Making a Gift
When a gift is made legal and beneficial ownership is transferred by the Donor to the Donee. Alternatively, a trust is created when the Settlor (the person who owns the assets) gives assets to the Trustee, who holds that property on trust for the benefit of the Beneficiary. It is important to ensure a gift or trust is created validly otherwise it can have unwanted consequences.
The case of Milroy v Lord [1862] EWHC J78 identified 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 3rdparty as a trustee.
This post is only in relation to gifts… all three equate to one of the hardest and most content heavy modules any Law student will come across on their degree. As a result of their close links, many of these factors apply to the creation of an express trust and gifts. Consequently, some of the caselaw used is applicable to both an express trust is being created and creating a valid gift.
Requirements of a Valid Gift
In order to validly give a gift, it requires the three certainties, as well as a valid transfer of property to be present. Additionally, the recipient must be over the age or 18 and have full mental capacity.
Certainty of Intention
This criterion regards whether the Donor intended to give this item to the Donee. The Donor generally can only give an unconditional gift to the Donee. This is fairly straight forward to prove, however ‘precatory words’ will invalidate the gift. They are words that produce a degree of uncertainty that makes it unclear what the Donor wanted to do with the assets- Re Adams & Kensington Vestry [1884] LR 27 ChD 394. If precatory words are used, it may fail to reach the standard that certainty of intention requires and be an invalid gift.
In the case of Paul v Constance [1976] EWCA Civ 2 / [1977] 1 W.L.R. 527, the phrase ‘as much yours as it is mine’ was interpreted to be sufficient as the amount could be quantified.
Certainty of Subject Matter
This criterion relates to the assets that are being given away. In the case of Palmer v Simmonds (1854) 2 Drew 221 the term ‘bulk of estate was not sufficient as it did not specify which parts of the estate and in what proportion.
The case of Re London Wine Co Ltd [1986] PCC 121 found there was insufficient certainty of subject matter as each bottle of wine was not marked to be owned by different customers.
In the case of Hunter v Moss [1994] 1 WLR 452, it was held that shares in a company did not have to be differentiated as they are all identical and possess exactly the same rights, therefore subject matter was certain as long as it is quantified.
The case of Re Golay Will Trusts [1965] 1 WLR 969 held that “reasonable income” would be sufficiently certain as the courts could quantify a reasonable income. However, this case was in 1965. As society has developed, the idea of a reasonable income has become a rather subjective one and therefore if reassessed today, the courts may rule differently.
Certainty of Objects
It requires the Donee to be a certain and specific person. In relation to trusts, it requires the beneficiaries to be certain. When a gift takes place, it is fairly certain who the gift is being given to. The case ofIRC v. Broadway Cottages Trust [1955] Ch. 20 (CA) identified that a complete list of all of the Donee’s is required to amount to sufficient certainty of objects. It could not be people that may qualify in the future or have qualified in the past.
In McPhail v Dalton [1970] UKHL 1 (also known as Re Baden’s Deed Trusts (No 1)) the Given Postulence test was derived, identifying that there only needs to be conceptual certainty that there is an identifiable class of Donee’s, and not evidential certainty which was required in Broadway Cottages.
The given Postulence test includes a discussion about administrative unworkability and capriciousness.
Administrative unworkability is where the class of Beneficiaries/Donee’s is too wide that it is unworkable to enforce. This was explored in R v District Auditor No 3 Audit District of West Yorkshire MCC, ex parte West Yorkshire MCC [1986] RVR 24 where 2.5 million people was a impossible to create a trust for.
Capriciousness regards whether it was rational thing for the Donor to do. The case of Re Manitsy ST [1974] Ch 17 identified that if it was so irrational for the Donor to benefit that class of people or to distribute the property in that way, then the trust may fail to be a valid gift.
Transfer of Property
Different classes of assets have different requirements to fulfill in order for a valid transfer of property to be made. If the transfer of property has not been validly executed, it will fail to be a valid gift.
Chattels
These are known as ‘personalty’ and are physical items. 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 v Taylor House Gallery Ltd [1990] 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. Additionally, it could be transferred by execution of a deed- s1 LP(MP)A 1989. By executing a deed, it triggers automatic vesting regardless of where the property is.
Land
Due to land being very high value, a lot of these requirements are found in statute. It must to be transferred by way of Deed (S52 LPA 1925) which complies with the requirements of a deed- s1 LP(MP)A 1989.
In addition, the Title of the property must be changed at land registry. The land will not have changed legal title until land registry have updated ownership on the register which can take up to three weeks.
Shares in a Company
Public limited companies (plc) can all be bought and sold using the online System- CREST. This makes the transfer of shares easier for these companies. Private limited companies (Ltd) however have different requirements and are not traded online. In order to transfer shares, a Stock Transfer form must be used and then 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
High amounts of money need validation to ensure that the transaction is safe. The physical gift of money is not enough for a valid transfer to take place. Cheque’s are valid ways for gifting money, however they must be cashed in order to actually change title. The gift is the moment in which they have received the money. In recent years, bank transfers have become more common, and are deemed to be a valid way of transfer. Additionally, it may be done by way of a Deed.
Equitable Interest in Property
It is possible to gift an equitable interest in a property- a beneficial interest. This must be done by way of signed writing- s52(1)(B) LPA 1925. No transfer actually takes place, however the Donee will then assume the rights of a beneficiary. This is complicated and will become clearer when exploring trusts further.
Court Intervention
The general principles of equity govern whether these gifts can be validated. ‘Equity will not assist a volunteer’ and `Equity will not perfect an Imperfect gift’- Milroy v Lord [1862] EWHC J78. Due to the nature of gifts, the law allows the donor to change their mind at any time before the transfer of the property takes place, as they are under no obligation to gift their property. However, there are exceptions to this where the courts have intervened because it would be just and reasonable to validate the gift.
Every Effort Test
Developed in Milroy v Lord [1862] EWHC J78, the idea that if the Donor did everything in their power to transfer the property, it is then just and equitable to validate the gift. For example, if all that was left to do was the company to change the share name on their register, the Donor had done everything in order to ensure that the shares were transferred to the Donee and will be validated.
In the case of Re Rose [1952] EWCA Civ 4, transfer documents had been sent to their accountant who was going to send them to the company. Because the donor had the opportunity to contact their accountant and retrieve the documents, it was seen to be an invalid gift because it was not past the point of no return.
Unconscionability
This is a way of giving rise to a gift, which lowers the standard from the ‘every effort test’. The case of Pennington v Waine [2002] EWCA Civ 227 the court allowed equity to perfect the gift and assist the volunteer if:
- There was a promise to transfer 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.
The more recent case of Curtis v Pulbrook [2011] EWHC 167 identified that this method has been developed to resemble Proprietary estoppel (Assurance, Reliance, Detriment).
Strong v Bird (1874) LR 18 Eq 315
Additionally, the court a perfected an imperfect gift and assisted a volunteer if 4 conditions were met:
- 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 accepted and consolidate by the Supreme Court in Re Freeland [1952] Ch 110.
Making invalid transfer of assets can have serious tax implications as well as potentially losing ownership of the asset all together. Sometimes it is not as easy as handing someone the asset. There are further requirements that need to be met, and when dealing with high value assets, legal professionals should be consulted if you are unaware of the process and technicalities. It is a last resort and not ideal to try and rely on one of the exceptions to validate the gift.
By Woodrow Cox
Originally published at thesynergists.co.uk on January 23, 2019.
