Introduction
An express trust is a fiduciary relationship in which a person, known as the settlor, transfers legal ownership of assets to another person or entity, known as the trustee, to be held and managed for the benefit of specific individuals or a defined class, known as the beneficiaries. Unlike trusts imposed by law, such as resulting or constructive trusts, an express trust is deliberately and formally created by the settlor through explicit manifestation of their intention. This creation involves the application of specific legal principles and adheres to defined requirements, making it a fundamental element in wealth management and estate planning. Key to the valid creation of an express trust are the requirements of certainty of intention, certainty of subject matter, and certainty of objects. These requirements, formulated in case law, must be strictly adhered to for a court of equity to recognize and enforce the trust. The language used to declare a trust must demonstrate a clear commitment to creating a binding obligation on the trustee. Furthermore, the property to be held on trust and the beneficiaries of that property must be specifically identified, ensuring that the trustee’s obligations and the scope of their duties are well-defined.
Creation of an Express Trust
The establishment of an express trust requires careful adherence to legal procedures, involving the transfer of ownership from the settlor to the trustee. This transfer must be complete, with the settlor divesting themselves of legal title to the property, while also demonstrating a binding intention to create the trust, and a clear identification of the property held in trust and its beneficiaries. The transfer can occur inter vivos (during the settlor's lifetime) or through a testamentary instrument, such as a will, taking effect after the settlor’s death. The method of transfer will vary depending on the nature of the property, be it land, personal property, or intangible assets. For land, a deed is generally required, while for other types of property a transfer by delivery or assignment can suffice. In either case, the settlor’s intent must be clearly and unequivocally demonstrated, with reference to the intended property and beneficiaries. An imperfect attempt to transfer property to a trustee is not enough to bring a trust into existence, equity will not act to perfect an imperfect gift.
The Requirement of Certainty of Intention
A fundamental prerequisite for an express trust is certainty of intention. This signifies that the settlor must demonstrate a clear and unambiguous intent to create a binding legal obligation on the trustee, rather than merely expressing a wish, hope, or moral obligation. The wording employed by the settlor must be mandatory rather than precatory, compelling the trustee to act in accordance with the stated wishes. As highlighted in Re Adams and the Kensington Vestry [1884] 27 Ch D 394, the court must ascertain if the testator had an intention to create a trust rather than placing a moral obligation on his wife to use the money to provide for the children. Precatory words such as ‘desiring’, ‘wishing’, ‘hoping’, and ‘believing’ do not suffice and therefore cannot give rise to an express trust. This concept was further reiterated in Jones v Lock (1865) 1 Ch App 25, where a father’s loose conversation about his intention to give a cheque to his infant son was not regarded as a declaration of trust.
However, as per Paul v Constance [1977] 1 WLR 527, a trust can be created without explicitly using the word “trust” so long as the settlor’s intention to create a trust can be inferred. In Paul v Constance, the parties were of limited legal understanding, therefore the court took a more lenient approach and a declaration of trust was found from their behaviour and circumstances. The court held that T’s intention to create a trust in favor of C was demonstrable by their relationship with their joint bank account, from which they both withdrew money. This highlights the need for judicial interpretations to be flexible and dependent on the specific facts of the case.
The Requirement of Certainty of Subject Matter
A valid express trust must also fulfil the requirement of certainty of subject matter. This means that the property to be held on trust must be clearly identifiable and defined, such that it is apparent exactly what assets are to be held by the trustee and for the benefit of the beneficiaries. This requirement is to protect the trust from failing for lack of certainty. When the property is tangible, such as land or jewelry, this poses fewer issues; but where the trust property is intangible, such as shares, money, or part of a homogenous mass, issues arise. This problem has been well illustrated in case law. In Re London Wine Co [1986] PCC 121 it was held that a trust could not be made of wine, which was not segregated from the rest of the mass of wine, on the basis that it was not possible to determine which wines were intended to be held on trust. A similar reasoning was used in Re Goldcorp Exchange Ltd [1995] 1 AC 74 where the court held a trust failed as the gold had not been separated. However, in Hunter v Moss [1994] 1 WLR 452 it was held that a trust for 50 shares out of the settlor’s total holding of 950 was valid despite the lack of segregation, on the basis that shares were intangible assets. The case of Hunter v Moss was further affirmed in Re Harvard Securities, Holland v Newbury [1997] 2 BCLC 369, where it was held that the court would treat intangible assets differently from tangible assets in relation to certainty of subject matter. This remains a difficult distinction which was criticised by the judges as having no substantive theoretical basis.
