Creation and requirements of express trusts - The three cert...

Learning Outcomes

This article outlines the fundamental requirements for creating a valid express private trust, focusing on the 'three certainties'. Understanding these requirements is essential for advising clients on trust creation and validity. After studying this article, you should be able to identify and apply the legal principles concerning certainty of intention, certainty of subject matter (including the trust property and the beneficial interests), and certainty of objects (beneficiaries) for both fixed interest and discretionary trusts, as required for the SQE1 assessment. This knowledge will enable you to analyse scenarios and identify potential issues in trust formation. In addition, you should be confident in distinguishing imperative from precatory wording, appreciating how intention can be inferred from conduct, recognising the different treatment of tangible and intangible assets when identifying trust property, and applying the appropriate tests for fixed and discretionary trusts, including dealing with conceptual versus evidential certainty, administrative unworkability, and the consequences of failure (such as a resulting trust).

SQE1 Syllabus

For SQE1, you are required to demonstrate knowledge of the creation and requirements of express trusts, including a thorough understanding of the three certainties required for a valid express trust, with a focus on the following syllabus points:

• The necessity of the three certainties: intention, subject matter, and objects, as established in case law.
• The legal tests for establishing certainty of intention, including the issues surrounding precatory words and inferred intention.
• The requirements for certainty of subject matter, covering both the identification of the trust property itself (including tangible vs. intangible assets) and the specific beneficial entitlements.
• The tests for certainty of objects for both fixed interest trusts (the 'complete list' test) and discretionary trusts (the 'is or is not' or 'given postulant' test).
• The concepts of conceptual and evidential certainty and administrative unworkability in relation to certainty of objects.
• The consequences of failing to satisfy any of the three certainties.
• The distinction between fixed trusts, discretionary trusts, and mere powers, and the corresponding certainty tests (including Re Gulbenkian for mere powers and Re Hay’s guidance on surveying the “width of the field”).
• How courts construe intention by reading instruments as a whole and, where necessary, by reference to conduct and context (including Lambe v Eames, Re Hamilton, and Paul v Constance).
• The relationship between certainty requirements and formalities (eg, s 53(1)(b) and (c) Law of Property Act 1925), noting that certainty issues are distinct from but often considered alongside compliance with formalities.
• The current perpetuity framework relevant to private trusts (Perpetuities and Accumulations Act 2009: 125-year period), noting that perpetuity is separate from the three certainties but can invalidate gifts if interests would vest too remotely.
• Recognition of capricious class definitions and the limits of administratively workable classes (eg, Re Manisty and West Yorkshire).

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 the valid creation of an express private trust?
2. A settlor leaves property 'in full confidence that my spouse will do what is right for our children'. Is this likely to create a trust? Why?
3. A trust is declared over '50 of my 100 shares in XYZ Ltd' for A, and 'the remaining shares' for B. Is the subject matter sufficiently certain?
4. What is the test for certainty of objects for a discretionary trust? Name the leading case.

Introduction

For an express private trust to be validly created, the declaration must satisfy the requirements known as the 'three certainties'. These were famously articulated by Lord Langdale MR in Knight v Knight (1840) 3 Beav 148. The requirements ensure that the trust is sufficiently clear and workable for the trustees to administer and for the court to supervise if necessary. The three certainties are:

1. Certainty of Intention: The settlor must have clearly intended to create a trust obligation, rather than make a gift or express a mere wish.
2. Certainty of Subject Matter: The property subject to the trust and the beneficial interests must be clearly defined.
3. Certainty of Objects: The beneficiaries of the trust must be identifiable.

Failure to satisfy any one of these certainties will generally result in the trust being invalid. This dovetails with the beneficiary principle, by which non-charitable trusts must be for identifiable individuals capable of enforcing the obligations; the court must be able to supervise the trust’s administration (see Morice v Bishop of Durham (1805) 10 Ves 522).

Key Term: Express Trust
A trust intentionally created by the actions or words of the property owner (the settlor), either during their lifetime (inter vivos) or by will (testamentary).

