Express Trusts: Declaration of Trust

Question 1

What is an express trust, and what must a valid declaration of trust include?

Answer 1

An express trust is a trust that the settlor intentionally creates. A valid declaration of trust must include:

1. Identification of Trustees: Specify who will manage the trust property.
2. Identification of Property: Define the assets to be held in trust clearly and precisely.
3. Identification of Beneficiaries: Name the beneficiaries or describe them as a class.
4. Trustees’ Powers and Duties: Outline the responsibilities of trustees, including how they should administer the property.

The declaration serves as the trust’s instruction manual, ensuring the trustees know their obligations and the beneficiaries’ entitlements.

Question 2

What are the three certainties required for a valid trust, and how are they applied?

Answer 2

As established in Knight v Knight (1840), the three certainties are:

1. Certainty of Intention:
   * The settlor must clearly intend to create a trust.

• The use of mandatory language (e.g., “I transfer this to you to hold on trust”) demonstrates intention.
• Precatory words like “I hope” or “I wish” indicate a gift, not a trust.
• Example: “I transfer my house to you to hold on trust for my daughter” (valid intention).

2. Certainty of Subject-Matter:
   * The trust property must be clearly identifiable.

• Beneficiaries’ interests must be defined with precision.
• Examples:
• “I hold my shares in BT Plc on trust” (valid).
• “I hold some of my wine collection on trust” (invalid due to vagueness).

3. Certainty of Objects:
   * Beneficiaries must be identifiable (e.g., by name or as a defined class).
   * Tests:
   * Complete List Test for fixed interest trusts.

• Given Postulant Test for discretionary trusts.

Question 3

What are fixed interest trusts, and how is certainty of objects determined?

Answer 3

A fixed interest trust is where the settlor specifies:

1. Who benefits (e.g., “my children”).
2. What they receive (e.g., equal shares).

Certainty of Objects Test:
* The complete list test applies: All beneficiaries must be identifiable to determine their shares.

• If any beneficiary is uncertain or missing, the trust may fail for uncertainty.

Components of the Complete List Test:
1. Conceptual Certainty:
* The class of beneficiaries must be clearly defined and objectively ascertainable.

• Example: “My children” (valid) vs. “My deserving friends” (invalid, as “deserving” lacks an objective standard).

2. Evidential Certainty:
   * It must be possible to draw up a full and complete list of beneficiaries.

• Example: A trust for “all my grandchildren alive today” requires evidence to identify all grandchildren.
• If records are missing (e.g., past employees of a company), the trust fails for lack of evidential certainty.

Examples of Complete List Test in Practice:

1. “I give £500,000 to my trustees to hold for my nephews equally.”

• The trustees must compile a full list of nephews because their shares depend on how many beneficiaries exist.

2. “I give £500,000 to my trustees to hold for my deserving friends.”

• This fails conceptual certainty because “deserving” is subjective and cannot be objectively defined.

Question 4

What is the rule against perpetuities, and how does it apply to trusts?

Answer 4

The rule against remoteness of vesting requires that future trust interests (that is, interests that do not take effect immediately) must be certain to vest within a defined period of time known as the perpetuity period

1. For trusts created after 1 April 2010, the perpetuity period is 125 years.
2. Trusts that delay property vesting beyond this period are invalid.

Rationale: Prevents long-term restrictions on property, ensuring it remains freely alienable.

Question 5

What formalities must be followed for valid declarations of trust?

Answer 5

1. Lifetime Trusts:
   
   • Most declarations can be oral but are best evidenced in writing.
   • Trusts over land must comply with s 53(1)(b) of the Law of Property Act 1925:
   • Evidenced in writing.
   • Signed by the settlor.
   • Emails with typed names count as signatures (Hudson v Hathway [2022]).
   2. Will Trusts:
      * Must comply with the Wills Act 1837, requiring:
      * Writing, signed by the testator, and witnessed by two witnesses.

Question 6

What are administrative unworkability and capriciousness, and how do they affect discretionary trusts?

Answer 6

1. Administrative Unworkability:
   * The class of beneficiaries is so large that the trust becomes impractical to manage.

• Example: “A trust for all inhabitants of West Yorkshire” (approximately 2.5 million people) was invalid.

2. Capriciousness:
   * The trust terms are irrational or lack a clear purpose, such as requiring distribution to “people wearing green hats.”

If a discretionary trust fails due to these issues, the trust property reverts to the settlor under a resulting trust.

Question 7

How is certainty of subject-matter determined in trusts?

Answer 7

1. Trust Property Must Be Identifiable:

• Example: “I hold my 100 BT Plc shares on trust” (valid); “I hold some of my wine collection on trust” (invalid due to vagueness).

