Trust Property and Constitution of the Trust (Section 8)

There is no trust without property. Section 8 sets two conditions on what can be held in trust: the property must be transferable to the beneficiary, and it must not be merely a beneficial interest under a subsisting trust. Once suitable property is identified, the trust must also be constituted: the property must actually reach the trustee, or the author must declare himself trustee of it. This note covers both questions.

1. The Text

2. What Can Be Trust Property

Almost any kind of property can be held on trust. The Act draws no distinction between movable and immovable, tangible and intangible, present and (once acquired) future property.

3. "Transferable to the Beneficiary"

The first condition ties the law of trusts to the law of transfer. Because the purpose of a trust is to confer benefit, and because a beneficiary absolutely entitled may call for the property itself (Section 56), the property must be capable of passing to him. Property that the law does not allow to be transferred cannot be the subject of a trust.

Section 6 of the Transfer of Property Act, 1882 lists many interests that cannot be transferred. These cannot be trust property either:

• A mere expectancy (spes successionis), such as the chance of an heir apparent succeeding to an estate, or the chance of receiving a legacy;
• A mere right of re-entry for breach of a condition subsequent, except to the owner of the property affected;
• An easement, apart from the dominant heritage;
• An interest restricted to personal enjoyment by its owner;
• A right to future maintenance, however arising;
• A mere right to sue;
• A public office, or the salary of a public officer before it is payable;
• Pensions and similar allowances declared non-transferable by law.

Transferability is assessed to the beneficiary. If a statute permits transfer only to a limited class (for example, certain land laws restrict transfer to members of a protected community), a trust of that property for a beneficiary outside the class will fail.

4. "Not Merely a Beneficial Interest under a Subsisting Trust"

The second condition is a feature of the Indian Act. A beneficiary's interest under an existing trust cannot, by itself, be made the subject matter of a fresh trust. The rule is consistent with the Act's view that the beneficial interest is a right against the trustee, not ownership of the trust property (Section 3; Topic 6).

The rule does not leave the beneficiary without options. He may transfer his interest outright (Section 58), and once he receives the trust property itself, or income from it, that property can be settled on a new trust in the ordinary way. What Section 8 prevents is the layering of a new trust on a mere beneficial interest while the original trust subsists.

5. Certainty and Identification

Section 6 requires the trust property to be indicated with reasonable certainty (Topic 8). Practical points:

• Description: the property should be identified so that the trustee and the court can say what is and is not subject to the trust: survey numbers for land, folio numbers for shares, account numbers for deposits.
• Part of a larger mass: where the trust is of part of a larger holding ("200 of my 1,000 shares"), the instrument should make clear which part, or that the trust attaches to a proportion of the whole.
• Residue: a trust of "the residue of my estate" is sufficiently certain, because the residue can be ascertained after debts and legacies are paid.
• Substitution: once identified, the trust attaches to the property and to whatever it is converted into, so proceeds of sale and reinvestments remain trust property.

6. Constitution of the Trust

A trust is completely constituted when the trust property is vested in the trustee on the terms of the trust. There are three routes:

Incompletely constituted trusts

If the author intends to transfer property to a trustee but does not complete the transfer, the trust is incompletely constituted. The general rule, developed in English equity in Milroy v Lord (1862) and followed in India, is that the court will not perfect an imperfect gift in favour of volunteers (beneficiaries who gave no consideration). Nor will it treat a failed transfer as a self-declaration of trust, because the author intended to make someone else the trustee, not himself.

• Where consideration was given: a beneficiary who gave value may enforce the author's promise to settle the property as a contract, including by specific performance where appropriate.
• Where the author has done all he can: if the author has done everything required of him and completion depends only on a third party (such as a company registering a share transfer), courts have been willing to treat the transfer as effective between the parties.
• Future property: a declaration of trust of property the author does not yet own creates no trust; at most it is a promise that may bind him if supported by consideration.

7. Related Topics and Provisions

• Creating a trust (Topic 8): certainty of property and the transfer requirement in Section 6
• Nature of the beneficiary's interest (Topic 6)
• Rights of the beneficiary (Topic 25): transfer of the beneficial interest under Section 58
• Trust deed in practice (Topic 12): describing the trust property