3 - Express Trusts: The Three Certainties

Question 1

What must a settlor do to create a valid express trust?

Answer 1

For an express trust to be enforceable, the settlor must:
(a) Make a valid declaration of trust and
(b) Put assets into the trust.

Once both steps are complete, the trust is said to be ‘constituted’. Once the trust is constituted, the settlor cannot change their mind. If the trust is not constituted (ie the settlor fails to declare themselves trustee or property is not transferred to the intended trustee), no trust exists – the settlor remains the absolute owner of the property.

Question 2

What is a declaration of trust?

Answer 2

A declaration of trust is essentially the instruction manual on how the trustees should run the trust and who will ultimately benefit from the trust. A valid declaration of trust must therefore
(amongst other things):
(a) Identify the trustees;
(b) Identify the property that is to be held in trust;
(c) Identify the beneficiaries (this can be done by name or by description); and
(d) Identify the powers and duties that the trustees have in running the trust and administering trust property.

The instructions given to the trustees must be sufficiently certain and clear so
that the trustees know how to carry out

Question 3

What are the three certainties required for a valid express trust?

Answer 3

A declaration of trust is only valid if there is sufficient certainty. The declaration of trust must
satisfy three certainties (set out in Knight v Knight (1840) 3 Beav 77):

(a) Certainty of intention (also known as certainty of words): it must be clear that the person making the declaration intended to create a trust;
(b) Certainty of subject- matter: it must be clear what property is being held on trust and also what the individual interests of beneficiaries are (ie it must be clear how that property will
be shared); and
(c) Certainty of objects: it must be clear who the beneficiaries are.

These certainties are equally relevant to lifetime trusts and will trusts.

Question 4

What is certainty of intention in express trust creation?

Answer 4

Certainty of intention refers to the requirement that a settlor must have a clear intention to create a trust.

This means the settlor must use words that impose a duty on someone to act as a trustee, meaning the words must impose a duty on the trustee to hold property for the benefit of someone else.

The settlor does not even need to know what a trust is as long as their intention is consistent with the intention to create a the relationship which is characteristic of a trust.

Examples:
Anna writes to Barry, “I am transferring my cottage in Cornwall to you to hold on trust for Charlotte.”
In this case, it is clear that Anna wants to create a trust, as she explicitly states it.

Gerry says to Hayley, “I give my collection of Grayson Perry vases to you to distribute a vase to each of my children.”
While Gerry has not used the words “on trust,” the words “to distribute” impose a duty on Hayley to hold the vases for the children, indicating a trust is intended.

Question 5

Is it necessary to use the word ‘trust’ when creating a trust?

Answer 5

It is not necessary to use the word ‘trust’ to make it clear what the settlor is doing.

All that is required is the use of words (or sometimes actions) that impose a duty on someone to hold property for the benefit of someone else.

Question 6

What are precatory words, and do they create a trust?

Answer 6

Precatory words express a wish, hope, or expectation and do not create a trust.

If a settlor is looking to create a trust, obligatory or mandatory wording must be used.

Examples:
Example (a): Iesha tells Janet, “I am giving you my wedding ring in the hope that you will look after it for Katherine.” This does not impose a trust on Janet; there is no duty to look after the ring for someone else, so Iesha is merely gifting the ring to Janet.

Question 7

What happens if there is no certainty of intention?

Answer 7

If someone transfers property to another using precatory wording, it is likely that the transferor will be deemed to have made a gift.

If there is no evidence of what the transferor intended (through words or conduct), the law must rely on various presumptions to determine the correct legal result.

Question 8

What is certainty of subject-matter in trust creation?

Answer 8

Certainty of subject-matter ensures that both the trust property and the interests of the beneficiaries are clearly and definitively identified.

There are two key principles involved:
(a) The trust property must be described with sufficient certainty so that it can be identified.
(b) The beneficiaries’ interests in the trust property must be clearly defined.

Question 9

Why must the trust property be identifiable?

Answer 9

• The trust property must be specifically identifiable for the trust to be valid. If the property is uncertain, trustees wouldn’t know what they are responsible for holding or managing.
• Key rule: The property must be currently owned by the settlor; future property cannot be held on trust.
• Property must be explicitly described (e.g., specific items or amounts), and vague terms such as ‘bulk’ or ‘some’ will lead to the trust failing.

Examples:
“I direct my trustees to hold the bulk of my estate on trust for my niece, Hannah.” This fails because ‘bulk’ is an uncertain term; there’s no way to determine its size or what it includes.

Question 10

How does tangible property differ from intangible property regarding certainty?

Answer 10

Tangible property (e.g., physical items) must be individually identifiable for a valid trust. For instance, vague statements such as holding ‘some of my silver on trust’ are insufficient.

