Introduction
A trust, in its fundamental form, is a legal mechanism where a person, termed the settlor, transfers property to another, the trustee, to manage for the benefit of a third party, the beneficiary. This arrangement, which is a cornerstone of equity, requires meticulous compliance with specific legal principles to ensure validity and enforceability. These principles are often referred to as the “three certainties,” a classification that originates from the 19th century case Knight v Knight (1840) 3 Beav 148. The three certainties, namely, certainty of intention, certainty of subject matter, and certainty of objects, must be present for a trust to be considered legally binding. The absence of even one of these elements renders the purported trust void. This article will examine each of these certainties in detail, referencing both established case law and current legal understanding.
Certainty of Intention
The first of the three certainties is that there must be a clear intention on the part of the settlor to create a trust. This does not require the use of any specific words, such as “trust” or “trustee.” Rather, the court must be satisfied that the settlor intended to impose a binding obligation on the recipient of the property to hold and manage that property for the benefit of a defined beneficiary. The intention must be to create an imperative obligation, as opposed to a mere moral or social obligation, or a hope or expectation, on the part of the settlor. The court’s focus is on the substantive effect of the settlor's language and conduct.
In Re Adams and the Kensington Vestry (1884) 27 Ch D 394, the testator left property to his wife "in full confidence" that she would do what was right regarding its distribution to their children. The court determined that these words did not create a trust because they were considered precatory, meaning they expressed a wish or a hope but not an imperative obligation to hold the property for the children. Conversely, phrases such as "on trust for" or “it is my will that” are more likely to demonstrate an intention to create a trust. The crucial distinction is whether the language demonstrates an unequivocal intention to create a binding obligation to manage property for the benefit of another. The court interprets the words in their context to discern the settlor’s actual intention and to avoid invalidating what may be perfectly valid trusts by a strict adherence to form. This position seeks to balance the settlor’s desires with the need for legal precision.
Certainty of Subject Matter
The second certainty mandates that the subject matter of the trust, the property itself, must be clearly identifiable. This means that the assets to be held on trust must be specific and capable of being ascertained. The court needs to know precisely what property the trustee is obligated to administer for the beneficiary. The lack of clarity over the subject matter makes the trust invalid. This requirement ensures that trustees know exactly what they must hold for the beneficiaries’ benefit and that the beneficiaries are able to enforce their rights in relation to a specified pool of assets. This applies equally to both present and future property.
Problems often arise with respect to tangible property where the specific items are not segregated from a larger mass. For example, if a settlor declares a trust over "50 of my 100 identical bottles of wine," without specifying which 50 bottles are the subject of the trust, then the trust would fail for uncertainty of subject matter. This position was demonstrated in Re London Wine Company (1986) PCC 121, where it was held that there was no certainty of subject matter because the wine, which was part of a larger collection, was not segregated. However, in Hunter v Moss [1994] 1 WLR 452, the court determined that a trust of 50 shares out of a larger holding of 950 shares of the same class was sufficiently certain, based on the argument that all of the shares were identical and interchangeable. This highlights a distinction between tangible and intangible property. It should be noted that the subject matter can be an equitable interest in property.
Certainty of Objects
The third certainty pertains to the intended beneficiaries, the "objects" of the trust. The court needs to be able to determine who, specifically, the beneficiaries are. There is a distinction made between fixed trusts, where the beneficiaries’ entitlements are predetermined, and discretionary trusts, where trustees have the discretion to choose among a class of beneficiaries. The test for certainty of objects differs depending on whether the trust is fixed or discretionary. The beneficiary principle reinforces this, stating that trusts must have ascertainable beneficiaries; a trust not for individuals is generally deemed invalid. This principle ensures that someone can enforce the trust.
