Void Trusts

Invalidation

Trusts may be void by reasons of misrepresentation, fraud, undue influence and like factors, which operate on the settlor. The principles are similar to those applicable to contracts and deeds generally.

Purported trusts will fail if they lack the basic minimum requirements for trusts.  If they lack the requisite certainty as to objects, assets or intention, they will not be considered to be as trusts in the first place.  If any of these elements are insufficiently certain or are incapable of meaningful enforcement if they will be invalid from their inception.

Gifts for a non-charitable purpose are insufficiently certain, to be valid.  See the section on gifts for public purposes and the limited exceptions that may apply.

Trust may be void if it is subject to a condition, which is void against public policy or is illegal.  The condition may be a precondition or a condition subsequent which applies in the course of the trust.  If the precondition is void, the trust will not come into effect.  Gifts in trust which are subject to conditions subsequent may be enforced without the condition concerned.

The English Courts draw a distinction between conditions which are intrinsically wrong and those which are technically unlawful.  Under this approach, the former type of gift would be held totally void and would fail. In the latter case, the gift would not fail but would take effect without the invalid condition. The justifiability of the distinction has been doubted.

Against Public Policy

Trust may be void and unenforceable because they infringe principles of public policy.  Where a trust fails, the trust assets will generally be held under a resulting trust for the person who created the trust concerned, the settlor.

Trust may be void for reasons of public policy, which are divorced from obvious illegality or moral blameworthiness.  Formerly, the rule against public perpetuities rendered void gifts which were capable of vesting beyond the perpetuity period.  The 2009 land law reforms abolished the rules against perpetuities, but allow for an application to the court, in order to vary the terms of trusts.

Trusts which are contrary to public policy may be void.  If they have an illegal or immoral objective, the court will not uphold them. The principles are similar to those which apply to illegal and unenforceable contracts.

Trusts which tend to promote immoral conduct or deal with the consequence of criminal conduct or convictions have been found to be void.  Formerly, trusts for future illegitimate children were invalid at common law. They are now specifically permissible under the Status of Children Act.

Family Institutions and Duties

Trusts that place a wide restraint on marriage are likely to be void.  Conditions which take effect on a second marriage are less vulnerable to this objection. Limitations on persons marrying certain classes and groups of persons have been upheld.  It is distinctly possible that even partial restraints are contrary to the constitutional right to marry so that they might not now be upheld.

Trusts which contemplated or encouraged future separation or divorce were not traditionally enforceable at common law.  However, where the object is to provide for a person during separation after the marriage, the courts may now uphold them.  The position has now been modified by 2010 legislation, which permits cohabitation agreements.

Trusts which interfere with familial rights and duties may be void as being against public policy.  Trusts which tend to encourage the separation of children from their parents may fall into this category.  Trusts which make conditions that a child should be brought up in a particular religion or in a particular manner may interfere with the rights of parents to provide for the education of their children are likely to be void.

Although trusts which require that a person change religion may be upheld provided that they do not interfere with the right of parents to determine their children’s religious upbringing.

Insolvency I

Trusts may be void if they are established for avoiding liability to actual or prospective creditors.  See generally the sections on bankruptcy law. Bankruptcy law prohibits gifts, settlements or trusts which are undertaken for the purpose of defrauding or avoiding liability to creditors.

A gift, transfer or trust of property made with the intent of delaying, hindering or defrauding creditors is void as against them.  It may be set aside and creditors may have recourse to those assets. The original 1634 legislation was largely re-enacted by the Land and Conveyancing Law Reform Act 2009.  A transfer is valid as against a purchaser who takes the assets for the party without notice for valuable considerations federation.

“Fraud” in the sense of intentional wrongdoing is not required in this context.  It is enough that the transferor acts dishonestly in a broad sense.  The very act of intending to delay and hinder creditors is probably sufficient in itself where the likely and probable consequence is, in fact, to delay creditors.

A transfer may be invalid under the above provisions, even if it is made for valuable consideration.  If the transferor’s purpose is to liquidate the assets so as to move them beyond the reach of his creditors, this may be found to be invalid. However, it is more difficult to prove the requisite intention, where the transfer is for value.  Where the transfer is taken by a purchaser for valuable consideration without notice of the above circumstances, the transaction may not be set aside.

Insolvency II

In some cases, it may be possible to infer the intention to delay creditors.  A liquidation of assets may be more readily inferred to be for the purpose of delaying and hindering creditors.  Correspondingly, where a substitute asset is purchased, it is less likely that the requisite intention will be inferred.

The person who created the settlement need not be insolvent at the time that the trust or conveyance of the asset is made.  If it is possible to infer an intention or if there is evidence of an intention to avoid creditors in the future, the provision may apply. The extent to which the provision applies or extends to future creditors is the subject of differing approaches by the courts.

A settlement or trust made with the intention of defrauding person other than creditors may be held to be void.  This provision was also provided are under the Conveyancing Ireland Act 1634 and is substantially been restated in updated form in the 2009 legislation.  Once again, the settlement or trust is not void as against subsequent purchasers for value.

The proof of intent to defraud creditors is easier in the case of a transaction that is not for value. It may be presumed from the circumstances.  Where there is sufficient evidence to point in this direction, the onus of upholding may shift to the transferor.

A power of revocation or a hidden power or arrangement for the transferor to continue to enjoy the benefit of the assets after the transfer may point towards an intention to defraud creditors.  Similarly, the fact that assets are transferred to close family members, may be an indication of the requisite intention.

Transfers and trusts of assets at undervalue made within five years before bankruptcy may be set aside unless they prove they were insolvent at that time. Where the transfer or trust is made in favour of certain connected persons, it is automatically rendered void, save in very limited circumstances.  They are voidable at the instigation of the official assignee in bankruptcy.

There are exceptions for settlements and trusts made in good faith for valuable consideration.