Three certainties of an express trust

 

An express trust is one that is created expressly for the benefit of an individual or a class of individuals.

For an express trust to be valid, there are a number of requirements. One of these is known as “The Three Certainties” (Knight v Knight 1840)

  1. Certainty of intention (the intention to create a trust)
  2. Certainty of subject matter (the property/fund must be certain)
  3. Certainty of objects (the beneficiaries must be identified)

Certainty of the intention/words

Maxim: Equity looks to the intent rather than the form.

This means that the court will look at the surrounding circumstances to discover whether the settlor/testator intended to create a trust, rather than simply looking at the words he/she used. This also means that it does not matter that the word “trust” is not specifically used.

In Paul v Constance, Mr. Constance did not state that he was creating a trust, but it was possible for the courts to infer this intention from his words and conduct (this money is as much yours as it is mine)

Precatory words

The problem with precatory words (words which express a wish or desire but not intending to creat a legal obligation or affirmative duty). For example: John bequeaths $20,000 to Sarah “trusting that the money will be used to the benefit of our child”.

What then, is the test for precatory words?

In the watershed case of Lambe v Eames (1871), the courts applied the test in Re Adams and looked at the whole will to determine the testator’s intention.

The principle in Re Adams say that when precatory words are used, the court should construe the whole of the will to determine whether the testator intended to impose a trust.

(However, if the words are held not to create a trust, it doesn’t not mean that the property will result back to the donor. The donee of the property may take beneficially in this sitiuation)

Sham intentions

Courts will not uphold a trust where the intention was a sham; used to defeat creditors for example. This happened in the case of Midland Bank v Wyatt 1995 and the principle would apply even if the settlor was acting honestly but on poor legal advice.

Certainty of Subject matter

There are two branches to this certainty:

1.) Trust property must be certain

2.) The beneficial interest of the beneficiaries must be certain

1.) Trust property must be certain

A statement that goes “most of my property will be held on trust for XXX”, will fail on certainty.

Case: Palmer v Simmonds 1854: when a trust is attached to a gift, it must be clear how much is held on trust.

The subject matter (whether tangible or intangible), must be clearly defined in the trust instrument. This is a question of fact. The thing in question must be set aside and not to be mixed with the trustee’s personal property.

In addition to the property being defined, the property must be able to be identified; if it cannot be identified the trust will be void for uncertainty.

If there is an absence of certainty, the consequences will depend on the kind of uncertainty.

If the identity of the trust property is not certain, the trust cannot be attached to any property. Therefore if part of a property is to be held on trust for a beneficiary, and the identity is uncertain, the trustee will obtain the property absolutely.

However, if it fails for uncertainty in the way the property is divided up between the beneficiaries, a resulting trust will occur as it is evident that the creator of the trust did not want to give the property to the trustee outright.

Unascertained property (property that has not been set aside)

  • Palmer v Simmonds 1854 (if property is bulk of something, not sufficiently certain)
  • Re Last (the definition of “anything that is left” was held to be sufficiently clear)
  • Re London Wine Co (the appropriation of chattels and the passing of legal title)
  • Goldcorp Exchange
  • MacJordan Construction Ltd v Brookmount Erostin Ltd
  • Hunter v Moss 1994 (distinction between tangible and intangible property)

the principle in Hunter v Moss can be practically difficult as it is not possible to identify the rationale behind how the trust works in practice.

2.) The beneficial interest of the beneficiaries must be certain

Both the trust property and the beneficial interest must be certain otherwise the trust will fail.

Boyce v Boyce 1849 – The beneficial interest of the surviving daughter was uncertain, the trust failed.

Re Golay’s Will Trusts – Testator directs that beneficiary should “enjoy one of my flats during her liftetime and to receive reasonable income from my other properties”. Court held that “reaonable income” is based on beneficiary’s previous standard of living. If the court can make an objective assesemtn, the trust will not fail

Certainty of Objects

Objects refer to the beneficiaries and one has to recall the concept of discretionary trusts and distinguish them from fixed trusts.

A Fixed Trust:

  • The beneficial interest is fixed ($50,000 for my children in equal shares)
  • Test for certainty of objects in fixed trusts (The complete list test)
  • Class of beneficiriares must be conceptually certain (children: certain . friends: uncertain)
  • Evidential certainty is required in a fixed trust (In a trust for all present and past employees, it must be possible to identify all the employees in person)
  • Ascertainability will not defeat the trust (Fixed trust will not fail merely because whereabouts of a beneficiary cannot be ascertained. If beneficiary cannot be located then trustees can apply for a Benjamin order in a Will Trust. Alternatively trustees could take out missing beneficiary insurance)

A discretionary trust:

  • Beneficial interest is the discretion of trustees ($50,000 for the employees my trustees find most deserving)
  • Test for certainty (the “is or is not test”, “class test” or “postulant test”. In short, the test is – can it be said with certainty that any given applicant (postulant) is or is not within the glass of beneficiaries? McPhail v Doulton 1971)
  • Conceptual certainty is required (people that I like will fail for conceptual uncertainty)
  • It may be possible to cure conceptual uncertainty (In Re Tuck 1978, conceptual uncertainty is cured if the trust delegates the task to a third party eg. $200,000 on trust for such persons of the Jewish faith as my trustees select, the Chief Rabbi to determine who falls within this class”
  • Evidential uncertainty will not cause a discretionary trust to fail (You must provide evidence you fall within a class of beneficiaries eg. a person may not be able to prove she is a relative. As a complete list of every relative is not required for a discretionary trust, it will not fail)
  • Administrative unworkability may cause a discretionary trust to fail (R v District Auditor ex party West Yorkshire Metropolitan County Council 1986)

 

 

Categories: Express Trusts

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