowman v Secular Society17. In this case Lord Parker made the point that for a trust to be valid it must be for the benefit of individuals18. Discretionary trusts occur where the trustee is entitled to distribute the property as they deem to be fit19. Discretionary trusts are usual when the trust is to be distributed amongst the testator’s family20. Historically the courts have had difficulty in identifying beneficiaries in cases where they are only recognisable through their membership of a particular group. This can occur where the bequest is to employees or former employees of the testator, or to societies or groups that are favoured by the testator. In some cases the trust has to fail as the list of identifiable beneficiaries could be endless. The courts have attempted to combat this problem through the “list principle” established in IRC v. Broadway Cottages Trust21. In this case the court held that a trust was void unless it was possible, at the time the trust came into operation, to make a list of all the beneficiaries. The court has enabled trusts to succeed by allowing the trustees to distribute to all known beneficiaries. Missing beneficiaries can be protected through a Benjamin order as established in Re Benjamin22. The courts will only do this where the class of beneficiary can be identified with sufficient precision. Where the courts are unable to identify the beneficiaries sufficiently the property will become the subject of a resulting trust on the estate. A trust can also be exhaustive or non-exhaustive. As the term suggests an exhaustive trust is where the trustee has to distribute all of the property included in the trust23, whereas a non-exhaustive trust occurs where the trustee is required to invest the trust property and instructed to use the profit from the investments to provide for the beneficiaries24. Beneficiaries under a discretionary trust lack the power to insist on the performance of the trust. Potential beneficiaries can insist on the full trust property being distributed but cannot insist on being one of the beneficiaries. McPhail v Doulton25 is accepted as an authority in relation to the validity of a trust where it is uncertain whether an individual can be regarded as a member of a designated class. It was stated by Lord Reid in this case that ‘if the trustees do not exercise a power, the court will do so in the manner best calculated to give effect to the settlor’s or the testator’s intentions.’ Re Baden’s Trust (No 2) 26 subsequently declared the trust to be valid and made it the responsibility of the beneficiaries to provide proof that they were members of a certain group. In reaching their decision the courts referred to Re Gulbenkian’s Settlement27, where it was held that a power was valid if it was possible to say of any particular individual that he was a member of the class to which the power related. The court stated that the trust should not fail just because it is impossible to identify every member. When deciding whether a narrowly defined trust can be enforceable the courts will determine whether there is conceptual certainty with regard to the intended beneficiaries. The courts have allowed trusts where the wording is in favour ‘of all my nephews and nieces’ but have disallowed trusts where the trust is ‘in favour of all my friends’ as the list of potential beneficiaries is not sufficiently easy to define. In some instances the court will consider that the trust is unworkable as in R. v. District Auditor, ex parte W. Yorks. Metropolitan County Council28, in which the trust was expressed “for the benefit of any or all or some of the inhabitants of the county of West Yorkshire”. In this case the court held that the certainty of beneficiary was satisfied by the classification of inhabitants, but that the trust should fail as the size of the class made administration unworkable. Before being able to advise the parties in the scenario above the final matter that requires discussion is the effect of the meeting in which the testatrix made certain promises with regard to particular assets she wished to dispose of. In this particular situation the problem centres on the formalities of the creation of the trust. When dealing with the transfer of property via a trust there needs to be a formal transfer of the deeds before the content of the trust is legally binding. In some instances where the legal interest has not been transferred an equitable interest can be inferred so as to make the trust succeed. When dealing with property or shares this is not the case as there needs to be a formal transfer for the trust to succeed. Under s.2, Law of Property (Miscellaneous Provisions) Act 1989 it states that “2(1) A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each29. (2) The terms may be incorporated in a document either by being set out in it or by reference to some other document. (3) The document incorporating the terms or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) must be signed by or on behalf of each party to the contract. With certain transfers of property such as paintings or cars the trust can be deemed to be valid by the mere exchange of the item to the