Creation and requirements of express trusts - Treatment of p...

Learning Outcomes

This article examines the requirements for certainty of subject matter in express trusts where the intended property forms part of a larger group of assets, including:

• distinguishing how the rules apply to tangible property (such as wine, coins, or chattels) compared with intangible property (such as shares and money);
• understanding when segregation or earmarking of tangible items from a bulk is required to create a valid trust fund;
• identifying when a description by quantity or value (for example, “£10,000 from my account” or “50 shares of a class”) is sufficiently certain without physical segregation;
• recognising vague or qualitative descriptors (such as “the bulk of…”, “some of…”, or “the majority of…”) that render the subject matter uncertain and cause the trust to fail;
• analysing how certainty of beneficial interests interacts with certainty of property, including situations involving equal shares, fixed fractions, and objectively determinable amounts such as “reasonable income”;
• applying these principles to common SQE1-style problem questions involving fungible assets, mixed collections, and partial interests in larger groups of property;
• evaluating the consequences where certainty of subject matter is not satisfied, including the likelihood of a resulting trust in favour of the settlor or their estate.

SQE1 Syllabus

For SQE1, you are required to understand the requirements for creating a valid express trust, including the specific rules relating to certainty of subject matter, especially when the trust property constitutes part of a larger group of identical or similar items, with a focus on the following syllabus points:

• The requirement for certainty of subject matter in express trusts.
• The distinction between tangible and intangible property concerning certainty of subject matter.
• The principle of segregation for tangible assets forming part of a bulk.
• The rules applicable to intangible assets like shares, as established in key case law.
• Identifying whether trust property is sufficiently certain in various scenarios.
• The sufficiency of identifying sums of money and identical units of intangible property without physical segregation.
• Recognising descriptors that cause uncertainty (e.g., “bulk”, “majority”, “some of”) and how to correct them.
• Certainty of beneficial interests (equal shares, defined fractions, and objectively determinable amounts such as “reasonable income”).
• Consequences when certainty fails (e.g., resulting trust).

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. Which of the following purported trust declarations is most likely to fail for uncertainty of subject matter?
   1. ‘I declare I hold 50 of my 950 shares in XYZ plc on trust for my son.’ (Assume all shares are identical).
   2. ‘I declare I hold three bottles of my vintage port wine collection in my cellar on trust for my daughter.’ (The cellar contains 20 identical bottles).
   3. ‘I declare I hold £10,000 from my current account at ABC Bank on trust for my nephew.’
   4. ‘I declare I hold the bulk of my residuary estate on trust for my niece.’

2. True or false: A trust over part of a collection of identical gold coins requires the specific coins forming the trust property to be segregated from the rest.

3. In the context of certainty of subject matter for trusts, which type of property generally requires segregation if only part of it is to form the trust fund?
   1. Shares of the same class in a public company.
   2. Money held in a single bank account.
   3. Tangible assets forming part of a larger identical bulk.
   4. Units in a unit trust.

Introduction

For an express trust to be valid, it must satisfy the three certainties: certainty of intention, certainty of subject matter, and certainty of objects. This article focuses on the second requirement – certainty of subject matter – specifically addressing the difficulties that arise when the property intended to form the trust fund is part of a larger group or bulk of similar assets. Understanding how the courts approach this issue, particularly the distinction drawn between tangible and intangible property, is essential for advising clients and succeeding in the SQE1 assessment.

Where subject matter is not sufficiently certain, the trust fails. The practical consequence is that trustees cannot know what property they must hold for the beneficiaries, and the court cannot enforce the trust. If the trust fails for uncertainty of subject matter, the beneficial interest is not effectively divested from the settlor; commonly, the property is held on automatic resulting trust for the settlor or their estate.

Key Term: Certainty of subject matter
The requirement that the property subject to the trust, and the beneficial interests in that property, must be clearly defined or ascertainable.

A particular challenge arises when the intended trust property is described as a portion of a larger group of assets, for example, ‘10 of my 20 paintings’ or ‘50 of my 100 shares’. The key question is whether the specific assets forming the trust fund have been identified with sufficient certainty. The approach taken by the courts differs significantly depending on whether the assets are tangible or intangible.