Intangible property (e.g., shares) can be held on trust even without specific identification if the items are identical, such as shares of the same class, which are indistinguishable from one another.

Example:
In Hunter v Moss [1994], a trust was created over 50 out of 950 identical shares. Since all the shares were indistinguishable, the trust was valid even though specific shares weren’t identified.

Question 11

Why must beneficiaries’ interests be certain?

Answer 11

The beneficial interests of the beneficiaries must be defined with clarity. If the interests are unclear, the trust will fail because the trustees won’t know how to distribute the trust property.

Key rule: Beneficiaries’ shares should either be clearly specified or left to the discretion of the trustees, in which case the trustees must determine the beneficiaries’ shares to create certainty.

Question 12

What happens if there is no certainty of subject-matter?

Answer 12

If certainty of subject-matter is missing, the trust will not be valid. The consequences depend on the specific situation:

(a) If the settlor intended to create a trust with themselves as trustee, but there is no certainty of the trust property, no trust is created, and the settlor remains the outright owner.
(b) If the settlor transfers property to a third party using uncertain terms (e.g., ‘some of it’), no trust is created, and the third party takes the property outright, free from any trust.
(c) If beneficiaries’ interests are not defined, the trustee will hold the property on resulting trust for the settlor.

Question 13

Who does certainty of objects in the creation of a valid express trust relate to?

Answer 13

The object of the trust is the beneficiary. The beneficiaries need to be identified with sufficient certainty so that the trustees know to whom they should distribute property. If they distribute
property to someone who is not a beneficiary, the trustees will be in breach of trust.

There is generally no issue in identifying beneficiaries if those beneficiaries are named individually. Problems might arise, however, if the beneficiaries are described as a class.
In this case, there are different certainty of objects tests for fixed interest and discretionary trusts

Question 14

What is the test for certainty of objects for fixed trusts?

Answer 14

Fixed interest trusts must satisfy the complete list test. Under this test,
it must be possible to draw up a complete list of each and every beneficiary.

If the beneficiaries are
described as a class of people, in order to satisfy the test, we need:
(a) Conceptual certainty – is the description of the class clear and objective? If the language used to describe the class is unclear and lacks precision, then the trust will fail; and
(b) Evidential certainty – do we have the evidence to identify all the beneficiaries that will benefit under the fixed interest trust? If we do not have sufficient evidence to identify all
the beneficiaries, then the trust will fail.

Question 15

Why is the test for certainty of objects for discretionary trusts different to fixed trusts?

Answer 15

The test for discretionary trusts is different. This is because the trustees do not necessarily have to draw up a complete list of possible beneficiaries before deciding how to exercise their discretion as to whom property should be distributed. What the trustees do need to do, however, is to ensure that they are distributing trust property to the right type of people.

Question 16

What is the test for certainty of objects for discretionary trusts?

Answer 16

The ‘given postulant’ test determines whether any specific individual can be identified with certainty as being within the class of beneficiaries.

The test requires conceptual certainty, meaning the settlor must provide clear and objective criteria that define the class of beneficiaries. However, proving whether a person belongs to the class (evidential certainty) is not required.

Example: If a trust is for “such of my employees as my Trustees think fit,” the trustees must determine whether a person is or is not an employee based on the definition provided by the settlor.

Question 17

What is administrative unworkability in the certainty of objects test for discretionary trusts?

Answer 17

A discretionary trust will be invalid if the class of beneficiaries is so large that it is impractical to administer. This test ensures that the trustees can properly manage the trust without overwhelming the trust’s resources or their ability to make decisions.

The class must not be so wide that it “does not form anything like a class.” Trustees must be able to distribute property rationally and in a practical manner.

Example: In R v District Auditor, ex p West Yorkshire Metropolitan CC [1986], a trust for 2.5 million people (inhabitants of West Yorkshire) was invalidated because the class was too large, making it impossible to administer.

Question 18

What is capriciousness in the certainty of objects test for discretionary trusts?

Answer 18

A discretionary trust may be invalid if it is capricious, meaning there is no rational reason for the trust, or the trustees are required to consider individuals with no meaningful connection to the settlor or the trust’s purpose.

Trusts should not be created arbitrarily or require trustees to act without any reasonable basis.

Example: In Re Manisty’s Settlement [1974], the court suggested that a trust would be capricious if it required the trustees to distribute property to a random group of individuals with no connection to the settlor.

Question 19

What happens if there is no certainty of objects in a discretionary trust?

Answer 19

If a discretionary trust lacks certainty of objects (e.g., it fails the given postulant test, is administratively unworkable, or is capricious), the trust will fail. The trust property will then be held on a resulting trust for the settlor or their estate.

Question 20

What is the beneficiary principle?

Answer 20

Definition: A trust must be for the benefit of identifiable individuals to be valid, with certain exceptions.

Application: Express trusts generally inherently satisfy the beneficiary principle as they clearly benefit specific individuals or classes of individuals.

Question 21

What is the rule against perpetuity in trusts?

Answer 21

Purpose: English law imposes a time limit to prevent property from being locked in a trust for an excessive period, ensuring that wealth circulates freely in the economy.

Rule against Remoteness of Vesting:
- The beneficial interests in a trust must vest within the perpetuity period.
- Perpetuity period for trusts created after 1 April 2010: 125 years.

Effect: Trusts are unlikely to violate this rule due to the lengthy perpetuity period.

Question 22

What are the formalities required for the declaration of a will trust?

Answer 22

Will Trust Formalities (Wills Act 1837):
- Must be made in writing.
- Signed by the testator in the joint presence of two witnesses.
- Witnesses must then sign the will in the presence of the testator.

Lifetime Trust Formalities:
- Can generally be made orally, though written declarations are advisable for clarity and to avoid future disputes.

Question 23

What is the difference between documentary and oral declarations of trust according to Gill v Thind [2023]?

Answer 23

Documentary Declaration of Trust:
Two-part analysis:
1. Prove the document was signed (fact).
2. Show that the document, properly interpreted, constitutes a declaration of trust (law).

Oral Declaration of Trust:
Two-part analysis:
1. Prove what was said (fact).
2. Show that the words demonstrated an intention to declare a trust (fact).

Subjective intentions and subsequent conduct are admissible in proving an oral declaration but not in documentary declarations.

Question 24

What formalities apply to the declaration of trusts over land under the Law of Property Act 1925 (s 53(1)(b))?

Answer 24

Declarations of trust over land must be:
- Manifested and proved in writing.
- Signed by the settlor.
If these formalities are not complied with, the trust will be unenforceable.

Examples:
Nazma’s declaration (valid): Nazma orally declares that she holds her house on trust for her daughter and later writes to her solicitor about this. The declaration of trust is valid because it was subsequently confirmed in writing.

Rebecca’s declaration (valid but incomplete): Rebecca makes an oral declaration over the phone, then writes to her daughter confirming the trust but omits a key term. The trust is valid, but the omitted term (that Teila must reach 30 years old) may not be enforceable.

Question 25

What constitutes a signature for an email declaration of trust over land (Hudson v Hathway [2022])?

Answer 25

Valid signatures in emails:

• Typed name (full name, initials, first name, or nickname) counts as a signature.
• Pre-inserted signature blocks, particularly with salutations like “Yours sincerely,” count as signatures.
• Invalid signature: The email address alone (e.g., “From joe.bloggs@aol.co.uk”) does not count as a signature.

Question 26

What are the two perpetuity rules, and when do they apply?

Answer 26

The rule against remoteness of vesting: Applies to trusts with people or charities as their objects. It is important for trusts that do not give rise to vested interests immediately, such as discretionary trusts or those with contingencies.

The rule against remoteness of vesting requires that a person or charity must obtain a vested interest in the trust property within a ‘perpetuity period’. The statutory period under s 5(1) of the Perpetuities and Accumulations Act 2009 is 125 years. A trust instrument can shorten, but not extend, this period.

The rule against inalienability: Applies to non-charitable purpose trusts, limiting the duration assets can be tied up.

The rule against inalienability, originating from common law, prevents assets from being tied up for longer than a specified life in being plus 21 years (or just 21 years if no life is specified). Unlike the statutory rule, it does not have a ‘wait and see’ provision and applies only to non-charitable purpose trusts.

Question 27

What is the effect of the ‘wait and see’ and ‘class closing’ rules in relation to the perpetuity period?

Answer 27

Under section 7 of the Perpetuities and Accumulations Act 2009, the ‘wait and see’ rule allows a trust to continue until it becomes apparent that an interest cannot vest within the 125-year period.

Section 8 provides ‘class closing’ rules, which exclude certain objects to prevent the trust from failing if their interest would vest outside the perpetuity period.

Question 28

Why do non-charitable purpose trusts typically fail for perpetuity, and how can this be avoided?

Answer 28

Non-charitable purpose trusts often fail due to the rule against inalienability because they tie up capital indefinitely.

For such trusts to be valid, an express perpetuity period (e.g., 21 years) must be included, or it may fail for perpetuity. For certainty, express perpetuity clauses like a “Royal lives clause” can be used to extend the period. E.g., “£5,000 to my trustees on trust to maintain my grave for a period not exceeding 21 years following the death of the last surviving descendant of Queen Elizabeth II who is alive at the date of my death.”

Another method that is sometimes used is an express perpetuity period for “as long as the law allows”. This would most likely be interpreted as the common law perpetuity period of 21 years