Creation and requirements of express trusts - Fixed interest...

Learning Outcomes

This article examines the essential elements required to create a valid express private trust, focusing on the foundational principles of the three certainties: intention, subject matter, and objects. It explains how to distinguish between fixed interest trusts and discretionary trusts and sets out the specific tests for certainty of objects applicable to each, highlighting common SQE1 pitfalls. It also covers the formalities for creating express inter vivos trusts, including declarations of trusts of land, and clarifies the separate requirement for dispositions of subsisting equitable interests under section 53(1)(c) LPA 1925. In addition, it analyzes the concept of constitution, contrasting self-declaration with transfers to third-party trustees and examining the limited exceptions to the maxim that equity will not assist a volunteer. The article further reviews how beneficial entitlement can be classified as fixed, discretionary, vested, or contingent, and why these distinctions matter for termination of trusts and exam problem questions. Finally, it situates the operation of fixed and discretionary trusts within the wider context of trustee powers and administrative practicality, enabling precise application of these rules to single best answer questions testing the validity, enforceability, and practical administration of express trusts.

SQE1 Syllabus

For SQE1, you are required to understand the creation and requirements of express trusts, including the distinction between fixed interest and discretionary trusts, and to apply your knowledge of the three certainties and related formalities to assess the validity of purported trusts in practical scenarios, with a focus on the following syllabus points:

• The requirements of an express trust: the three certainties.
• Certainty of intention to create a trust.
• Certainty of subject matter (trust property and beneficial interest).
• Certainty of objects: the tests for fixed interest and discretionary trusts.
• The formalities required for creating an express inter vivos trust.
• The constitution of express inter vivos trusts: transfers to trustees and declaration of self as trustee.
• Exceptions to the rule that equity will not assist a volunteer (in the context of constituting trusts).
• The classification of beneficial entitlement into fixed, discretionary, vested, and contingent interests.
• The requirement for dispositions of subsisting equitable interests to be in signed writing (s.53(1)(c) LPA 1925).

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 are the 'three certainties' required for a valid express trust?
2. Which test for certainty of objects applies to a fixed interest trust?
3. Which test for certainty of objects applies to a discretionary trust?
4. True or false: A trust concerning land must be created in writing to be valid.

Introduction

An express trust arises when a person (the settlor) deliberately creates an arrangement where property is held by one or more persons (the trustees) for the benefit of others (the beneficiaries). For an express trust to be validly created during the settlor's lifetime (inter vivos) or by will (testamentary), certain requirements must be met. These include demonstrating the necessary certainties, complying with any required formalities, and ensuring the trust is properly constituted. This article focuses primarily on the three certainties and the distinction between fixed interest and discretionary trusts. It also integrates practical issues frequently tested in single best answer questions, such as the difference between conceptual and evidential certainty, administrative unworkability, capriciousness, the rules for establishing and evidencing declarations of trusts of land, and the main exceptions to the rule that equity will not assist a volunteer.

Key Term: Settlor
The person who creates a trust.

Key Term: Trustee
The person(s) holding the legal title to the trust property and managing it for the beneficiaries.

Key Term: Beneficiary
The person(s) for whose benefit the trust property is held; they hold the equitable interest.

Key Term: Trust Property
The assets held within the trust (e.g., money, shares, land).

Key Term: Declaration of Trust
The words or actions by which a settlor manifests an intention to create a trust, specifying the property, beneficiaries, and terms.

Key Term: Constitution (of a trust)
The process of vesting the legal title to the trust property in the trustees.

The Three Certainties

The foundational requirement for a valid express trust is the presence of the 'three certainties', as established in case law. These ensure that the trust is clear enough for the trustees to administer and for the court to supervise if necessary. The three certainties are: certainty of intention, certainty of subject matter, and certainty of objects.

