ABSTRACT
The proposition that where a primary trustee (T1) holds property on trust for a beneficiary (T2) who then constitutes herself bare sub-trustee of her equitable interest for the benefit of a sub-beneficiary (C) results in the beneficiary (T2) ‘dropping out’ of the primary trust such that T1 becomes trustee for C. This was assumed by Upjohn J to be so in Grey v Inland Revenue Commissioners [1958] Ch 375, 382. Though that assumption has been doubted (variously by PV Baker (1958) 74 LQR 180, and G Jones [1966] CLJ 19), many commentators have read Onslow v Wallis (1849) 1 Mac & G 506; Re Lashmar [1891] 1 Ch 258; and Grainge v Wilberforce (1889) 5 TLR 436 as supporting it. This paper will demonstrate that when read in context, none of these three cases stand for such a proposition at all. Consequently, the notion that the sub-trustee ‘drops out’ such that the principal trustee becomes trustee for the beneficiary of the sub-trust is a ‘myth’ which is unsupported by the caselaw on which it purportedly rests.
Tham, Chee Ho, Exploding The Myth That Bare Sub-Trustees ‘Drop Out’ (September 1, 2017). Published in Trust Law International, volume 31, no 2, pp 76-92.
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