Key Term: Settlor
The individual who creates a trust by transferring property to a trustee for the benefit of beneficiaries. In the context of a will, this person is called the testator.

Key Term: Trustee
The person(s) or entity holding the legal title to the trust property and responsible for administering the trust according to its terms and fiduciary duties for the benefit of the beneficiaries.

Key Term: Beneficiary
The person(s) or entity entitled to the benefit of the trust property, holding the equitable or beneficial interest. Also known as the 'object' of the trust.

Certainty of Intention

The court must be satisfied that the settlor genuinely intended to impose a legally binding trust obligation on the trustee, rather than merely expressing a hope, wish, or moral obligation. This intention can be demonstrated through words or conduct.

As a matter of construction, courts read the instrument as a whole and consider relevant context. The presence or absence of the word “trust” is not determinative; equity looks to substance rather than form. The inquiry is objective: would a reasonable reader, looking at the totality of the words and circumstances, conclude that the settlor intended to impose enforceable trust duties?

Precatory Words

Words expressing a hope, wish, desire, or confidence (precatory words) are generally insufficient on their own to create a trust. The courts look for imperative language that imposes a duty.

Key Term: Precatory Words
Words expressing a hope, wish, belief, desire, or confidence, which generally do not create a legally binding trust obligation.

In Re Adams and the Kensington Vestry (1884) 27 Ch D 394, a testator gave property to his wife 'in full confidence that she will do what is right' regarding its disposal between his children. This was held to be an absolute gift to the wife, not a trust, as the words did not impose a mandatory obligation.

However, the entire context of the document is important. In Comiskey v Bowring-Hanbury [1905] AC 84, similar words ('in full confidence') were used, but the will included a default provision specifying how the property should pass if the primary recipient failed to dispose of it as directed. This indicated a clear intention to create a binding trust. Likewise, Lambe v Eames (1871) LR 6 Ch App 597 and Re Hamilton [1895] 2 Ch 370 demonstrate that the same word or phrase can be construed differently depending on the overall tenor of the instrument; courts will not seize on isolated words but will ask whether the settlor intended a duty.

Inferred Intention from Conduct

Intention can sometimes be inferred from the settlor's conduct, even without explicit trust language. In Paul v Constance [1977] 1 WLR 527, Mr Constance repeatedly told Mrs Paul concerning money in an account in his sole name, "The money is as much yours as mine". This, combined with paying joint bingo winnings into the account, was sufficient to demonstrate an intention to create a trust over half the money for Mrs Paul.

Conduct can also demonstrate that specific funds are held for others, even in a commercial setting. In Re Kayford [1975] 1 WLR 279, a mail order company placed customers’ prepayments into a separate bank account labelled “Customer Trust Deposit Account.” The segregation and treatment of the funds evidenced a trust, so the money was protected from the company’s insolvency.

However, courts are cautious about inferring trusts from informal conversations. A failed attempt to make a gift will not automatically be interpreted as a declaration of trust (Jones v Lock (1865) LR 1 Ch App 25). Loose words spoken in domestic or informal settings do not readily impose trust obligations unless the context and conduct clearly point to that intention.

Sham Intention

Even if the word 'trust' is used, a trust will not be valid if the court finds the declaration was a sham, not reflecting the settlor's true intention (e.g., created solely to deceive creditors, as in Midland Bank plc v Wyatt [1995] 1 FLR 696). In Wyatt, a husband executed a document purporting to declare a trust of the matrimonial home for his wife and children, kept it hidden, and sought to rely on it only when creditors pressed claims. The court concluded the deed was a sham; it did not represent a genuine intention to divest or impose trust obligations.

Consequence of Uncertainty of Intention

If certainty of intention is lacking, the arrangement typically takes effect as an absolute gift to the person who would have been the trustee. Equally, if there is no true intention to subject the identified property to trust obligations (for example, where trust wording was merely aspirational), no trust arises.