Certainty of Intention

The settlor must have clearly intended to create a trust, imposing a mandatory obligation on the trustee to hold the property for the beneficiaries. Merely expressing a wish, hope, or desire (using ‘precatory words’) is generally insufficient. The courts examine the substance, context, and effect of the words used, and any relevant conduct.

• Intention may be found even in informal language where the overall effect is to impose a binding obligation (e.g., repeated statements that an account is “as much yours as mine”, especially if coupled with joint use or contributions).
• The word “trust” is neither necessary nor conclusive. If the overall context shows an absolute gift coupled with a hope (e.g., “in full confidence that…” without a mandatory obligation), the disposition may not create a trust. Conversely, a document not using the word “trust” may suffice if the obligation is clear.
• A trust intention must be to take effect immediately, not merely at some unspecified future time. A statement of a plan to create a trust “one day” will not suffice unless and until implemented.
• The court is alert to sham arrangements—documents intended to deceive third parties rather than to reflect genuine obligations. In such cases, even apparently mandatory terms may be disregarded.

Where there is no certainty of intention, the attempt at a trust fails. If the property was transferred to another (intended trustee) without a valid trust, that person may take it as an absolute gift. If the settlor declared themselves trustee but the words do not impose a trust, the settlor remains the absolute owner.

Illustrative principles:

• Expressions of confidence or moral obligation, without more, typically fail to establish a trust unless the instrument, read as a whole, imposes binding duties or a gift over in default clarifies a trust obligation.
• Informal conduct may suffice: setting aside a segregated account for customers (pending delivery of goods) is evidence of an intention to hold those funds on trust.
• Loose conversations in isolation (especially where inconsistent acts follow) are generally insufficient to show intention.

Certainty of Subject Matter

This requires clarity on two aspects: the property subject to the trust and the beneficial interests the beneficiaries will receive.

Certainty of Trust Property
The property intended to form the trust fund must be clearly identifiable at the time the trust is to be operated. Vague descriptions like “the bulk of my estate” are too uncertain. The trust property must be an existing interest in existing property. A purported present trust of “whatever I may inherit in future” is ineffective unless treated as a contract to assign or as an assignment when the property comes into existence.

• Tangible property: where a trust is of part of a collection of identical tangible items (e.g., bottles of wine), particular items must be segregated or identified. Without appropriation, it is impossible to know which specific items are held on trust.
• Intangible property: where the items are indistinguishable and fungible (e.g., shares of the same class in the same company), segregation is not always necessary, provided the number or proportion intended is certain. In such a case, selecting any 50 of 950 identical shares delivers the intended interest.

Fractional or proportional designations (e.g., “one half of my shares in X plc”) can be certain if the subject matter can be ascertained when the trust is to be performed.

Certainty of Beneficial Interests
It must be clear what share or interest each beneficiary is entitled to receive, either because the instrument fixes those shares (fixed trusts), because the court can determine an objectively ascertainable standard (e.g., “reasonable income” by reference to the beneficiary’s circumstances), or because the trustees are given genuine distributive discretion (discretionary trusts). If shares are stated in vague terms incapable of objective assessment (e.g., “a generous amount”), the trust may fail for uncertainty.

• Fixed trusts: the settlor specifies the division (e.g., “equally”).
• Discretionary trusts: provided the class of potential objects is conceptually certain, discretion supplies the necessary certainty of beneficial interests without requiring fixed shares.

Where the trust property is certain but beneficial divisions are not, equity will not guess at the division. Instead, the property is usually held on resulting trust for the settlor (or their estate).

Key Term: Resulting Trust
An implied trust where the beneficial interest in property returns (results back) to the settlor or their estate, typically arising when an express trust fails or does not dispose of the entire beneficial interest.

Beneficial entitlement is also usefully described as vested or contingent:

• Vested interest: an existing, unconditional entitlement (even if enjoyment is postponed by a prior interest). If the beneficiary dies before taking possession, the vested interest passes to their estate.
• Contingent interest: entitlement depends on satisfying a condition precedent (e.g., reaching an age, or surviving a named person). If the condition is not met, the interest fails.