person concerned. However with land the courts will only class the transfer as valid if the deed is transferred to the beneficiary as required by s52 of the Law of Property Act 1925. s52 (1) All conveyances of land or of any interest therein are void for the purpose of conveying or creating a legal estate unless made by deed.” Under s53 of the LPA equity might be able to assist if there is evidence in writing of the testator’s intention to transfer the property to the beneficiaries. The poems might be able to be classed as such evidence though they would have to be signed by the testator in order for equity to be able to assist30. The document signed does not have to be in any specific format31 but it must be signed for it to create a valid equitable interest. When dealing with the shares it is a formal requirement that the title of the shares be registered with the new owner for the transfer to be legal32 and the law requires the recipient to have completed the necessary paperwork to register the shares with the new owner33. The rules regarding the transfer of shares by trust differ if the shares are in a private company rather than a public company34. In Oughtred v IRC [1960] AC 206 the court allowed equity to intervene as the shares were in a private company. Generally speaking the courts will take into account whether any tax will be involved in the transfer in order to decide whether such dispositions can be treated as valid35. Having examined the various requirements necessary for trusts to be regarded as fully constituted it is now possible to advise the trustees and Irfan and Safeena on their entitlements under the will and the trust deed. The first disposition to Khalil of the cottage is possible without the formalities required for the transfer of property as Khalil is the spouse of the testatrix. The use of the precatory words within the disposition place a moral obligation on Khalil to fulfil the wishes of Sadhia, however, Khalil has no legal obligation to carry out her wishes. With the second disposition the court may decide that this must fail as they could decide that there is lack of certainty of object as the list of potential beneficiaries could be endless. If this is the case the money would transfer back to the estate and would become the property of Khalil. A similar decision might be reached in the disposition to the poor children in Kostan, however, as this is only a small village the court may decide that the prospective beneficiaries are fairly easy to identify and could allow the trust to succeed. With regard to the bequest to Peter this is likely to succeed as it would be fairly easy to identify the intended beneficiary. Problems could arise if the testatrix has had more than one servant by that name. In such a situation the trust would be deemed to have failed due to lack of certainty of the object matter of the trust. The bequest of the shares might also fail as the court generally requires shares to be registered with the new owner for the transfer to be regarded as valid. In this instance the shares are still in the name of the testatrix at the time of her death. the sixth disposition of the money to her husband is likely to succeed as there is a clear stipulation of the intended beneficiary. Problems might arise in respect of the residue of the account which is to be held on trust for the children. As there is no specific amount mentioned to be held on trust for the children this element of the trust would be likely to fail due to lack of certainty of the subject matter. If the court concur that the writing of the will should be regarded as proof of the intention to transfer the shares the courts can sometimes regard the transfer as valid which would mean that the trust would succeed. With regard to the disposition of the two properties problems might arise due to the fact that these have not been properly transferred through the signing over of the deeds to these properties. If the courts decide to still allow the bequest to succeed despite this further problems might occur if Jameela does not select which property she would like for herself. In such a case the trust would fail as Amy cannot be awarded one of the properties until Jameela has selected which property she wants. The court might determine that the signing of the will constitutes the necessary formality for the transferring of proprietary rights, in which case the trust would succeed. With regard to the proceeds from the book, this disposition is likely to fail since the bequest is in relation to an item which is not in the possession of the testatrix at the time of her death. The disposition of the paintings could also prove problematic as there is lack of certainty of subject matter as the prints are part of a larger collection and there is no specific instruction as to which prints should be distributed. As the will give the family members the right to select which print they would like the court might decide that there is certainty as to the subject matter, however the trust could also fail as the list of beneficiaries might be too large in order to make the disposition workable. With regard to the sale of the