Key Term: Beneficial interest
The equitable entitlement of a beneficiary to the benefits of the trust property (e.g., income, capital, or a defined share).

Certainty of Subject Matter: The Trust Property

The subject matter of a trust refers to the assets that are to be held by the trustee for the benefit of the beneficiaries. It is fundamental that this property is identified or ascertainable with sufficient clarity. If the property cannot be clearly identified, the trust will fail because the trustees (and the court) cannot know what property they are responsible for managing. Certain forms of description are acceptable and certain are not:

• Quantifying by number or value can be sufficient (e.g., “50 shares of the ordinary class” or “£10,000 from my account”).
• Vague descriptors such as “the bulk of my estate”, “some of my shares”, or “the majority of my collection” are too imprecise and cause the trust to fail.

The courts also separate two linked issues: certainty of the trust property itself, and certainty of the beneficial shares the beneficiaries are to receive. Both must be sufficiently certain.

Key Term: Bulk
A larger group of indistinguishable items (e.g., a warehouse stock) from which intended trust property is to be identified.

Tangible Property Forming Part of a Group

Tangible assets are physical items that can be touched, such as wine bottles, gold bars, books, or animals.

Key Term: Tangible property
Physical assets that can be touched and are individually identifiable (even if similar to others).

Where a trust is declared over a portion of tangible assets that form part of a larger group of identical or similar items, the trust will generally fail unless the specific assets forming the trust property are separated or clearly identified from the rest.

Key Term: Segregation
The physical separation or clear identification of specific assets from a larger bulk or group to which they belong.

The leading authority is Re London Wine Co (Shippers) Ltd [1986] PCC 121. Customers purchased wine which remained stored in bulk by the company. When the company went into liquidation, the customers claimed the wine was held on trust for them. The court held that no valid trust existed because the specific bottles belonging to each customer had not been segregated or identified from the general stock. Without segregation, it was impossible to say which bottles were subject to the trust.

Similarly, in Re Goldcorp Exchange Ltd [1995] 1 AC 74, customers purchased gold bullion which the company stored. Again, the failure to segregate the specific bullion for each customer meant the trust failed for uncertainty of subject matter. The cases emphasize that the mere intention to set aside goods is inadequate; there must be ascertainment of the very items forming the trust.

In practice, trustees or settlors can avoid uncertainty by:

• Physically separating the items, labeling them, or procuring unique identifiers where possible.
• Using an inventory that unmistakably earmarks which specific items are held on trust (for example, itemized serial numbers for bars of gold).

Worked Example 1.1

Sarah declares: ‘I hold 20 of my 100 gold Krugerrand coins, currently stored in my safe, on trust for my son, Ben.’ The coins are identical and are loose in the safe. Is this trust valid?

Answer:
This trust is likely to fail for uncertainty of subject matter. Gold coins are tangible property. As the specific 20 coins intended for the trust have not been segregated or otherwise identified from the total 100 coins, it is impossible to determine which coins are held on trust for Ben. The principle from Re London Wine applies.

Worked Example 1.2

A donor writes: “I hold three bottles from my wine cellar on trust for A.” The cellar contains 60 bottles of the same vintage and identical appearance, stored in bulk. No labels or records identify which three are intended. Is the subject matter certain?

Answer:
No. As with Re London Wine, there is no segregation or earmarking of the particular bottles; the three bottles forming the trust fund are not identified. The trust fails for uncertainty of subject matter.

Intangible Property Forming Part of a Group

Intangible assets are non-physical assets, such as shares in a company, money in a bank account, or units in a unit trust.

Key Term: Intangible property
Assets that do not have a physical form, such as shares, debts, or intellectual property rights.

The courts have adopted a different approach for intangible assets, particularly where those assets are fungible (identical and interchangeable).

Key Term: Fungible property
Property where each unit is identical to and interchangeable with every other unit (eg, shares of the same class, money).

The leading case is Hunter v Moss [1994] 1 WLR 452. Moss owned 950 shares in a private company and orally declared a trust of 5% of his shareholding (50 shares) for Hunter. Moss did not identify or segregate any specific 50 shares. The Court of Appeal held that the trust was valid. Dillon LJ distinguished Re London Wine on the basis that shares of the same class in the same company are indistinguishable from one another, unlike tangible assets such as wine bottles. Therefore, segregation was not necessary. As long as the trustee holds sufficient shares of the specified type, the trust over a portion of that holding can be valid.