Certainty of Subject Matter

This requires certainty regarding both:

1. The property subject to the trust.
2. The beneficial interests each beneficiary is to receive.

Certainty of Trust Property

The assets intended to form the trust fund must be identifiable. Vague descriptions like 'the bulk of my estate' (Palmer v Simmonds (1854) 2 Drew 221) are generally too uncertain. By contrast, 'the residue' of an estate is certain, as it is capable of objective calculation after debts and specific gifts are accounted for. Descriptions such as “all my real and personal property” are usually workable.

Where a trust is of part of a larger mass of property, identification depends on the nature of the asset.

• Tangible Assets: For physical assets like wine or books, segregation or labelling is usually necessary. In Re London Wine Co (Shippers) Ltd [1986] PCC 121, a trust over wine failed because the specific bottles for each customer were not separated from the general stock; no identifiable property was subjected to the trust. This principle reflects the fact that, although bottles of the same vintage may be similar, each tangible item is distinct.

• Intangible Assets: For intangible, identical assets like shares of the same class in the same company, segregation may not be required. In Hunter v Moss [1994] 1 WLR 452, a trust over 50 out of 950 identical shares was held valid without segregation, as any 50 shares could satisfy the trust. That approach has been applied to other fungible intangibles (e.g., Re Harvard Securities [1997] 2 BCLC 369), but candidates should note the rationale: if all units are indistinguishable and the number is fixed, the inability to earmark particular units does not defeat certainty of property. There is debate about how far Hunter applies beyond shares; the safer view is that it applies to truly fungible, indistinguishable intangibles.

Money can present particular challenges. Where a sum is set aside and earmarked (e.g., by establishing a separate account), that can be sufficiently certain property. Where an indistinct portion of a mixed bank account is said to be “held on trust,” it may be difficult to establish certainty unless the trust is of a specific sum or the funds are segregated.

Certainty of Beneficial Interests

The share or interest each beneficiary is entitled to must also be clear. If the shares are uncertain, the trust may fail.

In Boyce v Boyce (1849) 16 Sim 476, a testator left two houses on trust, one for Maria (whichever she chose) and the other for Charlotte. Maria died before choosing. The trust for Charlotte failed because her beneficial interest (the remaining house) was unascertainable. The trust property was identified, but the entitlement depended on a choice that never occurred.

However, if the settlor provides an objective determinant for assessing the shares, the court may uphold the trust. In Re Golay's Will Trusts [1965] 1 WLR 969, a direction for a beneficiary to receive a 'reasonable income' was held sufficiently certain, as the court could objectively determine what constituted 'reasonable' by reference to the beneficiary’s circumstances and standard of living.

When an instrument is silent as to shares in a fixed class gift (e.g., “to my children”), the default is equal division, and that default usually cures any uncertainty of entitlement. Where trustees are given a discretion “as they think fit,” it is more likely a discretionary trust than a fixed trust, and certainty questions shift towards certainty of objects rather than of shares.

Consequence of Uncertainty of Subject Matter

If the trust property itself is uncertain, no trust arises. If the property is certain but the beneficial interests are not, the property is typically held on a resulting trust for the settlor (or their estate). In some mixed arrangements where part appears to be a trust and part appears to be an outright gift, if the trust element fails for uncertainty and a distinct outright gift exists, the outright gift stands and is not converted into a trust.

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

Certainty of Objects (Beneficiaries)

The beneficiaries of a trust must be identifiable with sufficient certainty. The test for certainty varies depending on the type of trust.

Key Term: Fixed Trust
A trust where the beneficiaries and their respective shares of the trust property are predetermined by the settlor. The trustees have no discretion in distribution.

Key Term: Discretionary Trust
A trust where the trustees are given discretion to decide which beneficiaries (from a defined class) will receive distributions and/or how much they will receive.

Fixed Trusts: The Complete List Test

For a fixed trust, trustees must be able to draw up a conclusive list of all beneficiaries (IRC v Broadway Cottages Trust [1955] Ch 20). This is known as the 'complete list test'.