mini cooper, this disposition might also be likely to fail as the sum of money to be distributed is uncertain until the car is sold. However, once the car has been sold the subject matter would become certain and therefore the court might allow this bequest to succeed. The trustees would have discretion as to how to distribute the money acquired from the sale and therefore any uncertainty with regard to the object matter of the trust might be avoided by allowing the trustees to use their discretion. The final bequest of the jewellery is also likely to succeed as the subject matter and the object are easily identified. Difficulties could arise in relation to the object matter of the trust as the will does not stipulate whether the grandchildren referred to are those that are alive at the time of the death of the testatrix or whether this includes any grandchildren at a future time. In this case the court might determine that there is too much ambiguity in relation to the object of the trust and declare the trust invalid as a result. In relation to the retail shop and the Audi estate car the beneficiaries are easy to identify. Difficulties could arise with the transfer of the shop as the deeds have not been signed with the new owner details registered accordingly. This could mean that this element of the trust could fail for not fulfilling the formalities for the transfer of the property. There would be no difficulty with the car as no such formalities are required and the courts are likely to insist on this being transferred despite the fact that there is no written proof of this disposition. Bibliography Ashburner, W, Principles of Equity, 2nd Ed, 1933, Butterworths Cockburn, T, Harris, W, & Shirley, M, Equity & Trusts, 2005,Butterworths Cretney, S.M& Masson, J M, Principles of Family Law, 6th Ed, 1997, Sweet & Maxwell Edwards, R & Stockwell, N, Trusts and Equity, 8th Ed, 2007, Financial Times Pitman Publishing Hanbury, & Martin, J E, Modern Equity, 17th Ed, 2005, Sweet & Maxwell Hayton, D J , Commentary and Cases on The Law of Trusts and equitable Remedies, 11th Ed, 2001, Sweet & Maxwell Holdsworth, W, History of English Law, 7th Ed, 1956, Mathuen & Co Ltd Hudson, A, Equity and Trusts, 4th Ed, 2005, Cavendish Publishing Parker, D B, & Mellows, A R, The Modern Law of Trusts, 9th Ed, 2008, Sweet & Maxwell Pearce, R & Stevens, J, The Law of Trusts and Equitable Obligations, 2nd Ed, 1998, Butterworths Pettit, P, Equity and the Law of Trusts, 10th Ed, 2005, Oxford University Press Slapper, G & Kelly, D, The English Legal System, 4th Ed, 1999, Cavendish Publishing Ltd Thomas, M, Statutes on Property Law, 8th Ed, 2001, Blackstone’s Todd, P, & Wilson, S, Textbook on Trusts, 7th Ed, 2007, Oxford University Press Cases Bowman v Secular Society [1917] AC 406 Boyce v. Boyce (1849) 16 Sim 476 Comisky v. Bowring-Hanbury [1905] AC 84 DHN Food Distributors Ltd v Tower Hamlets LBC [1976] 1 WLR 852 (CA) Goodman v Gallant [1986] Fam. 106 [1986] 2 W.L.R. 236 [1986] 1 All E.R. 311 [1986] 1 F.L.R. 513 (1986) 52 P. & C.R. 180 [1986] Fam. Law 59 (1985) 135 N.L.J. 1231 (1985) 129 S.J. 891 Grey v IRC [1960] AC 1. Gully v Cregore (1857) 24 Beav 185 Inland Revenue Commissioners v Broadway Cottages Trust [1955] Ch. 20 [1954] 3 W.L.R. 438 [1954] 3 All E.R. 120 47 R. & I.T. 574 35 T.C. 577 (1954) 33 A.T.C. 305 [1954] T.R. 295 (1954) 98 S.J. 588 IRC v. Broadway Cottages Trust [1955] Ch 20 Lamb v. Eames (1871) LR 6 Ch 597 Leahy v Attorney General for New South Wales [1959] AC 457 Legal Services Commission v Marchioness of Milford Haven ChD 8 December 2006 Malim v Keighley (1795) 2 Ves 529 McPhail v Doulton [1971] A.C. 424 Milroy v Lord (1862) 4 De GF & J 264 Morice v Bishop of Durham (1804) 9 Ves 399 Mussoorie Bank Ltd v Raynor (1882) 7 App Cas 321 Ord v Upton [2000] Ch. 352 [2000] 2 W.L.R. 755 [2000] 1 All E.R. 193 [2000] B.P.I.R. 104 [2000] P.I.Q.R. Q150 (2000) 97(1) L.S.G. 22 (1999) 149 N.L.J. 1904 (2000) 144 S.J.L.B. 35 Independent, January 11, 2000 R. v. District Auditor, ex parte W. Yorks. Metropolitan County Council [1986] RVR 24 Re Beadle (Deceased) [1974] 1 W.L.R. 417 [1974] 1 All E.R. 493 (1974) 118 Re Adams and the Kensington Vestry (1884) 27 Ch D 394 Re Ahmed & Co [2006] EWHC 480 (2005-06) 8 I.T.E.L.R. 779 (2006) 156 N.L.J. 512 Re Baden’s Trust (No 2) [1973] Ch. 9 [1972] 3 W.L.R. 250 Re Benjamin [1902] 1 Ch 723 Re Brooks Settlement Trusts [1939] Ch 993 Re Danish Bacon Co. Staff Pension Fund Trusts [1971] 1WLR 248. Re Donald [1947] 1 All E.R. 764 (1947) 91 S.J. 338 Re Golay’s Will Trusts [1965] 1 WLR 969 Re Gulbenkian’s Settlement [1968] 3 All ER 785 (HL) Re Hamilton [1895] 2 Ch 370 Re Kayford [1975] 1 All ER 604 Re London Wines Co (Shippers) Limited [1986] PCC 121 Re Rose, Rose v. IRC [1952] Ch 499 (CA) Re Sayer [1957] Ch. 423 [1957] 2 W.L.R. 261 [1956] 3 All E.R. 600 (1957) 101 S.J. 130 Re Toland Trust (2006-07) 9 I.T.E.L.R. 321 Sprange v. Barnard (1789) 2 Bro CC 585 Statutes Administration of Justice Act 1982 Companies Act 1985 Family Law Reform Act 1969 Law of Property (Miscellaneous Provisions) Act 1989 Law of Property Act 1925 Stock Transfer Act 1963 Wills Act 1837 Read More
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