Allan's Trustees v Lord Advocate

Under Scots law, an owner may declare herself sole trustee of her own property, but an intention and declaration of trust alone do not constitute an irrevocable trust. The truster must perform a bona fide act equivalent to delivery, transfer or conveyance of the trust property.

Where an indivisible trust is intended to be irrevocable, intimation to one beneficiary may constitute the necessary equivalent of delivery. It earmarks the property as trust property and brings the whole trust into operation, including interests of beneficiaries who received no intimation.

A third party acquires no jus quaesitum tertio under a contract which gives that party no enforceable right against either contracting party. A benefit arising only through a separate declaration of trust does not suffice.

Miss Allan effected an endowment assurance policy under which she declared herself trustee of the policy and its proceeds. The trust provided £20,000 each for Mrs Jeffrey and Miss Marr, with the remainder for Miss Ramsay. Miss Ramsay knew of the trust, but the other beneficiaries did not. Miss Allan died after paying one premium, and the insurer paid £117,000 to her trustees and executors.

The Crown accepted that intimation to Miss Ramsay excluded Miss Allan from any interest in the residue. It maintained that the two £20,000 interests remained revocable because they had not been intimated to their respective beneficiaries. The majority of the Second Division accepted that contention and treated those sums as aggregable with the estate under section 4 of the Finance Act 1894.

The central issues were whether the beneficiaries acquired contractual rights by jus quaesitum tertio and whether intimation to one beneficiary constituted the whole declared trust.

1. Appeal allowed by a majority of four to one. Lord Reid delivered the leading speech. Lord Morris of Borth-y-Gest and Lord Donovan agreed with his reasons, and Lord Upjohn reached the same conclusion. Lord Guest dissented.

2. Per Lord Reid, Scots law had reasonably developed so that an owner could constitute herself sole trustee of her own property. Proved intention and execution of a declaration of trust were insufficient by themselves. Constitution required a bona fide physical act equivalent to delivery, conveyance or transfer of the trust property. Otherwise a person could retain a declaration for use against creditors while remaining free to suppress it and recover control.

3. Per Lord Reid and Lord Upjohn, the relevant delivery concerned the trust property, not separate beneficial rights. Miss Allan intended one irrevocable trust comprising the whole policy fund. Intimation to Miss Ramsay therefore amounted to notional delivery of that property and brought the entire trust into operation. The trust could not realistically be constituted as to one beneficiary while remaining inchoate as to the others. Such a limitation would also make self-declared trusts impossible for unborn beneficiaries.

4. Accordingly, the interests of Mrs Jeffrey and Miss Marr were irrevocably constituted from the policy's commencement. Miss Allan never held a beneficial interest in their two £20,000 sums, which were not to be aggregated with her estate under section 4 of the Finance Act 1894.

5. Per Lord Reid, the beneficiaries acquired no jus quaesitum tertio against the insurer. The policy required payment to Miss Allan as trustee and discharged the insurer from responsibility for the proceeds. Any benefit arose from the declaration of trust rather than an enforceable contractual right. Lord Guest agreed on this issue.

6. Lord Guest dissented on constitution of the trust. He regarded the policy as containing three separate benefactions. In his view, intimation validated only Miss Ramsay's interest, leaving the two uncommunicated interests revocable and aggregable with the estate.

1. House of Lords: By a majority of four to one, allowed the appeal and reversed the conclusion that the two £20,000 interests were aggregable with the deceased's estate.

2. Second Division of the Court of Session: The majority rejected both the contractual-right argument and the contention that intimation to Miss Ramsay constituted the trust for Mrs Jeffrey and Miss Marr. It held their interests aggregable. Lord Walker dissented on the contractual issue.