Learning Outcomes
This article explains the requirement for certainty of intention when creating an express private trust. After reading this article, you should be able to identify the legal principles governing certainty of intention and apply these principles to determine whether a valid intention to create a trust exists in given factual scenarios, as required for the SQE1 assessments. You will understand the objective test used by courts and the significance of the language and conduct of the potential settlor.
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. Your revision should cover:
- 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.
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).
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.
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.
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.
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.
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.
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).
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.
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.
Worked Example 1.2
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).
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. The court looks at the true intentions of the parties involved.
Worked Example 1.3
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.
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.
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.
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 1.4
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.
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. The segregation of funds, as seen in Re Kayford, can be evidence of an intention to create a trust rather than a mere debt.
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.
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.
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.
- Intention can sometimes be inferred from the settlor's conduct, such as segregating funds.
- A purported trust may be deemed a sham if there was no genuine intention to create it.
- It is important to distinguish trusts from gifts; an imperfect gift is not usually saved by being treated as a trust.
Key Terms and Concepts
- Express Trust
- Precatory Words
- Certainty of Intention
- Gift
