Completely constituted trust

A completely constituted trust is a reference to the circumstance where an express trust is created by a legal transfer of trust property from the settlor to a trustee. The outcome of a completely constituted trust is that the settlor validly vests an equitable interest in a beneficiary. The transfer of legal title from the settlor to the trustee is a necessary second step in the process of creating a trust, the first being the declaration of trust over the trust property. The failure to transfer legal title in the circumstance where a trust is created by transfer will result in an incomplete constitution.

Lord Justice Turner in Milroy v Lord (1862) 45 ER 1185 found that:

“… in order to render a [trust] valid and effectual, the settlor must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him.’

Therefore, if a settlor does not comply with the above statement of law by doing everything that is necessary to be done to transfer the property, the trust will not be completely constituted and no equitable interest will vest in the beneficiaries.

In Australia the interpretation of the phrase “everything that must be done that was necessary to be done” has been settled by the High Court in Corin v Patton (1990) 169 CLR 540. Mason CJ and McHugh J stated that:

“so long as the donee [the trustee] has been equipped to achieve the transfer of legal ownership, the gift is complete in equity… From the point of view of the intending donor, the question is whether what he has done is sufficient to enable the legal transfer to be effected without further action on his part…”

The second aspect of the statement of Tuner LJ refers to the nature of the property, reflecting the different processes involved with the transfer of different types of property. For example, an assignment is necessary for the transfer of a lease. If the lease is not legally assigned, the transfer will fail and the trust will not be completely constituted (e.g. a lease that is registered will need to have the registration transferred).

Additional reading:

The Complete Guide to Trading Trusts for small and medium-sized business