Express trust: The three certainties

Question 1

What must a settlor do to make an express trust enforceable?

Answer 1

1. Make a valid declaration of trust
2. Put assets into the trust (ie: into hands of trustee unless settlor = trustee)

Question 2

What (broadly) must valid declarations of trust identify?

Answer 2

1. The trustees
2. The property to be held on trust
3. The beneficiaries
4. The powers and duties that Ts have

Question 3

What is the difference between fixed interest and discretionary interest trusts?

Answer 3

**1. Fixed interest trust **= T has no discretion as to how trust property is to be distributed between Bs – B(s) and amount they will receive are certain
**2. Discretionary trust **– Gives trustees a discretion as to the amount a beneficiary will receive, if anything at all

Question 4

What are the 3 certainties?

Answer 4

• Subject matter - what property the trust is dealing with
• Objects - who is meant to benefit from the property and can they be easily identified
• Intention - is the arrangement intended to be a trust at all even if property and people identified (something else? e.g. legal gift)

Question 5

What is meant by certainty of intention?

Answer 5

Must be an intention to create an express trust

Differentiates it from a RT

Question 6

What is the requisite intention?

Answer 6

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

‘Desire’ is not enough

Question 7

What approach do the courts adopt in determining whether a person intended to create a trust through words and conduct?

Answer 7

Objective approach: if they manifest an intention to impose/assume duty which is characteristic of trust = intend to create a trust

Most trusts (other than for trusts of land and testamentary trusts) will have no prescribed formalities so can be created formally or informally

Question 8

Can precatory words be used?

Answer 8

No! They are hopes/wishes/ expectations. Need obligations or mandatory duty-imposing words to create a trust

Question 9

Does it matter if a person actually (subjectively) intends to create a trust/are aware trusts exist?

Answer 9

No!

Question 10

What is intention through written document? How is meaning of words ascertained?

Answer 10

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

Meaning of words ascertained by reference to:

• natural and ordinary meaning of the words.
• relevant contextual features of document
• facts known/assumed by author when creating the document (e.g. contract or will)
• common sense

Question 11

Will the use of the word ‘trust’, by its presence or absence, be a good indicator that person intends to create one?

Answer 11

The word ‘trust’ is not conclusive as to its nature (and vice versa)

Nature is determined by reference to substantive rights created, not what it’s been called

Question 12

Will the segregation/earmarking of assets and will this be conclusive as to the existence of a trust?

Answer 12

Segregation of funds in a seperate bank account earmarked for particular person/purpose is often good evidence of intention to create a trust but not conclusive

Consider within factual context

Question 13

If a sole bank account is treated as joint, will this mean the bank account is held on trust?

e.g. ‘this money is as much yours as mine’ + depositing bingo winnings in + withdrawing funds for joint use

Answer 13

Apparently! Has been decided in case law

• Decision was borderline and difficult to pinpoint moment when trust created
• Important factor in decision was the fact that couple were ordinary people; could not be expected to use trust terminology

Reminder that certainty of intention will turn on specific facts

Question 14

How does certainty of intention affect the other certainties?

Answer 14

Subject matter and objects of alleged trust can be so vague/uncertain that it can be concluded there was no intention to create a trust at all

Mussoorie - testator gave all property to wife ‘feeling confident she will act justly to our children in dividing the same when no longer required by her’ = indeterminate nature of property and number of B demonstrated no intention at all

Question 15

What are the 2 requirements for certainty of subject matter?

Answer 15

1. The trust property requirement: **Trust property must be described with certainty **
2. The beneficial entitlement: Beneficiaries interests must be defined with certainty

Question 16

Why will the trust property requirement be unproblematic where trust is created by transferring assets to T?

1st requirement for certainty of SM

Answer 16

Assets transferred = trusts property

Question 17

What of future property? Can you create a trust over something you dont presently own but you hope/anticipate will become yours?

Answer 17

No! Trusts can only validly be created over property settlor currently owns

Question 18

Can you hold ‘the bulk’ or ‘the residue’ of your estate on trust?