Vesting and contingency affect when, and by whom, trusts can be brought to an end and whether an interest survives the beneficiary’s death. They also help differentiate an uncertain division (which may cause the trust to fail) from a conditional entitlement (which is valid but may not vest).

Key Term: Vested Interest
A present right to present or future enjoyment that is not subject to any condition precedent.

Key Term: Contingent Interest
A right that will arise only if a specified condition is satisfied.

Certainty of Objects

The beneficiaries (objects) of the trust must be certain. The required level of certainty differs between fixed interest trusts and discretionary trusts.

Key Term: Certainty of Objects
The requirement that the beneficiaries of a trust must be identifiable.

Key Term: Conceptual Certainty
The clarity of the definition used to describe the class of beneficiaries; the words must have a clear, objective meaning.

Key Term: Evidential Certainty
Whether sufficient evidence exists to determine, in practice, whether a particular individual falls within a conceptually certain class.

Fixed Interest Trusts
In a fixed interest trust, the share or interest of each beneficiary is determined by the settlor in the trust instrument. The trustees have no discretion regarding who benefits or what share they receive.

Key Term: Fixed Interest Trust
A trust where the beneficiaries and their respective entitlements are fixed by the settlor.

For a fixed trust, the test for certainty of objects is the “complete list” test (sometimes called class ascertainability). It must be possible to draw up a complete list of all beneficiaries at the time distribution is due. This requires:

• Conceptual certainty: the description of the class is clear and objectively defined (e.g., “my children”, “my nephews and nieces”).
• Evidential certainty: it must be possible, using available records, to identify every member of the class at the relevant time. If the description is clear but the records are incomplete, evidential difficulties may render the trust administratively impracticable to distribute to the whole class, but mere difficulty in locating a beneficiary does not invalidate the trust. Trustees may pay known beneficiaries and seek the court’s directions regarding missing persons.

Notably, for a fixed class gift in equal shares, the amount payable to each depends on the number of beneficiaries. The need for a complete list is therefore necessary to calculating the shares.

Discretionary Trusts
In a discretionary trust, the trustees are given the power (and often a duty) to select which beneficiaries from a defined class will receive distributions and/or how much they will receive.

Key Term: Discretionary Trust
A trust where the trustees have discretion over which beneficiaries within a defined class will benefit, and potentially the amount of their benefit.

The test for certainty of objects in a discretionary trust is the “is or is not” (given postulant) test. The question is whether it can be said with certainty, for any particular individual who presents themselves, that they are or are not within the defined class. This test requires conceptual certainty of the class description but does not require evidential certainty in the sense of producing a complete list.

Key Term: The 'is or is not' Test
The test for certainty of objects in a discretionary trust: can it be said with certainty that any given individual is or is not a member of the class of potential beneficiaries?

Certain class descriptors have been held conceptually certain (e.g., “relatives” commonly means descendants of a common ancestor; “dependants” refers to those wholly or partly financially dependent) whereas others are ordinarily conceptually uncertain (e.g., “friends” or “old friends”), unless the instrument supplies criteria or a third-party adjudicator is nominated to determine borderline cases objectively. The fact that it may be hard to prove that a given individual meets the description (evidential difficulty) does not necessarily void a discretionary trust.

Discretionary trusts are also subject to two additional controls:

• Administrative unworkability: a discretionary trust may be invalid if the class is so hopelessly wide in relation to the fund that it “cannot form anything like a class” capable of sensibly being surveyed and considered (e.g., “all the inhabitants of West Yorkshire” for a modest fund). This is not a question of mere numbers; it turns on whether the trustees can carry out a rational, fair survey of the field.
• Capriciousness: if the class has no rational connection to the settlor or any discernible purpose (e.g., a selection that appears purely whimsical), the trust may be struck down as capricious.

