Creation and requirements of express trusts - Certainty of s...

Learning Outcomes

This article examines certainty of subject matter in express trusts, including:

• The foundational requirement of certainty of subject matter and its distinction from certainty of intention and certainty of objects
• Identification of trust property with sufficient precision, including when “residue of my estate” is certain and when terms such as “bulk” or “some” are too vague
• Tangible versus intangible assets for certainty purposes, including segregation or identification requirements and when fungibility suffices
• Certainty of beneficial interests, including fixed shares, discretionary allocations, and objective phrases such as “reasonable income”
• Existence and ownership of trust property at the time of creation; why future property and mere expectancies cannot be validly settled
• Consequences of uncertainty, including failure of the trust and the operation of resulting trusts or outright gifts depending on construction
• Application of these principles to varied factual patterns, including bulk goods, shares of different classes, bank monies, and conditional entitlements
• Examination-style application of leading cases (e.g. Hunter v Moss, Re London Wine, Re Goldcorp) to typical SQE1 problem questions

SQE1 Syllabus

For SQE1, you are required to understand certainty of subject matter in express trusts, with a focus on the following syllabus points:

• The requirement that the subject matter of an express trust must be certain: identification of trust property and certainty of beneficial interests.
• The different approach to tangible and intangible assets: segregation of tangibles and fungibility of intangibles of the same class.
• Consequences of uncertainty: failure of the trust, outright gifts, and resulting trusts.
• Property must exist and be owned at the time of declaration: future property and expectancies cannot be the subject matter of a present trust.
• Use of objective standards to cure uncertainty in quantification (e.g., “reasonable income”).

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.

1. What is required for trust property to satisfy the certainty of subject matter requirement?
2. How do courts treat the certainty of subject matter for tangible assets compared to intangible assets?
3. What is the effect if a trust instrument states "the majority of my shares" or "some of my paintings" are to be held on trust?
4. In which case did the court hold that a trust over 50 out of 950 identical shares was valid, and why?

Introduction

For an express trust to be valid, the property to be held on trust must be certain. This requirement—certainty of subject matter—ensures that trustees know what assets they must manage and beneficiaries know what they may receive. If the trust property is not clearly identified, the trust will fail for uncertainty, and the property will not be held on trust. This analysis proceeds in two parts: identifying the assets to be held on trust and ensuring the beneficiaries’ entitlements are defined with sufficient precision to be enforceable.

Key Term: certainty of subject matter
The requirement that the property to be held on trust is clearly identified or identifiable at the time the trust is created.

The Requirement for Certainty of Subject Matter

The law requires that the assets forming the trust property are described with sufficient clarity. This allows trustees to know what they must hold and administer, and beneficiaries to know what they may claim. If the property is not certain, the trust cannot be enforced.

What must be certain?

There are two aspects to certainty of subject matter:

1. The trust property itself must be identified with certainty.
2. The beneficial interests (the shares or entitlements of beneficiaries) must be defined with certainty.

If either is uncertain, the trust will fail.

Key Term: trust property
The assets or rights which are to be held on trust for the benefit of the beneficiaries.

Certainty of Trust Property

The property must be specified so that it is clear what is to be held on trust. A description is certain if it allows the trustees to pick out the assets without exercising a personal discretion, guesswork, or subjective judgement. If the property is described in vague or subjective terms, such as "the bulk of my estate" or "some of my shares," the trust will usually fail because the trustees cannot identify the assets with the necessary precision.

By contrast, “residue” is a certain description; residue is what remains after payment of debts, expenses, and specific gifts. Similarly, “my shares in X plc” can be certain where it refers to all shares held, or the instrument otherwise allows identification.

The property must also exist and be owned by the settlor at the time the trust is declared. A mere expectancy (for example, a potential inheritance from a living person) is not property that can be placed on trust.

Worked Example 1.1

A testator's will states: "I leave the majority of my shares in Alpha Ltd to be held on trust for my niece." Is this sufficient certainty of subject matter?

Answer:
No. "The majority of my shares" is too vague. It is not clear which shares or how many are to be held on trust. The trust fails for uncertainty of subject matter.

Worked Example 1.2

A will clause states: "I leave on trust the bulk of my residuary estate for Z." Does this identify the trust property with certainty?

Answer:
No. “Bulk” is conceptually uncertain; the trustees cannot determine what falls within the “bulk” compared with what is excluded. The clause fails for uncertainty of trust property. By contrast, a gift of “the residue of my estate” would be certain.

Worked Example 1.3

A person says during Aunt P’s lifetime: “I will hold the £50,000 Aunt P is leaving me under her will on trust for Q.” Is this valid?

Answer:
No. That is an attempt to settle future property. Until Aunt P dies and any legacy vests, the declarant has no existing proprietary interest to put on trust. A present trust cannot be declared over a mere expectancy.

Certainty of Beneficial Interests

It must also be clear how the trust property is to be divided among the beneficiaries. If the shares or proportions are not specified, and cannot be determined objectively, the trust will fail. However, where the trustees are given a genuine discretion to allocate between a defined class (for example, “to such of my children in such shares as my trustees think fit”), the trust can be valid; the trustees’ duty to choose creates the necessary certainty of entitlement.

Key Term: beneficial interest
The share or entitlement of a beneficiary in the trust property.

Worked Example 1.4

A will states: "I leave my two houses to my trustees to give one to my daughter, whichever she chooses, and the other to my son." The daughter dies before making a choice. What is the effect?

Answer:
The son's entitlement is uncertain because it depends on the daughter's choice, which was never made. The trust fails for uncertainty of beneficial interest.