This approach has practical breadth:

• Shares: A declaration such as “200 of my ordinary shares” is normally valid if the shares are all of the same class with identical rights.
• Units: Units of a unit trust or similar collective investment scheme are fungible; “1,000 units” can be certain without identifying particular units.
• Money: A declaration of trust over a specified sum of money in an account (e.g., “£10,000 from my current account”) is typically sufficiently certain as money is fungible; specific notes or coins need not be earmarked, provided the amount is defined and the account holds sufficient funds.

Revision Tip

The distinction between tangible and intangible property is critical. Remember: tangible items in a bulk generally require segregation for certainty; identical intangible items (like shares) generally do not.

Worked Example 1.3

David owns 500 ordinary shares in Tech Corp plc. He executes a trust deed declaring that he holds 200 of these shares on trust for his niece, Emily. He does not specify which 200 shares are subject to the trust. Is this trust valid?

Answer:
Yes, this trust is likely valid. Following Hunter v Moss, shares of the same class are considered fungible intangible assets. As David holds sufficient shares (500) to satisfy the trust (200), and all ordinary shares in Tech Corp plc are identical, segregation is not required. The subject matter is certain.

Worked Example 1.4

Priya declares: “I hold £10,000 from my current account on trust for my nephew.” Her current account balance is £26,000. She does not transfer the amount to a separate account. Is the subject matter certain?

Answer:
Yes. Money is fungible, and a declaration of trust over a defined sum from an account is typically sufficiently certain. The specified amount (£10,000) is ascertainable, and segregation into a separate account is not necessary for certainty, provided there is a clear intention to create a trust and sufficient funds.

Worked Example 1.5

Ahmed declares: “I hold 300 of my shares on trust for Z.” He owns 300 ordinary shares and 200 preference shares in the same company, with different rights attaching. He does not specify the class. Is the subject matter certain?

Answer:
Likely not. Where the intangible assets are not identical (e.g., different share classes with differing rights), the subject matter is uncertain unless the class or precise type of shares is specified. “300 of my shares” could refer to a mix of ordinary and preference shares, which are not fungible together. Identification of the relevant class is needed.

Exam Warning

Be cautious about applying Hunter v Moss too broadly. It primarily applies to identical intangible assets like shares of the same class, units of a fund, or defined sums of money. If the intangible assets are not identical (eg, shares with different rights, mixed classes, or varied contractual rights), specific identification may still be required. Also, the principle has faced academic criticism, although it remains good law.

Certainty with Money and Bank Accounts

Declaring a trust over money in a bank account is generally valid where the sum is definite and the intention is clear. The courts do not require identification of specific coins or notes. A declaration such as “£5,000 from my savings account” is sufficiently certain if the account holds that amount at the time the trust takes effect. However:

• Vague descriptors (e.g., “some of the money in my account”) fail for uncertainty.
• If funds are to be protected from insolvency risk (as in consumer protection contexts), segregation may be prudent and may also evidentially support intention, but it is not required for certainty of subject matter as a matter of trust law when the sum is defined.

The difference between certainty and constitution must be kept in view. Certainty of subject matter requires clear identification; constitution requires the trustee to have legal title to the property in the way prescribed for that type of property. A declaration of trust over a sum in a personal account may be certain without segregation; constitution issues (such as transferring legal title to a trustee) are separate questions.

Certainty of Beneficial Interest

Certainty of subject matter also requires certainty regarding the beneficial interests each beneficiary is to receive. If the property itself is certain, but the shares or interests the beneficiaries are to take are uncertain, the trust may fail. For example, a trust of “£100,000 to be divided amongst my children, with the eldest receiving the bulk” would likely fail for uncertainty of beneficial interest, as “the bulk” is too vague.

By contrast, leaving “£100,000 to my trustees to hold on trust for my children in equal shares” is certain; if the trust instrument is silent on shares, equal shares are generally presumed for a fixed trust of identified beneficiaries. A direction for “reasonable income” can be sufficiently certain where the court can determine it objectively by reference to the beneficiary’s circumstances.

