PastPaperHero | Core principles of trust law - Creation and requirements of express trusts

Learning Outcomes

This article explains the essential principles that govern the valid creation of express trusts for the SQE2, including:

The three certainties required for a valid express trust and how the courts assess them
Statutory and common law formalities for declarations of trust over land and personalty
Formalities for dispositions of subsisting equitable interests and key distinctions in case law
Constitution of trusts: vesting legal title, methods of transfer for different property types, and limited equitable exceptions
Practical consequences where formalities or constitution fail, and rights of volunteers

SQE2 Syllabus

For SQE2, you are required to understand the creation and requirements of express trusts, including the three certainties, formality requirements, and constitution, with a focus on the following syllabus points:

The meaning and application of the three certainties: intention, subject matter, and objects
Formality requirements for creating inter vivos trusts of land and personalty
Formalities for declarations of trust in wills
Formalities for the disposition of a subsisting equitable interest
The rule on constitution: what is required to fully vest the trust property in the trustees
Consequences of non-compliance, including unenforceable and void trusts
Rights and limitations of volunteers, beneficiaries, and trustees where constitution or formalities fail

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.

Do all trusts require written evidence to be valid? Explain your answer.
Describe the three certainties required for the valid creation of an express trust.
When does a trust of land fail for lack of formality, and what is the legal effect?
What is the difference between a vested interest and a contingent interest in trust law?
Who is a “volunteer” and what are their rights if a trust is not properly constituted?

Introduction

An express trust is formed when a person intentionally declares or creates an arrangement to hold property for the benefit of others or for a defined purpose. For a trust to be valid and enforceable, specific requirements must be satisfied. The SQE2 assessment demands not just knowledge of the technical requirements, but also an ability to apply these in client scenarios to provide clear legal advice. This article covers the core principles that underpin the creation of express trusts: the three certainties, mandatory formality rules, and the essential step of constitution.

The Three Certainties

A valid express trust is not formed by accident. The law requires three certainties to be satisfied:

Key Term: Three certainties
In trust law, three requirements that must all be present: certainty of intention, certainty of subject matter, and certainty of objects (beneficiaries).

Certainty of Intention: The settlor must make clear—by language, conduct, or both—a real intention to create a trust and not some other arrangement.
Certainty of Subject Matter: The trust property (assets) must be clearly identified or identifiable, and each beneficiary’s entitlement must be ascertainable.
Certainty of Objects: The beneficiaries (or, for purpose trusts, the purpose) must be sufficiently certain.

If any certainty is missing, the trust will fail.

Key Term: Settlor
The person who creates or declares a trust by transferring property or declaring a trust over it.

Certainty of Intention

The courts look at the words and overall circumstances, not just formal labels. Words that merely express a wish, hope, or expectation (precatory words) are not usually enough. There must be a clear, imperative intention to impose a binding legal obligation to hold property on trust.

Key Term: Precatory words
Expressions of hope or non-binding suggestions, such as “wish,” “hope,” or “desire,” which typically do not create a trust.

An apparent declaration can also fail if the arrangement is a sham—i.e. where the documents or statements are used to give the appearance of a trust, but there was never a genuine intention to be bound.

Key Term: Sham trust
A purported trust arrangement intended to mislead third parties, lacking genuine intention that the trustee be bound; the court looks to the true intention, not labels.

The concept of sham explains why a court will disregard a “trust” label where all surrounding facts show no intention to create obligations (for example, a trust declared as a defensive device against creditors while retaining full personal control).

Worked Example 1.1

A woman’s will states: “£10,000 to my brother, trusting that he will look after my nephews.” Is this a trust?

Answer:
No trust is created. The phrase “trusting that he will look after” is precatory, not imperative. The brother takes the money outright.

Certainty of Subject Matter

It must be possible to identify with certainty the property forming the trust fund and the beneficial shares. If the property or share is described vaguely—e.g., “the bulk of my estate”—the trust fails for uncertainty.

If assets are tangible goods (e.g., wine collection), the items for the trust must be specifically set aside or segregated. For intangible assets (e.g., shares of one class in a company), identical assets do not generally need to be distinguished individually.

In addition to identifying the property, the beneficiary’s entitlement must be ascertainable. Expressions like “a generous amount” are insufficient, whereas an entitlement to a “reasonable income” is usually certain because the court can objectively assess reasonableness based on circumstances.

Worked Example 1.2

A settlor states: “I declare a trust over part of my art collection for my niece.” No paintings are identified or set aside. Is there a valid trust?

Answer:
No. The trust fails for uncertainty of subject matter; “part of my art collection” is too vague without specifying or separating the items.

Certainty of Objects

The beneficiaries must be clearly ascertainable:

For a fixed trust: it must be possible to draw up a complete list of all beneficiaries.
For a discretionary trust: it must be possible to say of any given person whether they are or are not a member of the class (“is or is not” test). Conceptual certainty of the description is required, but a complete list is unnecessary.

The class must not be so wide that the trust is administratively unworkable (for example, “inhabitants of West Yorkshire” has been held too wide to administer). If the class is defined vaguely (e.g., “my friends”), the trust is conceptually uncertain and void.

Worked Example 1.3

A will leaves money on trust “for my relatives.” Is this class sufficiently certain?