Worked Example 1.5

A clause states: “£500,000 on trust for such of my children and in such shares as my trustees think fit.” Is there sufficient certainty of beneficial interests?

Answer:
Yes. Although individual shares are not fixed, the trustees’ discretion to decide who benefits and in what amount supplies the necessary certainty. The property itself must still be identified with certainty.

Tangible vs Intangible Assets

The courts distinguish between tangible and intangible assets when considering certainty of subject matter.

Key Term: tangible assets
Physical property, such as wine, paintings, or cars.

Key Term: intangible assets
Non-physical property, such as shares in a company or money in a bank account.

For tangible assets, the specific items to be held on trust must be segregated or otherwise identified. If the assets are part of a larger indistinguishable bulk (for example, crates of identical wine in a warehouse), the trust will fail unless the specific items intended for the beneficiaries are appropriated or labelled for the trust. This is because physical items, even where seemingly identical, are not truly fungible in the same way as financial assets.

For intangible assets of the same class (for example, ordinary shares with identical rights), segregation is not required; they are fungible, and any specified quantity will suffice. The key is sameness of rights. If the shares are of different classes or carry different rights, the class must be specified, or the property otherwise made certain.

Worked Example 1.6

A wine merchant holds 100 cases of identical wine in bulk. A customer pays for 10 cases, but the merchant does not set aside any specific cases for the customer. The merchant becomes insolvent. Can the customer claim a trust over the wine?

Answer:
No. For tangible assets, the specific items must be identified or segregated for the trust to be certain. Without segregation, there is no certainty of subject matter; the customer is an unsecured creditor.

In similar fashion, investors who pay for bullion or other tangible commodities will only have a proprietary claim if the particular items intended for them were appropriated to the trust or to their order. Absent segregation, their claims are personal.

Worked Example 1.7

An employer declares a trust over "50 of my 950 ordinary shares in Beta Ltd" for an employee, but does not specify which shares. Are the shares sufficiently certain?

Answer:
Yes. For intangible assets of the same class, such as ordinary shares carrying identical rights, it is not necessary to identify specific shares. Any 50 shares will suffice, so the trust is valid.

The same logic applies to sums of money provided the trust fund is identified by amount or account (for example, “£25,000 held in account X for Y”). Where a separate account is used to hold customer or beneficiary funds, the segregation strongly supports both intention and subject matter certainty.

Worked Example 1.8

A mail order company receives advance payments and places them in a separate account titled “Customer Trust Deposit Account,” only drawing from that account once goods are dispatched. A liquidator challenges the customers’ claims. Are the funds certain trust property?

Answer:
Yes. The separate account ring-fences the money and evidences a trust intention; the identifiable balance in that account is certain trust property held for customers pending dispatch.

Worked Example 1.9

A settlor holds ordinary shares and preference shares in Gamma plc. A trust instrument says: “50 of my shares in Gamma plc to be held for N,” but does not state the class. Is the property certain?

Answer:
Not necessarily. If the holding includes different classes with different rights, “50 of my shares” is ambiguous and may be insufficient unless the class can be objectively determined from context. A precise description (for example, “50 of my ordinary shares in Gamma plc”) would ensure certainty.

Consequences of Uncertainty

If the trust property or the beneficial interests are uncertain, the trust will fail. The property will either remain with the settlor (if the trust was never validly constituted) or be held on resulting trust for the settlor or their estate where an express trust fails to dispose of the beneficial interest.

If a clause combines an absolute gift to a person with an attempted trust over ancertain part, the construction of the instrument is critical. In some cases, if the trust part fails for uncertainty and the wording also evidences an outright gift to the same person, the donee may take absolutely. In other patterns—especially where there is no absolute gift—the property will revert to the settlor or residue by resulting trust.

The law also distinguishes between uncertainty of the property and uncertainty of the beneficial entitlement. Where trustees can objectively quantify entitlement (for example, “reasonable income” or “equal shares”), courts will strive to uphold the trust.

Exam Warning

If a trust fails for uncertainty of subject matter, the intended trustee may take the property absolutely, or it may revert to the settlor or their estate. Always analyse the precise wording and structure of the clause to determine whether there was also an outright gift.

Objective Assessment by the Court

If the trust instrument uses objective terms, such as "a reasonable income," the court may be able to determine the amount objectively and uphold the trust. Similarly, a direction to allow a beneficiary to enjoy “one of my flats” can be certain where the trustees can choose the flat and the beneficiary’s entitlement is otherwise clear.

Worked Example 1.10

A will states: "My daughter is to receive a reasonable income from my investments." Is this sufficiently certain?

Answer:
Yes. The court can objectively determine what is a reasonable income based on the circumstances, so the trust is valid. The trust property (the investments) must itself be certain, and the trustees must apply an objective standard when setting the amount.

Summary

Key Point Checklist

This article has covered the following key knowledge points:

• The trust property must be clearly identified for a valid express trust.
• Both the property and the beneficial interests must be certain; each is a separate requirement.
• Tangible assets require segregation or identification; intangible assets of the same class do not because they are fungible.
• Property must exist and be owned at the time of declaration; future property and mere expectancies cannot be settled under a present trust.
• If the property or interests are uncertain, the trust fails, and the property typically reverts via resulting trust unless an outright gift construction applies.
• Courts may uphold a trust if objective criteria allow certainty (for example, “reasonable income” or “equal shares”).
• Descriptions such as “residue” can be certain; terms like “bulk” or “some” are generally too vague.

Key Terms and Concepts

• certainty of subject matter
• trust property
• beneficial interest
• tangible assets
• intangible assets