• Boyce v Boyce (1849) illustrates uncertainty where one beneficiary’s entitlement depended on another’s choice that never occurred, causing the trust to fail.
• Re Golay’s Will Trusts [1965] 1 WLR 969 shows that “reasonable income” is sufficiently certain because the court can make an objective assessment.

A proper articulation of beneficial interests can avoid uncertainty: fixed proportions (e.g., “in equal shares” or “as to 60% to A and 40% to B”) are clearly certain; where trustees are given discretion as to amounts and timing (e.g., a discretionary trust of income or capital among a defined class), the subject matter may be certain even though individual entitlements are not fixed at the outset.

Worked Example 1.6

A testator leaves: “The residue of my estate on trust to pay a reasonable income to my sister for life.” Is the beneficial interest certain?

Answer:
Yes. “Reasonable income” is sufficiently certain, as in Re Golay; the court can determine what income is reasonable having regard to the circumstances. The property (the residue) is certain and the life interest in income is objectively determinable.

Worked Example 1.7

Under a will: “£150,000 to be divided among my children, with the eldest receiving the bulk.” Is the trust likely valid?

Answer:
No. “The bulk” lacks precision and does not define the eldest child’s share with sufficient certainty. The beneficial interests are uncertain, and the trust would likely fail for uncertainty of beneficial interest.

Vague Descriptions of Property: “Bulk”, “Majority”, and “Some of…”

Certain descriptors are inherently uncertain:

• “The bulk of my estate” was held uncertain in Palmer v Simmonds (1854), because “bulk” is imprecise and incapable of objective ascertainment in that context.
• “The majority of my shares” leaves uncertainty as to which shares and how many; a fixed fraction or number should be used instead.
• “Some of my paintings” is uncertain absent a mechanism to select or identify which paintings; either fix a number and select them, or grant trustees a power to choose and earmark the assets.

To cure uncertainty:

• Use precise quantities or fractions (e.g., “one half of my collection” or “20 paintings”).
• Provide a mechanism for selection (e.g., trustees to choose particular items and identify them), coupled with a requirement to earmark them.

When Certainty Fails: Resulting Trusts

Failure for uncertainty of subject matter (or beneficial interests) typically results in the property remaining or “resulting” back to the settlor or their estate. Trustees cannot distribute uncertain property; instead, they will hold it on automatic resulting trust.

Where the intended trust is partially expressed and does not exhaust the beneficial interest (e.g., a life interest without directions for remainder), the surplus or undisposed interest likewise results back. Where surplus funds remain after carrying out a purpose within a valid trust, the outcome depends on construction: it may be distributed to those intended or may result back to the contributors or the settlor’s estate, depending on the terms.

Key Point Checklist

This article has covered the following key knowledge points:

• Certainty of subject matter is one of the three certainties required for a valid express trust.
• The trust property must be identified or ascertainable with sufficient clarity; quantity or value is acceptable, but vague descriptors (“bulk”, “majority”, “some of”) are not.
• When trust property is part of a larger group, a distinction is made between tangible and intangible assets.
• Tangible assets (e.g., wine, gold bars, identical coins) generally require segregation or specific identification from the bulk to ensure certainty (Re London Wine, Re Goldcorp).
• Identical intangible assets (e.g., shares of the same class, fund units, defined sums of money) generally do not require segregation, provided the trustee holds a sufficient quantity (Hunter v Moss).
• Money is fungible: a declared sum (e.g., “£10,000 from an account”) can be certain without physical segregation, provided intention and sufficiency of funds align.
• Where intangible assets are not identical (e.g., shares of different classes), precise identification of the class or type is required.
• The beneficial interests of the beneficiaries must also be certain; objective standards such as “reasonable income” may suffice (Re Golay), but vague terms like “the bulk” fail (Boyce v Boyce, Palmer v Simmonds).
• If certainty fails, the property commonly reverts on resulting trust to the settlor or their estate.

Key Terms and Concepts

• Certainty of subject matter
• Tangible property
• Intangible property
• Segregation
• Fungible property
• Beneficial interest
• Bulk