Fixed Trusts
For a fixed trust, there must be a complete list of all the beneficiaries; this is known as the "complete list test" established in IRC v Broadway Cottages [1955] Ch 20. A trust fails if the beneficiaries are defined in such a way that the complete list cannot be compiled. If the beneficiaries are a group or a class of people, the class description needs to be sufficiently precise such that each member can be identified with certainty. For instance, a trust for "all my children" is sufficiently certain as those people can be identified. If a trust is established for a group defined with vagueness, such as "my friends," then the trust will fail for uncertainty, as was held in Re Barlow's Will Trusts [1979] 1 WLR 278.
Discretionary Trusts
In the case of discretionary trusts, trustees are empowered to choose from among a defined class of beneficiaries who will benefit and in what proportions. In McPhail v Doulton [1971] AC 424, the House of Lords moved away from the "complete list test" and adopted the "is or is not" test for discretionary trusts. The test is whether one can say with certainty that any given individual is or is not a member of the class of potential beneficiaries. The focus of the test is conceptual certainty. In other words, the class must be defined conceptually with sufficient clarity to allow the court to determine if an individual is inside the class or not. It does not require the trustees or the court to create a list of all members.
In Re Gulbenkian's Settlements [1970] AC 508, the House of Lords established that a trust would be valid if it could be determined with certainty if any given individual was or was not a member of the class of potential beneficiaries even if there was difficulty in making a complete list. It should be noted that the 'is or is not' test will only be applied if there is a power given to trustees to select and distribute from a class of beneficiaries. If the obligation is mandatory and the class of beneficiaries are defined with ambiguity, the trust will be considered void. The "workability" test is applied if the class of potential beneficiaries is too wide or impractical for the trustees to fulfill their duties; this was explored in Re Hay's Settlement Trusts [1982] 1 WLR 202.
Specific Examples and Case Law
Several cases illustrate the practical application of these certainties. In Sprange v Barnard (1789) 2 Bro CC 585, a testator left their property to their husband, stating it was "for his sole use" and added that "at his death, the remaining part of what he does not want be divided between" two beneficiaries. The court determined that this was an uncertain disposition because the husband was allowed to spend as much as he saw fit; thus, the subject matter was uncertain. This highlights that the subject matter must be definite and not subject to a potential reduction at the will of the trustees.
In Re Golay’s Will Trusts [1965] 1 WLR 969, a clause stated that a beneficiary could choose one of the testator’s flats at a "reasonable" cost; this was ruled to be sufficiently certain. The court held that it is possible to form an objective view of what is meant by reasonable, as a legal standard. This example highlights that a degree of subjectivity is permissible if the test used is an objective one. Re Baden’s Deed Trusts (No. 2) [1973] Ch 9 demonstrates the application of the 'is or is not' test to discretionary trusts. Here, the House of Lords examined whether the class of "relatives" was sufficiently certain and concluded it was. This shows how courts have adopted a flexible approach to certainty of objects in discretionary trusts.
Cross-Topic Connections
The three certainties are interdependent, as problems with one may affect another. For instance, a lack of clarity over the subject matter may cause problems with identifying the beneficiaries of the trust, as those entitlements can not be specified. The law will also look at the wider context of the case when assessing these issues. For example, if there is a family home involved, a trust may be considered a reasonable way for the property to be managed by a trustee for the benefit of a beneficiary. These three principles work in conjunction, ensuring the validity of a trust by requiring that the intentions of the settlor, the assets to be held, and the beneficiaries are all clearly defined and capable of objective determination. The three certainties of a trust are therefore an important component of the wider body of trust law.
Conclusion
The three certainties, which consist of intention, subject matter, and objects, are critical for the creation of a legally valid and enforceable trust. These certainties ensure that the trustees know the extent of their responsibilities and that the beneficiaries’ rights can be properly protected. The law has developed practical tests and distinctions that accommodate a range of situations while adhering to fundamental principles. The evolution of case law shows the courts are willing to adopt a pragmatic approach, but always seek to avoid ambiguity when creating a trust and applying these certainties. As highlighted by Knight v Knight (1840) 3 Beav 148, each certainty plays a critical role in ensuring that the transfer of property within a trust is legally sound and can be enforced in the courts of equity.
