Learning Outcomes
This article explains the requirement for certainty of intention when creating an express private trust, including:
- the objective, court-applied test for ascertaining intention and how it operates on spoken, written and behavioural evidence;
- the distinction between imperative and precatory wording, and how surrounding context, structure and any gift over influence interpretation;
- how intention may be inferred from conduct, such as segregating funds, labelling accounts and treating property as jointly owned;
- how to distinguish a genuine trust from an outright gift, a mere mandate, a loan or a debtor–creditor relationship;
- why sham trusts fail, the indicators of a sham and how courts respond when an apparent trust is found to be a façade;
- the consequences of uncertainty of intention, including whether property is held absolutely, on resulting trust or remains with the settlor;
- exam-focused techniques for structuring effective answers to SQE1 problem questions on certainty of intention and related case law.
SQE1 Syllabus
For SQE1, you are required to understand the essential elements for creating a valid express trust, focusing specifically on the certainty of intention. This includes appreciating how courts determine whether a settlor intended to impose a binding obligation on a trustee rather than merely expressing a wish or making an outright gift, with a focus on the following syllabus points:
- The objective test for ascertaining the settlor's intention.
- The effect of using precatory words versus imperative language.
- How intention can be inferred from conduct or the circumstances surrounding a transaction.
- The consequences of uncertainty of intention.
- That intention must be manifested while the settlor owns the property and must be to create a present trust, not one at some indefinite future time.
- That no particular form of words is required and the word “trust” is not essential; courts look to the substance of the language and context.
- That communication of intention to beneficiaries is not required for validity.
- The interaction between intention and formalities: formality rules (for example, Law of Property Act 1925 section 53(1)(b) for trusts of land) are distinct from the intention requirement.
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
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Which test do courts apply when determining if a settlor intended to create a trust?
- Subjective test based on the settlor's secret thoughts.
- Objective test based on the settlor's words and conduct.
- Reasonable person test based on what a typical person would intend.
- Beneficiary expectation test based on what the beneficiary believed.
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A document states, 'I give £10,000 to my brother, hoping he will use it for his children's education'. Is this likely to create a valid trust?
- Yes, because the purpose is clear.
- Yes, because the word 'hoping' indicates a moral obligation.
- No, because the word 'hoping' is precatory and does not impose a binding legal obligation.
- No, because the subject matter is uncertain.
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Can an intention to create a trust be inferred solely from conduct?
- Yes, if the conduct unequivocally indicates an intention to create a trust.
- No, express words are always required.
- No, conduct is irrelevant; only written words matter.
- Yes, but only if the conduct involves setting up a separate bank account.
Introduction
For an express private trust to be validly created, the settlor must demonstrate a clear intention to create a trust relationship. This is the first of the 'three certainties' required for a valid express trust, alongside certainty of subject matter and certainty of objects. The requirement ensures that trusts arise only from a deliberate act, imposing enforceable legal obligations on the trustee to hold and manage property for the benefit of ascertainable beneficiaries. If the intention is uncertain, the arrangement may fail as a trust, potentially resulting in an outright gift to the intended trustee or the property remaining with the settlor (or their estate).
Intention is assessed objectively. No ritual form of words is required. A trust can be manifested by words, writing, or conduct, provided the materials show a present intention to impose duties on a trustee to hold specific property for beneficiaries. If the property is land, the declaration must be evidenced in signed writing to be enforceable, but those formalities are separate from the question whether intention existed.
Key Term: Express Trust
A trust intentionally created by a settlor, usually through a written document (like a trust deed or will) or sometimes orally or by conduct, where the settlor's intention to create a trust is clear.
Ascertaining Intention: The Objective Test
Courts determine the settlor's intention objectively, not subjectively. This means the court considers what the settlor said and did, not what they might have secretly thought or intended. The key question is whether the settlor's words or conduct, viewed reasonably, indicate an intention to impose a mandatory obligation on the recipient of the property to hold it for the benefit of another.