Key Term: Administrative Unworkability
A defect where a class is so wide that trustees cannot properly survey and consider the range of potential objects with a given fund.

Key Term: Capriciousness
A defect where the class chosen bears no sensible rationale or relation to the settlor or any discernible purpose.

One final distinction: where an instrument makes a series of individual gifts to anyone who meets a description (e.g., “£50 to any of my friends who applies”), this may be characterised as a set of separate gifts subject to a condition precedent. In that case, there is no need to prove that the entire class can be identified; it suffices that at least one person can satisfy the description (sometimes referred to as a “one person” test). This lies outside the discretionary trust analysis.

Consequences of Uncertainty of Objects
If a trust fails for conceptual uncertainty of objects (or for administrative unworkability or capriciousness in the discretionary context), the property is held on a resulting trust for the settlor or their estate, unless another valid destination has been provided. Where a trust partially fails (e.g., in respect of a sub-class or a surplus after the stated purpose), a resulting trust may arise pro tanto.

Formalities for Creating Express Trusts

While the three certainties relate to the content of the declaration of trust, certain formalities may be required for the declaration itself, depending on the type of property involved.

• Trusts of personalty (excluding equitable interests): generally, no formality is required. An oral declaration can create a valid trust of personal property like money or shares, provided the three certainties are met.
• Trusts of land: section 53(1)(b) Law of Property Act 1925 requires that a declaration of trust “respecting any land or any interest therein” be manifested and proved by signed writing of the person able to declare the trust (or by will). The declaration itself may be oral, but it is unenforceable until there is signed written evidence of all material terms. This requirement cannot be used as an instrument of fraud, and equity may impose a constructive trust where a trustee seeks to rely on the lack of writing to deny an otherwise established trust.
• Testamentary trusts: trusts created by will must comply with the Wills Act 1837 formalities (in writing, signed by the testator, witnessed by two witnesses). Proper execution of the will inherently satisfies any evidential requirement for a declaration of trust of land.

A consistent area of confusion is the distinction between declaring a trust and disposing of an existing equitable interest:

• Dispositions of subsisting equitable interests (whether over land or personalty) must comply with section 53(1)(c) LPA 1925: the disposition must be in signed writing by the person disposing of it (or their duly authorised agent) or by will. This deals with transfers of existing equitable interests, not the initial split of legal and equitable title on the creation of a trust.

Where a self-declaration of trust over land is intended, constitution is automatic (the settlor already holds legal title), but the trust remains unenforceable until there is signed written evidence in compliance with section 53(1)(b). For a third-party trusteeship, both the declaration and constitution must be addressed: writing to evidence a declaration (for land) and transfer of legal title by the correct method for the asset.

Constitution of Express Trusts

For a lifetime (inter vivos) express trust to be fully effective and binding on the settlor, it must be 'constituted'. This means the legal title to the trust property must be properly vested in the trustee(s).

• Settlor as sole trustee: if the settlor declares themselves trustee, the trust is constituted automatically upon a valid declaration (as the settlor already holds legal title).
• Third-party trustees: if the settlor appoints others as trustees, the settlor must transfer the legal title to the property to the trustees according to the specific rules for transferring that type of asset (e.g., deed and registration for land, stock transfer form and registration for certificated shares, CREST settlement for dematerialised shares, delivery for chattels, payment/credit for money). Until the transfer is complete, the trust is incompletely constituted.

Equity Will Not Assist a Volunteer
Generally, if a settlor fails to properly constitute a trust (i.e., fails to complete the transfer of legal title to the trustees), equity will not intervene to perfect the trust or compel the settlor to do so. The intended beneficiaries, typically being ‘volunteers’ (having given no consideration), cannot enforce the incompletely constituted trust. This principle also applies to imperfect gifts intended to benefit the donee outright.

Key Term: Volunteer
In equity, a person who has not provided valuable consideration for a promise or transfer.