• Conceptual Certainty: The description of the class must be linguistically clear (e.g., 'my children', 'my employees'). Vague terms like 'my old friends' lack conceptual certainty. A concept must have definite boundaries; if the concept cannot be defined in a way that allows people to be included or excluded as a matter of definition, the class fails for conceptual uncertainty.

• Evidential Certainty: It must be possible, in practice, to gather evidence to identify every member of the class. If records are missing or incomplete, making a full list impossible, the trust fails for evidential uncertainty. Evidential certainty is not about the clarity of the class description but about the ability to prove whether particular individuals are members.

• Ascertainability: Difficulty in locating a known beneficiary does not invalidate the trust. The trustees can apply to the court for directions or pay the missing beneficiary's share into court. Practical problems in tracking people do not undermine conceptual or evidential certainty if membership can be established.

Key Term: Complete List Test
The test for certainty of objects in a fixed trust, requiring that trustees must be able to compile a definitive list of all beneficiaries.

Discretionary Trusts: The 'Is or Is Not' Test

For discretionary trusts, the test is less stringent. Trustees do not need a complete list but must be able to determine with certainty whether any given individual presented to them is or is not a member of the specified class (McPhail v Doulton [1971] AC 424). This is also known as the 'given postulant' or 'individual ascertainability' test.

• Conceptual Certainty: This remains essential. The class description must be sufficiently precise. In Re Baden's Deed Trusts (No 2) [1973] Ch 9, “relatives” and “dependants” were accepted conceptually (though the judges proposed slightly different approaches). The court distinguished conceptual certainty from evidential issues: one must be able to define the class concept clearly even if proving membership is difficult.

• Evidential Certainty: This is not required for discretionary trusts in the same way as for fixed trusts. If it cannot be proven whether someone is in the class, they are simply treated as not being in it, but the trust does not fail because the trustees cannot assemble a complete list. The burden falls on the individual postulant to show they are within the class.

• Administrative Unworkability: A discretionary trust may still fail if the class is so hopelessly wide (e.g., 'all the residents of Greater London') that it is administratively unworkable for the trustees to realistically survey the class and exercise their discretion (R v District Auditor, ex p West Yorkshire MCC [1986] RVR 24). Even where conceptual certainty exists, the trust can be invalid on grounds that its operation would be irrational or impracticable.

• Capriciousness: A trust may fail if the definition of the class appears entirely capricious or irrational, lacking any sensible link to the settlor (e.g., a trust for people with red hair born on a Tuesday). Re Manisty’s Settlement [1974] Ch 17 warns against definitions that amount to an arbitrary conglomeration without rational connection to the settlor or any coherent aim; such provisions can be struck down.

Trustees of discretionary trusts are expected to appreciate the breadth of the class before deciding how to exercise their discretion. In Re Hay’s Settlement Trusts [1982] 1 WLR 202, trustees were reminded of their duty to consider periodically whether and how to exercise their powers and to understand the “width of the field” of potential beneficiaries.

Key Term: Individual Ascertainability Test
The test for certainty of objects in a discretionary trust, requiring that it must be possible to say with certainty of any given person whether they are or are not a member of the class of potential beneficiaries. Also known as the 'is or is not' or 'given postulant' test.

Worked Example 1.1

Arthur's will leaves '£100,000 on trust to be divided equally amongst my former colleagues at Acme Ltd'. Records exist showing all employees from the company's founding until its closure five years ago. Is the trust valid?

Answer:
This is a fixed trust ('divided equally'). The test is the complete list test. The class 'former colleagues at Acme Ltd' appears conceptually certain. Assuming the records allow a complete list of all former employees to be drawn up, there is evidential certainty. The trust is likely valid.

Worked Example 1.2

Brenda's will leaves her residuary estate 'to my trustees to distribute in their absolute discretion amongst any deserving artists living in Cornwall'. Is this trust valid?

Answer:
This is a discretionary trust ('absolute discretion'). The test is the 'is or is not' test. The class description 'deserving artists living in Cornwall' suffers from conceptual uncertainty. What constitutes 'deserving'? What defines an 'artist'? What period of residence in Cornwall is required? Unless Brenda provided further definitions, the lack of conceptual certainty means the trust likely fails for uncertainty of objects. Administrative workability might also be an issue depending on the potential number of artists.