Answer:
Yes. “Relatives” has a clear legal meaning. The trust will not fail for conceptual uncertainty.

Key Term: Fixed trust
A trust in which each beneficiary’s share or entitlement is predetermined and not subject to the trustees’ discretion.

Key Term: Discretionary trust
A trust in which trustees decide whether, how much, and which beneficiaries in a class should benefit.

Formality Requirements

Inter Vivos Trusts of Personalty

There is no general requirement for writing for trusts over personalty (movable property, such as cash, shares, or chattels) made during the settlor’s lifetime, unless legislation applies to a particular type of property. Intention can be manifested by words or conduct.

Inter Vivos Trusts of Land

A declaration of trust in respect of land or any interest in land must be manifested and proved by some writing signed by the person who can declare such a trust (Law of Property Act 1925, s 53(1)(b)). Without such writing, the trust cannot be enforced, though it is not void. In practice, where land is to be put on trust by transfer to new trustees, the transfer of legal title also requires a deed (LPA 1925, s 52(1)) and, for registered land, registration of the transfer to complete the transfer (Land Registration Act 2002, s 27).

Key Term: Realty
Land and buildings; immovable property.

Trusts in Wills

Trusts created by will satisfy all formality requirements if the will is signed and witnessed correctly under the Wills Act 1837. Valid execution gives the necessary signed writing to evidence any trust of land declared in the will.

Disposition of a Subisting Equitable Interest

A beneficiary transferring their equitable interest must do so in writing, signed by themselves or their agent (Law of Property Act 1925, s 53(1)(c)). Oral transfers of equitable interests are void.

Key Term: Equitable interest
The beneficial interest in property held on trust, as distinct from legal title.

How the disposition is effected matters:

A direction to trustees that the beneficial interest be shifted to a third party is a disposition requiring signed writing (illustrated by the principle in Grey v IRC).
If legal and equitable title move together so that the beneficial interest is extinguished by transfer of the legal estate to a non-trustee, writing under s 53(1)(c) is not required (principle seen in Vandervell v IRC).

Worked Example 1.4

A is entitled to half the income of a trust fund. He writes and signs a letter to the trustees instructing them to pay it to B. Is this effective?

Answer:
Yes. The disposition of A’s equitable interest is valid as it is in signed writing. If only an oral instruction was given, it would be void.

Exam Warning

If the legal and equitable title move together (e.g., a bare trust: trustee transfers full legal title to another), s 53(1)(c) does not apply. But where a beneficiary gives away only their equitable interest, s 53(1)(c) must be observed. A genuine sub-trust declared by a beneficiary who remains actively involved as trustee of their own equitable interest is not treated as a disposition that must comply with s 53(1)(c); however, if the beneficiary drops out and divests the interest entirely, writing will be required.

Worked Example 1.5

A father executes a deed declaring that he holds his own shares on trust for his daughter. Has the trust been constituted?

Answer:
Yes. As settlor and trustee are the same and the legal title is already held by the trustee, the equitable interest separates and passes to the daughter.

Worked Example 1.6

C is beneficial owner under a trust. C tells the trustees orally to “hold my share for D from now on.” No signed document is produced. Is D now entitled?

Answer:
No. C’s oral direction is a disposition of a subsisting equitable interest and is void without signed writing. A signed instrument that evidences the direction is required.

Worked Example 1.7

E is sole beneficiary under a bare trust of quoted shares. The trustee transfers legal title to the shares directly to F (not as trustee), completing registration in F’s name. Is s 53(1)(c) engaged?

Answer:
No. Legal and equitable title moved together. E’s equitable interest was extinguished when legal title passed to F absolutely. Signed writing under s 53(1)(c) is not needed in such a case.

Constitution: Vesting the Trust Property

Once the trust is declared, the legal title to the trust assets must actually be transferred to the trustee, in the correct manner for that type of property. This is constitution. Until then, the trust is incompletely constituted.

Key Term: Constitution
The process by which legal title to trust property is vested in the trustee.

Until the trust is fully constituted, the beneficiaries who have not provided consideration (“volunteers”) have no rights against the intended trustees or settlor.

Key Term: Volunteer
A person who has not given valuable consideration for a benefit (such as a gift); in trust law, most beneficiaries are volunteers.

Where the settlor declares herself trustee and already holds legal title, no further transfer of legal title is needed. Otherwise, proper methods must be used:

Land: deed of transfer (LPA 1925, s 52(1)), and registration for registered estates (LRA 2002, s 27).
Shares: company stock transfer form; registration by the company registrar.
Chattels: deed of gift or physical delivery with intention to transfer.
Bank balances or securities: steps appropriate to the instrument (e.g., assignment or transfer forms).

In very limited circumstances, equity will perfect an imperfect gift or incomplete constitution. The classic route is the rule in Re Rose (where the donor has done everything necessary in their power and only ministerial acts remain) and, exceptionally, unconscionability-based cases (such as Pennington v Waine) where it would be unconscionable to resile. These are fact-sensitive and rare. Additionally, Strong v Bird can perfect an imperfect gift where the donee becomes the donor’s personal representative and the donor’s continuing intention subsisted until death.

Worked Example 1.5 (revisited)