There are narrowly defined exceptions where equity will recognise or perfect an intended disposition notwithstanding incomplete legal formalities:

• Every effort rule (often referred to under Re Rose): where the donor/settlor has done everything in their power to transfer the property, and only the act of a third party remains (e.g., company registration), equity may treat the transfer as complete in equity at the earlier date, with the transferee taking an immediate equitable interest pending legal completion.
• Fortuitous vesting (the rule in Strong v Bird): if an intended inter vivos transfer is imperfect, but the intended recipient later becomes the donor’s executor/administrator and the donor’s intention to make the gift (or to forgive a debt) continued until death, legal title vesting in the personal representative on death can perfect the transfer.
• Donatio mortis causa (DMC): a death-bed gift, conditional on the donor’s contemplated death from a specific cause, which involves delivery of the subject matter or the essential indicia of title and automatically fails if the donor recovers. DMC operates as a sui generis exception, distinct from ordinary gifts and trusts.
• Proprietary estoppel: where a promise or assurance is made, relied upon to the detriment of the promisee, and it would be unconscionable to allow the promisor to resile. The court may grant a proprietary remedy that, in effect, perfects or substitutes for an intended but imperfect transfer.
• Unconscionability in limited contexts: case law indicates that, exceptionally, where steps to transfer have proceeded far enough that it would be unconscionable to deny the transfer (e.g., the donor committed to the transfer and the donee or third party acted to their prejudice), equity may uphold the transfer. This remains a fact‑sensitive and controversial area and is not a licence to disregard formalities.

Worked Example 1.1

Sarah orally declared to her friend Tim that she held her 1,000 shares in XYZ plc on trust for her nephew, Ben. She took no further steps before suddenly dying a week later. Her will leaves her entire estate to charity. Is there a valid trust of the shares for Ben?

Answer:
Yes, likely. This concerns shares (personalty), so no specific formality (like writing) is required for the declaration of trust under s.53(1)(b) LPA 1925. Assuming the three certainties are present (intention seems clear, subject matter - 1,000 XYZ plc shares - is certain, object - Ben - is certain), the main issue is constitution. Since Sarah declared herself trustee, the trust was constituted immediately upon her declaration. The legal title was already vested in her. The shares are therefore held on trust for Ben and do not form part of her residuary estate passing to the charity.

Worked Example 1.2

David wants to put his house, 'The Hollies', on trust for his daughter, Emily. He tells his friend Fiona that he wants her to be the trustee. He signs a document clearly stating his intention to create the trust, identifying the property and beneficiary, and appointing Fiona as trustee. However, he forgets to sign and send the Land Registry transfer form (TR1) to Fiona before he goes on a long holiday. Is the trust constituted?

Answer:
No. David intended to create a trust with Fiona as trustee. This requires constitution by transferring the legal title of the house to Fiona. Transferring legal title to land requires a deed (the TR1 form) and registration at the Land Registry. David has made a valid declaration (evidenced in writing signed by him, satisfying s.53(1)(b) LPA 1925) but has not completed the transfer steps. The trust is incompletely constituted. Unless an exception applies (like the Re Rose principle), Emily, as a volunteer, cannot enforce the trust.

Worked Example 1.3

Aisha signs and delivers a properly executed stock transfer form to transfer 10,000 ordinary shares in Beta Ltd to two trustees and hands over the share certificate. The company’s register has not yet been updated. A week later, Aisha dies. Her personal representatives claim the shares are part of her estate. The trustees say the trust is complete in equity. Who is right?

Answer:
The trustees are likely right in equity. Aisha did everything in her power to transfer the shares—she executed and delivered the stock transfer form and the certificate to enable registration. The remaining step was for the company to register the transfer, which is the act of a third party. Under the “every effort” principle, equity may treat the transfer as effective in equity from the date the settlor completed all they could do. The trustees would hold an equitable interest pending registration, and the shares would not fall into the estate.

