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.
SQE1 Syllabus
For SQE1, candidates are expected to demonstrate knowledge of the creation and requirements of express trusts. This includes a thorough understanding of the three certainties required for a valid express trust. As you revise this topic, ensure you focus on:
- 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.
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.
- What are the three certainties required for the valid creation of an express private trust?
- 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?
- 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?
- 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:
- Certainty of Intention: The settlor must have clearly intended to create a trust obligation, rather than make a gift or express a mere wish.
- Certainty of Subject Matter: The property subject to the trust and the beneficial interests must be clearly defined.
- 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.
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.
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.
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.
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).
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).
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.
Certainty of Subject Matter
This requires certainty regarding both:
- The property subject to the trust.
- 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. However, 'the residue' of an estate is usually certain, as it is capable of objective calculation after debts and specific gifts are accounted for.
A trust over part of a collection of assets requires clear identification of which specific assets are included.
- Tangible Assets: For tangible assets like wine or books, segregation 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.
- 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. This principle is potentially limited to shares and possibly money, and its application to other intangible assets is debated.
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.
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'.
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 usually held on a 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, 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.
- 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.
- 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.
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 (e.g., 'relatives' and 'dependants' were held conceptually certain in Re Baden's Deed Trusts (No 2) [1973] Ch 9]. 'Friends' remains problematic unless defined further by the settlor.
- Evidential Certainty: This is not required for discretionary trusts. If it cannot be proven whether someone is in the class, they are simply treated as not being in it.
- 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]).
- Capriciousness: A trust may also 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).
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.
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).
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).
- Certainty of subject matter requires clear identification of both the trust property and the beneficial interests. Segregation may be needed for tangible assets but not necessarily for identical intangible assets (Hunter v Moss).
- 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).
- Discretionary trusts can also fail for administrative unworkability or capriciousness.
- Failure of any certainty usually results in the property being held on resulting trust for the settlor or their estate.
Key Terms and Concepts
- Express Trust
- Settlor
- Trustee
- Beneficiary
- Precatory Words
- Resulting Trust
- Fixed Trust
- Discretionary Trust
- Complete List Test
- Individual Ascertainability Test