2. Beneficiaries’ Interests Must Be Defined:

• Example: “I give £100,000 to my trustees to hold for my children equally” (valid); “I give £100,000 to distribute generously” (invalid due to vagueness).

If subject-matter is unclear, the trust fails.

Question 8

What principle was established in Hunter v Moss [1994] regarding certainty of subject-matter?

Answer 8

The case established that a trust over part of a collection is valid if the items are identical:

1. Example: A trust over “50 of 950 shares” is valid because the shares are indistinguishable.
2. However, tangible property (e.g., wine bottles) must be segregated or labeled to specify the trust property.

This distinction highlights the importance of the type and nature of trust property.

Question 9

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

Answer 9

Precatory Words express wishes, hopes, or expectations but lack the mandatory intent to create a trust.

Examples:
1. “I give my ring to you in the hope that you will give it to my niece” (fails to create a trust).

2. “I give my shares trusting that you will look after them for my children” (also fails).

Trusts require mandatory language to impose duties on trustees.

Question 10

What are discretionary trusts, and how is certainty tested?

Answer 10

In discretionary trusts, trustees decide:
1. Who benefits from the trust property within a defined class (e.g., “my children”).

2. How much each beneficiary receives.

Certainty of Objects Test:
* The given postulant test applies:

• Trustees must determine whether any given individual is a member of the beneficiary class.
• Conceptual certainty is required, but evidential certainty is not.

Additional Requirements:

1. Administrative Workability:
   * The trust must not be impractical to administer due to an excessively large class of beneficiaries.

• Example: In R v District Auditor, ex p West Yorkshire Metropolitan CC (1986), a trust for “all inhabitants of West Yorkshire” (approximately 2.5 million people) was deemed administratively unworkable because managing such a large class was unrealistic.
• Factors for workability include the size of the trust fund compared to the size of the class.

2. Avoid Capriciousness:
   * The trust must have a rational basis and a clear connection to the settlor’s intent.

• Example: A trust to benefit “people wearing green hats” would fail for capriciousness, as there is no logical link to the settlor or their intentions.
• In Re Manisty’s Settlement (1974), a discretionary trust was upheld because the beneficiaries had a meaningful connection to the settlor.

Question 11

How is certainty of subject-matter determined in a trust, and what happens if it is missing?

Answer 11

Certainty of Subject-Matter requires:

1. Identifiable Trust Property:

• The property held in trust must be clearly specified.
• Example: “I hold my 100 BT Plc shares on trust” (valid); “I hold some of my wine collection on trust” (invalid because “some” is vague).
• Intangible property (e.g., shares) can be held on trust without segregation if the items are identical (Hunter v Moss [1994]).

2. Defined Beneficiaries’ Interests:
   * The trust must specify the shares or entitlements of beneficiaries.

• Example: “I give £100,000 to my trustees to hold for my children equally” (valid); “I give £100,000 to distribute generously” (invalid because “generously” is too vague).

Key Cases:
1. Re London Wine Co (Shippers) [1986]:

• A company held wine stocks and claimed to hold specific consignments on trust for customers.
• The court held that the trust failed because the bottles were not labeled or separated, making it impossible to identify which bottles belonged to which customer.

2. Hunter v Moss [1994]:
   * A trust over “50 of 950 shares” in a company was upheld because the shares were identical and indistinguishable.

• The case distinguishes tangible property (e.g., wine bottles) from intangible property (e.g., shares).

What Happens If Subject-Matter Is Uncertain?

1. If the settlor intended to create a trust with themselves as trustee, they remain the outright owner.
2. If property was transferred to a third party, they take it absolutely, free from the trust.
3. A resulting trust arises in favor of the settlor if no specific beneficiary interest is defined.

Question 12

What are the key steps and requirements for the creation of a valid trust

Answer 12

1. Declaration of Trust:
   * Certainty of Intention: Clear intent to create a trust.

• Certainty of Subject-Matter: Trust property and beneficial interest must be identified.
• Certainty of Objects: Beneficiaries must be identifiable.

2. Types of Trusts and Tests for Certainty of Objects:
   * Fixed Interest Trusts:
   * Must pass the Complete List Test (conceptual and evidential certainty).

• Discretionary Trusts:
• Must pass the Given Postulant Test (conceptual certainty).
• Must also satisfy administrative workability and avoid capriciousness.

3. Beneficiary Principle:
   * The trust must be for identifiable individuals or a valid purpose.
4. Perpetuity Period:
   * Beneficial interests must vest within the perpetuity period (125 years for trusts created after 2010).
5. Formalities (Land Trusts):
   * Trusts over land must comply with s 53(1)(b) Law of Property Act 1925: