Express trust: The three certainties

Question 1

Certainty of intention ?

Answer 1

There must be an intention to create a trust; which differentiates it from a resulting trust.

Different ways of showing intention: Requisite intention, ascertaining intention, written document, use of the word trust or segregating/earmarking assets.

Question 2

What is requisite intention?

Answer 2

Intention to impose or assume the duty which is characteristic of a trust.
(ex; duty to hold property for.. apply it to the benefit of …)

Question 3

What is ascertaining intention?

Answer 3

The court has an objective approach in determining whether a person intended to create a trust through their words and conduct.

Question 4

What is intention through written document?

Answer 4

the intention of the author’s intention is deduced from identifying the meaning of the words which they have used.

Look at..
- the natural and ordinary meaning of the words.
- any relevant context
- facts which were known or assumed by the author when creating the document (contract or will for example)
- Common sense

Question 5

What is the segregation/earmarking of assets?

Answer 5

Good evidence of an intention to create a trust could be the segregation of funds in a seperate bank account.

Question 6

How does certainty of intention affect the other certainties?

Answer 6

Since a trust creates a duty, it is unlikely that a person intends to impose a duty if it is so vague that the people required to discharge it are unable to identify what to do, or are unable to be identified.

Question 7

Certainty of subject matter ?

Answer 7

two distinct requirements:

1. The trust property requirement; possible to identify the trust property
2. The beneficial entitlement: possible to ascertain’s the beneficiary’s interest in the trust property

Question 8

What is the trust property requirement ?
(1st requirement of certainty of subject matter)

Answer 8

In a case where a trust is created by transferring assets to trustees, the trust property is easily identified.

In any other case;

a) a person attempts to identify the trust property by description
i.e ‘a bulk of the residuary estate’

b) a person attempting to create a trust of a specific number of items from a larger quantity of similar items without identifying those to be held on trust.

Question 9

Why is it an issue when identifying subject matter out of larger mass?
(1st requirement of certainty of subject matter)

Answer 9

a) Fractional interest:
i.e 20% of the settlor’s 100 ordinary shares in the company.
There is no problem creating at trust over a fractional interest of a wider mass

b) Specific number of items from larger mass:
i.e. One of the settlor’s 10 shares in the company.
A problem arises here when there is no distinction as to which of the shares should be held on trust.

Question 10

What is the difference between tangible and intangible assets?
(1st requirement of certainty of subject matter)

Answer 10

Tangible: physical assets

Intangible: assets that do not exist in physical form such as company shares, intellectual property and debts.

Question 11

What are fungible and non-fungible assets?
(1st requirement of certainty of subject matter)

Answer 11

Fungible: identical and readily exchangeable
i.e shares - although their value can fluctuate they will all be worth the same.

Non-fungible: non-identical.
i.e diamonds - although similar, they may have different cuts and values.

i.e;
1. fungible, intangible assets (shares)
2. non-fungible, tangible assets (diamonds)

Fungible, tangible assets - not possible at it would still need to be identified which of the bulk is intended in the trust (Re London Wine Comp; bottles of wine).

Question 12

What is the beneficial entitlement requirement?
(2nd requirement of certainty of subject matter)

Answer 12

Must be possible to ascertain the nature and extent of the beneficiary’s interests to the trust property.

Highlighting the importance of good drafting when declaring a trust; identifying which beneficiary receives which asset.

Question 13

Certainty of objects?

Answer 13

The objects (i.e beneficiaries but not necessarily) of a trust need to be certain so that the trust can be regulated and enforced by the court.

Question 14

What are the different kinds of trusts when considering certainty of objects?

Answer 14

1. Fixed trusts:
   A greater degree of certainty is required and the trustees must know who exactly benefits and how much.
2. Discretionary trust
   A less stringent test of certainty , as trustees don’t need to divide property between all the objects, so no need to identify all of them.
3. Power of appointment:
   the aspect of power and not duty relieves the donee of the power form having to identify the objects.

Question 15

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

Answer 15

Complete list test:
A fixed trust aiming to distribute property equally between the members of a class of objects.

Must have:
- conceptual certainty: precise language
- evidential certainty: evidence enables the identification of objects.

Question 16

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

Answer 16

The is/is not test (McPhail v Doulton):
No need for the trustees to come up with a complete list, a simple is or is not question just needs to be answered.

Must have:
- conceptual certainty: precise language
- Evidential certainty : if the claimant cannot porve they were in the class (through birth certificate etc..) then they would be considered to be outside of it (Re Baden (No 2)).

Question 17

What is the test for certainty of objects for Powers of appointment?

Answer 17

The is/is not test:
if the donee is not able to determine who falls within the class of objects, the risk, losing the power all together.

Important to identify them, although they have no right to force the donee to exercise their power, they can constrain the improper use of power.

Question 18

What is administrative unworkability?

Answer 18

A discretionary trust could fail because the class of objects is too wide!
(McPhail v Doulton)

Question 19

What are the consequences of uncertainty in inter vivos trusts?

Answer 19

a) if the legal owner has not transferred legal title to anyone else there will be no change in beneficial ownership until ALL three certainties are satisfied.

b) if the legal title is transferred gratuitously, we look at if there was a certainty of intention to create a trust.
if not then it is a presumed resulting trust.

c) if there was a cleat intention to create a trust, and the property has already been transferred to the intended trustee, we look at uncertainty of subject matter or objects for the trust to fail.
Will result in a automatic resulting trust.

Question 20

What are the consequences of uncertainty in testamentary trusts?

Answer 20

a) if it is clear that a person is intended to receive the property through intention but unclear if they are intended to be a trustee
–> A GIFT

b) if the will clearly intended a person to be a trustee, uncertainty in subject matter or objects will cause the trust to fail.
–> whatever asset will form part of the residuary estate