Worked Example 1.4

Henry promises to make an outright gift of a valuable painting to his niece, Alice, and hands it to a courier to deliver the next morning. He dies overnight. By his will, his residuary estate goes to his friend. The courier delivers the painting the following morning to Alice. Can Alice keep it?

Answer:
Unless the facts indicate a completed delivery before death (e.g., actual or constructive delivery to Alice or to someone as her agent), the gift is imperfect. However, if Alice is Henry’s executrix (or becomes his administrator) and Henry’s intention continued until death, the rule in Strong v Bird could perfect the gift. Without that fortuitous vesting, Alice would need to rely on another exception (e.g., a valid donatio mortis causa). On these facts, the gift appears imperfect and would usually fail.

Worked Example 1.5

While seriously ill from a diagnosed condition, Nora hands Tom the key to her safe deposit box saying: “If I don’t make it, the Krugerrands in the safe are yours; if I recover, I’ll want them back.” She later dies of an unrelated complication. Is Tom entitled to the coins?

Answer:
Yes, likely. The requirements of a donatio mortis causa are: (i) made in contemplation of death from a specific cause, (ii) conditional on death (revocable if recovery occurs), and (iii) accompanied by delivery of the subject matter or essential indicia of title. Handing over the key to the safe deposit box is delivery of the means of control over the chattels. The fact she died of a different complication does not defeat the gift, provided she was contemplating death from the condition and the causal mismatch is not disqualifying in law. The gift likely takes effect on death.

Revision Tip

Always check the type of property involved (land or personalty) to determine formality requirements. Also, identify who the intended trustee is (settlor or third party) to determine the steps needed for constitution. If a trust is incompletely constituted, consider whether any exception might assist a volunteer (e.g., every effort; Strong v Bird; DMC; proprietary estoppel). Finally, distinguish between declarations of trusts of land (s.53(1)(b)) and dispositions of subsisting equitable interests (s.53(1)(c)).

Key Point Checklist

This article has covered the following key knowledge points:

• Express trusts are created intentionally by a settlor.
• Validity requires the three certainties: intention, subject matter, and objects.
• Certainty of intention requires a clear intention to impose a mandatory obligation, not just precatory words, and a present intention for the trust to take immediate effect.
• Certainty of subject matter requires identifiable trust property and clear beneficial interests. Trust property must be an existing interest in existing property; different rules apply to tangible and intangible assets.
• Beneficial entitlement may be vested (in possession or in interest) or contingent; where beneficiaries are sui juris and absolutely entitled, they may terminate the trust.
• Certainty of objects requires identifiable beneficiaries; the test differs for fixed (“complete list”) and discretionary (“is or is not”) trusts.
• For discretionary trusts, the class must not be administratively unworkable or capricious.
• Declarations of trust for land must be evidenced in signed writing (s.53(1)(b) LPA 1925). Trusts of personalty generally require no formalities.
• Dispositions of subsisting equitable interests must comply with s.53(1)(c) LPA 1925 by being in signed writing (or by will).
• Trusts must be constituted: legal title must be vested in the trustees by the correct mode of transfer for the asset class.
• If the settlor is sole trustee, constitution occurs upon valid declaration. If trustees are third parties, the property must be properly transferred to them.
• Equity generally does not assist a volunteer beneficiary to enforce an incompletely constituted trust, subject to narrow exceptions (every effort/Re Rose; Strong v Bird; donatio mortis causa; proprietary estoppel; limited unconscionability cases).

Key Terms and Concepts

• Settlor
• Trustee
• Beneficiary
• Trust Property
• Declaration of Trust
• Constitution (of a trust)
• Resulting Trust
• Certainty of Objects
• Conceptual Certainty
• Evidential Certainty
• Fixed Interest Trust
• Discretionary Trust
• The 'is or is not' Test
• Administrative Unworkability
• Capriciousness
• Vested Interest
• Contingent Interest
• Volunteer