Answer 18

Bulk - no, not certain
Residue - yes, can be calculated

Question 19

When can trust property requirement be problematic and when would trust fail as a result? 2 scenarios

When it is not transferred

Answer 19

1. Attempt to identify trust property by description (e.g. bulk of residuary estate, net assets = trust fails for uncertainty)
2. Attempt to create trust of specific number of items from larger quantity of similar items without identifying those to be held on trust

Eg: ‘hold some of my silver coins’

Net assets does not describe specific property, rather it is an abstract term representing difference between value of assets and liabilities

Question 20

Will fractional interests permit identification of subject matter out of larger mass? (E.g. 20% of S’s 100 ordinary shares in company X, 20% of S’s 5 1-carat diamonds)

Answer 20

No problem creating trust over fractional interest of wider mass regardless of nature of property

Question 21

Why are non-fractional (specific number) interests problematic even though they might produce same result?

E.g. 20 out of 100 shares in company X

Answer 21

Would be important to know which of the amount are the ones held on trust for them and which are not e.g. If T sells 20 shares at profit/80 shares at a loss…

• Fractional interest = B shares in profits or losses
• Non-fractional interest = will matter whether their shares were amongst 20 sold at profit or 80 at loss

Question 22

What is the difference between tangible/intangible and fungible/non-fungible assets?

Answer 22

• Tangible: physical assets
• Intangible: assets that do not exist in physical form
• Fungible: identical and readily exchangeable (e.g. shares; any given moment will be worth the same)
• Non-fungible: distinguishable and not readily exchanable (e.g. diamonds; have similarties but distinguishable in cut, colour and clarity)

Fungible because exchanging shares is fun

Question 23

What are the rules on fungibility and tangibility?

Answer 23

• Fungible and intangible (e.g. shares in same company which are not different in class) = trust valid; completely interchangeable
• Non-fungible and tangible (e.g. diamonds that are not segregated or properly described) = trust void; are distinguishable
• Fungible and tangible (e.g. 20 out of 100 bottles of wine all of same vintage) = trust void; even if they appear to be identical

Rules on fractional interests remain the same

So can only declare trust over specified number of intangible, fungible assets! Essentially = tangible assets are not capable.

Question 24

What if it is not possible to ascertain the beneficial entitlement requirement?

2nd requirement for certainty of SM

Answer 24

Trust will fail; must be possible to ascertain nature and extent of B’s interest in that trust property

Question 25

What if S directs T to hold property ‘for my children?’

Answer 25

Valid –assumed that those shares are equal

Question 26

What happens if T, before determining beneficial entitlement in a DT, dies and why?

E.g. trust under which Ts hold power to hold two cars on trust for A and B

Answer 26

Trust will fail as it is no longer possible to ascertain which B is entitled to what

Should make clear when drafting what happens if T cannot exercise power

Question 27

Can a trust fail for certainty only when it is initially declared?

Answer 27

No, can also be subsequently e.g. T or B with power to determine beneficial entitlement dies

Eg: S left first daughter to decide which of 2 houses she gets, with remaining going to second daughter. First daughter died without making her decision. Second daughter had no entitlement. Assets held on resulting trust for the trustee’s residuary beneficary under intestacy rules.

Question 28

What if the beneficial entitlement is described as ‘reasonable’?

Answer 28

Trust will be valid; ‘reasonable income’ is an ‘objective yardstick’

But ‘most’ will be too vague

Question 29

What is certainty of object?

Answer 29

Beneficiaries need to be identified with sufficient certainty – more problematic, although not impossible, if described as a class but test depends on whether trust is fixed or discretionary

Question 30

What is the result if it is not possible to say who the objects are?

Answer 30

It may not be possible to properly administer the trust

Question 31

What does the test for certainty of objects depend on for fixed trusts, discretionary trusts and power of appointment?

Answer 31

The type of trust in question

• Fixed trusts = greater degree of certainty required and Ts must know who exactly benefits and how much
• Discretionary trust = less stringent test of certainty; Ts don’t need to divide property between all the objects so no need to identify all
• Power of appointment = the aspect of power and not duty relieves the donee of the power form having to identify the objects.

Question 32

What is the test for certainty of objects for fixed trusts? What conceptual and evidential clarity is required?

Answer 32

Complete list test - it must be possible to draw up a complete list of all Bs and have both:

• Conceptual clarity = precise language re definition of class of persons intended to B
• Evidential clarity = evidence can enable Ts to identify objects

Question 33

Will leaving assets ‘to my friends’ fulfil the conceptual certainty requirement for the complete list test re fixed trusts?

Answer 33

No – friends is not taken to have an objective universal definition

Question 34

If you can’t trace a beneficiary, will the trust be uncertain and fail the complete list test?

Answer 34

No. Trustees can distribute assets to certain beneficiaries and apply to court for guidance re unknown beneficiary.

Re wills law – can also protect themselves from personal liability by obtaining a Benjamin Order after waiting 2 months from advertisement in London Gazette.

Question 35

What happens if identifiable Bs have a beneficial entitlement which is not dependent upon entitlement of uncertain Bs? (see example)

E.g. trust to S’s wife for life, remainder to favourite daughter

Answer 35

The identifiable B can still take their interest

E.g. trust to S’s wife for life, remainder to favourite daughter = lack of certainty re identity of remainder B will not prevent life interest to wife taking effect and trust only fails in part

Question 36

What is the test for certainty of objects for discretionary trusts? Do they need to be able to identify all people entitled?

As the T does not have to draw up a complete list

Answer 36

The is/is not test (AKA given postulant test) (McPhail v Doulton) - No need for the Ts to come up with a complete list; merely requirs the T be able to say with certainty whether ‘any given individual is or is not a member of the class’

Must have:
- Conceptual certainty: ** Precise language describing the class of people (CRUCIALLY IMPORTANT)**

**- 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))

Not having complete evidential certainty does not cause trust to fail – CONCEPTUAL CERTAINTY MORE IMPORTANT

Question 37

Why is conceptual certainty still required for the is/is not test for DTs and what are examples of it?

Will ‘employees of company’, ‘children of individual’, ‘friends/relatives of an individual’ suffice?

Answer 37

Without this Ts will not be able to apply the test properly nor will potential B be able to determine whether they have a right to compel proper administration of trust

• ‘Employees of company’ or ‘children of individual’ = fine as both have legal definitions, but better to specify (e.g. current employees, includes adopted children etc.)
• ‘Friends of an individual’ or ‘relatives of an individual’ = problematic; friends not universally defined and case law not reached unanimous conclusion on meaning of relative

Question 38

What is the evidential certainty required for DTs? Is absolute certainty required?

Answer 38

Able to accomodate some uncertainty -burden is on the potential B to prove to T’s satisfaction they are within that class (notwithstanding some evidential uncertainty)

• DT for S’ children, grandchildren and great grandchildren - potential B would need to prove to Ts they meet definition using birth certificate
• DT for past, present and future employees of company - employees of company with no past records can show evidence through payslips

Question 39

What happens if the potential B is unable to prove they are in the class?

Answer 39

They would be treated as outside of it

Question 40

How does administrative workability fall into this?

Answer 40

If a discretionary trust is administratively unworkable, it will fail

Question 41

How do you define administrative unworkability?

Answer 41

If a class is ‘so hopelessly wide as to not form anything like a class’

• T will spend too much time/money trying to survey everone or working out who falls into the class

Eg: ‘400,000 for the inhabitants of West Yorkshire (about 2.5 million ppl)’

Question 42

What is capriciousness?

Answer 42

DT = capricious if there is no rational reason for trust

ie: ‘only an accidental conglomeration of persons who have no discernible link with the settlor or any institution’

Question 43

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

Answer 43

The is/is not test: if donee not able to determine who falls within the class of objects they risk exercising the power

• 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 44

Will the size of a class invalidate a fiduciary power of appointment?

Answer 44

No - the donee of a fiduciary power has no obligation to exercise power and thus no obligation to survey class before doing so

Courts upheld fiduciary power to appoint property to anyone in world

Question 45

What are the consequences of uncertainty in inter vivos trusts?

Answer 45

1. If the legal title has not transferred = No change in beneficial ownership until ALL three certainties are satisfied.
2. If legal title is transferred gratuitously = look at whether certainty of intention existed; if not presumed resulting trust
3. If there was a clear intention and property has been transferred to T = look at uncertainty of subject matter or objects for the trust to fail. If fails = automatic resulting trust

Question 46

What are the consequences of uncertainty in testamentary trusts?

Answer 46

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