The intention must be manifested while the settlor owns the property and must be to create a present trust. Words indicating an intention that a trust might be set up in the future generally do not suffice to establish a present trust, although a future interest itself can be trust property if the present declaration is clear.
Words Used by the Settlor
No specific formula or technical language, such as the word 'trust', is required to demonstrate certainty of intention. Equity looks to the substance rather than the form. The key factor is whether the words used impose a binding obligation on the recipient of the property.
Imperative words, which express a command or duty (e.g., 'shall hold on trust', 'must distribute'), clearly indicate an intention to create a trust. Conversely, precatory words, which merely express a hope, wish, desire, or confidence, are generally insufficient. The whole context is considered: placement in the document, associated directions, and any gift over in default may change the analysis.
Key Term: Precatory Words
Words expressing a hope, wish, desire, confidence, or request rather than a command or obligation. Such words typically do not create a binding trust obligation.Key Term: Imperative Words
Language that imposes a duty (e.g., “shall”, “must”, “to hold on trust”), indicating a binding obligation consistent with a trust rather than a mere moral request.
In evaluating wording, context is critical. Courts avoid a mechanistic approach to stock phrases and instead construe the document as a whole to determine whether an enforceable obligation was intended.
Worked Example 1.1
Arthur's will states: 'I give £50,000 to my sister Belinda, in full confidence that she will do what is right for my children'. Does this create a trust for the children?
Answer:
Unlikely. The phrase 'in full confidence' is generally considered precatory. Unless the rest of the will or surrounding circumstances strongly indicate a mandatory obligation was intended (as in Comiskey v Bowring-Hanbury where there was a gift over in default), this clause would likely be interpreted as an absolute gift to Belinda, with the reference to the children expressing only a moral hope or wish (Re Adams and the Kensington Vestry).
Where similar wording appears, but additional mandatory directions are present (e.g., an instruction that, failing exercise of discretion, property shall pass to named individuals), courts may be prepared to find a trust. Absent such directions, precatory language ordinarily points away from trust obligations.
Worked Example 1.2
A testator writes: “I leave my estate to Nora, with the request that she apply it towards the welfare of my relatives.” Is a trust likely?
Answer:
Generally no. “Request” and “welfare” suggest precatory language and a broad, non-justiciable objective. Without imperative wording or a structured obligation (or a clear gift over in default), this would likely be construed as an absolute gift to Nora. The court will not convert a moral request into a binding trust obligation.
A second recurring issue is the timing of intention. The words must show a present commitment to hold the identified property on trust. Vague indications that the settlor might create a trust later, or that a trustee may consider doing so in the future, do not establish a present trust.
Finally, the word “trust” itself is not decisive. Phrases such as “I trust she will…” are frequently treated as precatory unless other parts of the instrument clearly impose duties consistent with a trust. Equally, perfectly valid trust obligations may be created without using the word “trust” at all.
Key Term: Certainty of Intention
One of the three certainties required for a valid express trust. It requires the settlor to have clearly intended to create a trust relationship, imposing mandatory obligations on the trustee regarding the trust property for the benefit of the beneficiary.
Intention Inferred from Conduct
Certainty of intention can also be inferred from the settlor's conduct, even without express words. The conduct must unequivocally point towards an intention to create a trust. Segregating funds and treating them as belonging to others, calling an account a “trust” account, or consistently acting as if money is jointly owned may indicate trust obligations.
Worked Example 1.3
A mail-order company, anticipating potential insolvency, opens a separate bank account labelled 'Customer Trust Deposit Account' and pays all customer prepayments into it, only withdrawing funds once goods are dispatched. The company then becomes insolvent. Does the money in the separate account belong to the customers or the company's creditors?
Answer:
The company's conduct in segregating the customer funds into a specifically named trust account strongly indicates an intention to create a trust for the customers. Therefore, the money in the account belongs to the customers, protected from the company's general creditors (Re Kayford Ltd).
Worked Example 1.4
Mr C opens a savings account in his sole name and frequently tells Ms P that “the money is as much yours as mine”. They both pay joint bingo winnings into the account and treat the money as theirs jointly. On Mr C’s death, can Ms P assert a beneficial interest?