Worked Example 1.3

A testator wills “my entire estate to my husband, safe in the knowledge that he will provide for our children.” Does this wording create a trust?

Answer:
This is analogous to Re Adams and Lambe v Eames. “Safe in the knowledge” is precatory, not imperative, and in the absence of mandatory obligations or a gift-over in default, the court is likely to construe it as an absolute gift to the husband. There is no trust due to uncertainty of intention.

Worked Example 1.4

A declares “I hold 50 of my 950 ordinary shares in ABC plc on trust for B.” The shares are all of the same class with identical rights. No particular share numbers are identified. Is the subject matter sufficiently certain?

Answer:
Yes. Following Hunter v Moss, where shares are indistinguishable and fungible, certainty of property can be achieved without segregation or earmarking. Any 50 of the 950 identical shares can satisfy the obligation. The trust is valid assuming certainty of intention.

Worked Example 1.5

C creates a discretionary trust “for any inhabitant of Greater London.” The trust fund is £50,000. Is the trust likely valid?

Answer:
Although “inhabitant of Greater London” is conceptually clear, the class is likely so wide that the trust would be administratively unworkable (West Yorkshire). The trustees cannot survey or sensibly exercise discretion across millions with a modest fund. The trust is likely invalid for administrative unworkability.

Worked Example 1.6

A settlor directs trustees to apply income “at their discretion to any of my relatives or dependants.” Does the class description meet conceptual certainty?

Answer:
Yes. In Re Baden (No 2), “relatives” and “dependants” were accepted as conceptually certain. While evidential questions may arise case-by-case (e.g., proving dependency), the trust can operate using the “is or is not” test for individual postulants.

Consequence of Uncertainty of Objects

If certainty of objects is lacking, the trust fails. The property is held on a resulting trust for the settlor (or their estate). For discretionary trusts, even if the class is conceptually certain, administrative unworkability or capriciousness can render the trust invalid, with the same consequence.

Key Point Checklist

This article has covered the following key knowledge points:

• Express private trusts require certainty of intention, subject matter, and objects to be valid (Knight v Knight).
• Certainty of intention requires clear evidence that the settlor intended to impose a binding trust obligation, not just express a wish (precatory words are insufficient). Intention can be inferred from conduct (Paul v Constance; Re Kayford), but courts are cautious and will not convert failed gifts into trusts (Jones v Lock). Sham trusts are invalid (Midland Bank v Wyatt).
• Certainty of subject matter requires clear identification of both the trust property and the beneficial interests. Segregation is generally needed for tangible assets (Re London Wine), but not necessarily for identical intangible assets (Hunter v Moss; Re Harvard Securities). Objective standards (e.g., “reasonable income”) can be sufficiently certain (Re Golay).
• Certainty of objects requires identifiable beneficiaries. Fixed trusts require a 'complete list' (conceptual and evidential certainty). Discretionary trusts require the 'is or is not' test (conceptual certainty needed; evidential certainty not fatal). Trustees must appreciate the “width of the field” in discretionary trusts (Re Hay’s).
• Discretionary trusts can fail for administrative unworkability (e.g., inhabitants of a large region) or capriciousness (arbitrary, irrational class definitions).
• Failure of any certainty usually results in the property being held on resulting trust for the settlor or their estate.
• The three certainties inquiry is separate from formalities, though both must be satisfied for an enforceable trust. Declarations of trusts of land must be evidenced in signed writing (s 53(1)(b) LPA 1925); dispositions of subsisting equitable interests must comply with s 53(1)(c). Perpetuity issues (125-year period under the 2009 Act) may separately affect validity but are distinct from certainty questions.

Key Terms and Concepts

• Express Trust
• Settlor
• Trustee
• Beneficiary
• Precatory Words
• Resulting Trust
• Fixed Trust
• Discretionary Trust
• Complete List Test
• Individual Ascertainability Test