The Requirement of Certainty of Objects
The final requirement of a valid express trust is certainty of objects: the identity of the beneficiaries must be determined with sufficient certainty that the court knows who is entitled to benefit from the trust. Where a trust has fixed beneficiaries (fixed trusts), all beneficiaries must be ascertainable, as established in IRC v Broadway Cottages [1955] Ch 20. However, this was overturned in the decision of McPhail v Doulton [1971] AC 424 concerning discretionary trusts. Lord Wilberforce said that the necessary test to determine if a class of beneficiaries is valid is to question if you can say with certainty if a certain person is within or outside the class. This "is or is not" test for conceptual certainty has been applied in subsequent cases, with the understanding that if there is a great number of beneficiaries who are impossible to find this will create a problem with enforceability for the courts. In Re Baden (No 2) [1973] Ch 9 it was established that the test for evidential uncertainty which is related to the difficulties that may arise when identifying whether a specific beneficiary was within a class, is to accept that if a single individual has been identified as falling under the trust, it is valid, thus negating a requirement for every single member to be found to achieve validity. The conceptual uncertainty must be addressed before the courts go into evaluating the facts to establish evidential uncertainty. In Oxley v Hiscock [2005] Fam 211 the court held that intention can be deduced from conduct but in absence of express or implied agreement the beneficial share can be determined based on fairness relating to the whole course of dealing between them.
The issue of identifying appropriate beneficiaries of the trust is particularly difficult in cases where the class is defined by relational connection. As seen in cases such as Re Barlow’s Will Trusts [1979] 1 WLR 278 where the word “friends” was deemed to be too conceptually uncertain to form the objects of a trust. The exception to this rule is charitable trusts where there is no requirement to have defined beneficiaries. As was held in Dundee Hospitals Board v Walker [1952] 1 All ER 896 the trustees of a charitable trust need to act responsibly, while the will states that they have “sole and absolute discretion” in doing so. A ‘capricious power’, as was described in Re Manisty’s Settlement Trusts [1974] Ch 17 would be deemed invalid, with clear limitations on how far that discretion can go. A later case of Re Tuck [1978] Ch 49 provided that evidential uncertainty can be cured by delegation to a third party. In this way, the judiciary has made clear that it is not concerned with micro managing trusts, but it will always ensure that if the power is being exercised it is being exercised properly.
Examples of Express Trusts
Express trusts form the backbone of much wealth management, estate planning, and asset protection work, and take a variety of different forms according to their objectives and circumstances. One common example is the creation of a discretionary trust, where the settlor gives the trustee the discretion to distribute income or capital among a defined class of beneficiaries. This type of trust allows flexibility to respond to changing needs or circumstances, particularly in the context of minor children, where financial needs may change as they progress into adulthood. Another example is the creation of a life interest trust, where a beneficiary receives the income generated from the trust property for the duration of their life, with the capital passing to another beneficiary (or beneficiaries) upon their death. This has traditionally been a mechanism to guarantee security for one’s spouse. In recent years, express trusts have also been used in complex financial structures for the purposes of avoiding taxation or for the purposes of asset protection for when they are subject to litigation. As can be seen from the cases of JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2017] EWHC 2426 (Ch) and National Crime Agency v Dong [2017] EWHC 3116 where the courts deemed both to be shams which resulted in a breach of trust by the settlor, and the resulting property or finances being transferred to the intended beneficiaries to correct that fraud.
Conclusion
Express trusts, though complex, are a fundamental part of modern law, serving as a legal framework for the transfer, holding, and management of property, in accordance to an individual’s explicit wishes. The creation of a valid express trust must adhere to the rules of certainty of intention, subject matter and objects. Compliance with these requirements guarantees that the trustee’s obligations and the beneficiaries’ rights are defined, and subsequently can be enforced. The inherent flexibility of an express trust allows it to be adopted to meet a wide range of personal or commercial objectives. A thorough comprehension of their legal foundations is crucial to be able to navigate their complexities. The concept of a resulting trust exists where a settlor fails to create a valid express trust and it falls back to him/her or their estate. However it must be noted that equity does not intervene to help perfect an imperfect trust (as per Richards v Delbridge (1874) LR 18 Eq 11), and as noted in Re Kay’s Settlement [1939] 1 Ch 329 trustees of a covenant will not be able to enforce their claim if the beneficiaries are volunteers.