Answer:
Likely yes to at least a share. Repeated declarations and the parties’ course of dealing can evidence a trust. The court in Paul v Constance accepted such words and conduct as demonstrating an intention to create a trust in favour of Ms P, even though the account was in Mr C’s name. The precise division may depend on the facts.
Where funds are pooled and the parties’ statements and behaviour show a shared beneficial ownership, courts can find that a trust or sub-trust exists without formal phrasing, though such cases are fact-sensitive.
Sham Trusts
Even if the language used appears to create a trust, the court may find there was no genuine intention if the arrangement was a sham, designed to mislead third parties (like creditors) without any real intention to create trust obligations. A sham requires a common intention to give the appearance of creating legal rights and obligations that neither party intends to be effective. The court looks at the true intentions of the parties involved.
Key Term: Sham Trust
An arrangement that appears to create trust obligations but is intended by the parties to mislead; there is no genuine intention that the trust terms will be effective.
Worked Example 1.5
Mr W executes a declaration of trust over his house in favour of his wife and children, placing the document in his safe. He never informs the beneficiaries. He later uses the house as security for a business loan, not disclosing the trust to the bank. When his business fails, he produces the trust deed to try and protect the house from creditors. Is the trust valid?
Answer:
The court is likely to find this trust to be a sham. Mr W's conduct (keeping the deed secret, using the house as security for his own loan) suggests he did not have a genuine intention to create a trust but intended to use the document only if needed to deceive creditors (Midland Bank plc v Wyatt). The trust would likely be set aside.
Shams are exceptional, and the label is not applied lightly. Genuine trusts that are poorly administered or incompletely constituted are not shams. The hallmark of a sham is the common intention to present a false picture to third parties, without any real commitment to the trust obligations.
Worked Example 1.6
A business owner signs a “trust declaration” stating his trading stock is “held for family beneficiaries”, but he continues to sell and pledge the stock freely, records the stock as his own in accounts, and tells his bank there are no trust encumbrances. He only produces the declaration when sued by creditors. Is this likely a sham?
Answer:
The trust is at serious risk of being characterised as a sham if the evidence shows the owner never intended to be bound by trust duties and both he and any purported trustee intended to mislead. The sustained inconsistent conduct and concealment suggest no genuine trust intention at creation.
Distinguishing Trusts from Other Arrangements
It is important to distinguish an intention to create a trust from an intention to make an outright gift or create a debt. These distinctions go to the heart of certainty of intention.
Trust vs Gift
A trust involves splitting legal and equitable ownership, imposing duties on the trustee. A gift involves the transfer of absolute ownership (both legal and equitable title) to the donee, with no ongoing obligations attached. An imperfect attempt to make a gift will not automatically be construed as a declaration of trust. Courts will not “save” an imperfect gift by converting it into a trust unless the words and context show a genuine present trust intention.
Key Term: Gift
An outright transfer of property from a donor to a donee, where the donee receives absolute ownership (legal and equitable title) with no obligations attached.
Worked Example 1.7
A father places a cheque for £900 (payable to himself) into his baby son's hand, saying, 'I give this to baby for himself'. He takes the cheque back and says, 'I am going to put it away for him'. The father dies before endorsing the cheque or putting it away. Did the father create a trust?
Answer:
No. The father intended an outright gift, but the gift failed because the cheque was not endorsed or delivered properly before death. The subsequent words 'I am going to put it away for him' were considered insufficient to demonstrate a clear intention to declare himself a trustee of the cheque (Jones v Lock). Equity will not perfect an imperfect gift by construing it as a trust.
Related examples support the point. A donor who wishes to make a gift cannot later claim that a trust was intended simply to rescue an incomplete transfer. Similarly, if a donor writes on a document placing property “on trust” but in context is plainly attempting a gift and has not imposed obligations, courts will decide according to substance, not labels.
Worked Example 1.8
A grandfather writes on a note attached to share certificates: “These shares are for my grandson,” and hands the certificate to his daughter for safekeeping. No transfer forms are completed. He later tells the family that the shares “are his when I get round to sorting out the paperwork.” Has a trust arisen?
Answer:
Unlikely. The language and conduct suggest an intended gift, not a present trust. The failure to take steps to transfer title shows no present trust creation. Courts do not retro-fit trust obligations to complete an imperfect gift unless the words and conduct demonstrate a present intention to hold as trustee (cf. Richards v Delbridge).
Trust vs Debt
A trust involves holding specific property for another. A debt involves a personal obligation to repay money, but the debtor is not required to hold specific funds separate for the creditor. Segregation of funds, setting up designated accounts, and conduct treating money as belonging to another can indicate a trust rather than a mere debt.
Where money is advanced for a specific purpose and is segregated pending application for that purpose, intention may be consistent with a trust until the purpose is fulfilled. By contrast, general advances without segregation and with free borrower use typically create a debtor-creditor relationship.
Key Term: Debt
A personal obligation to pay a sum of money. The debtor need not segregate money, and the creditor has a personal claim, not a proprietary claim in specific funds.
Worked Example 1.9
Investor Q advances £50,000 to Company R specifically to pay a declared dividend to shareholders. The money is paid into a separate account and is not to be used for any other purpose. Before payment, the dividend is cancelled. Who is entitled to the money?
Answer:
A trust is likely to be inferred pending application for the stipulated purpose; if the purpose fails, the money is held for the investor to be returned. Where funds are segregated for a defined purpose, courts often conclude the money is impressed with a trust until that purpose is carried out (cf. Quistclose-type arrangements).
In contrast, where customers pay deposits into a general trading account with no segregation and the trader is free to use the funds, the relationship is usually debtor-creditor. Trust intention in such cases is more difficult to establish.
Consequences of Uncertainty of Intention
If the court finds there is no certainty of intention to create a trust:
- If the property was intended to be transferred to a third party (the intended trustee), but the words used were merely precatory, the recipient will generally take the property absolutely as a gift.
- If the owner intended to declare themselves trustee but the intention was uncertain, they remain the absolute owner of the property.
- If a special purpose is identified but the language and conduct do not show trust intention, the relationship will be characterised according to the facts (often a debt). Proprietary protection associated with trusts will not be available.
- If a purported trust is a sham, the court will set it aside and treat matters according to substance; third parties misled by the sham may have their remedies preserved.
Revision Tip
When analysing a scenario, always look for words that impose a clear obligation or duty on the recipient of the property. Words like 'must', 'shall', 'on trust', or 'to be distributed' point towards a trust. Words like 'hope', 'wish', 'desire', 'in confidence', or 'requesting' usually indicate a gift or moral obligation, not a trust. Consider the context and the whole instrument, whether obligations are structured and enforceable, whether there is a gift over in default, and whether conduct (such as segregation of funds) objectively shows a trust.
Key Point Checklist
This article has covered the following key knowledge points:
- Certainty of intention is the first of the three certainties required for a valid express trust.
- The court uses an objective test, looking at the settlor's words and conduct, to determine intention.
- No specific form of words is necessary, but the language must impose a mandatory obligation on the trustee.
- Precatory words (expressing hope, wish, desire) are generally insufficient to create a trust; context and any gift over in default may affect the analysis.
- Intention can be inferred from conduct, such as segregating funds or treating money as jointly owned.
- Intention must be manifested while the settlor owns the property and must show a present trust, not a mere future possibility.
- Communication of intention to beneficiaries is not required for validity.
- A purported trust may be deemed a sham if there was no genuine intention to create it and a common intention to mislead is proven.
- Distinguish trusts from outright gifts; equity will not perfect an imperfect gift by construing it as a trust absent clear present trust intention.
- Distinguish trusts from debts; segregation and purpose-specific handling of funds may indicate trust intention rather than a debtor-creditor relationship.
Key Terms and Concepts
- Express Trust
- Precatory Words
- Imperative Words
- Certainty of Intention
- Sham Trust
- Gift
- Debt