The Creation of Express Trusts: The Three Certainties

Structure

• Definitions of Express Trusts: An express trust is a legal arrangement where a grantor transfers property to a trustee to hold for the benefit of one or more beneficiaries, as explicitly stated in a trust document. This type of trust is characterized by clear intentions and specific directives outlined by the settlor.

• Creation of Express Trusts: 3 is a Magic Number: 3 Parties, 3 Certainties

  • Three parties involved in an express trust: the Settlor (who creates the trust and places property into it), the Trustee (who manages the trust property and ensures it is used according to the settlor's wishes), and the Beneficiary (who receives the benefits from the trust).

  • The creation of a valid express trust requires satisfaction of three certainties:

    • Certainty of Intention: There must be a clear and unequivocal intention from the settlor to create a trust, rather than simply expressing a hope or desire.

    • Certainty of Subject Matter: The property placed in the trust must be clearly identified and specified. It can include tangible assets such as land or personal property, as well as intangible assets like stocks.

    • Certainty of Objects: The beneficiaries of the trust must be clearly defined or identifiable, which is necessary for effective trust administration.

Academic Attempts to Define a Trust

• A trust can be defined as:

  • F. W. Maitland, Lectures in Equity (Cambridge: CUP, 1910), p. 44: "When a person has rights which he is bound to exercise upon behalf of another or for the accomplishment of some particular purpose, he is said to have those rights in trust for that other or for that purpose, and he is called a trustee."

  • Lord Selbourne, 1873: "In a trust, there must be a distinction between what we call a legal and equitable estate. The legal estate is in the person who holds the property for another; the equitable estate is in the person beneficially interested."

  • Quote adapted from Lewin on Trusts: "A trustee may be a beneficiary, in which case advantages will accrue in his favour to the extent of his beneficial interest."

Challenges in Defining a Trust

• It is commonly observed that no one has succeeded in producing a wholly satisfactory definition of a trust, despite the general idea being not difficult to grasp.

  • Pettit - Equity & the Law of Trusts: "Ever since the trust was invented, no lawyer has been able to give a comprehensive service to his client without a comprehensive grasp of the subject. This is truer today than it has ever been."

  • Parker & Mellows - The Modern Law of Trusts: Similar sentiments on the difficulties in defining trusts, noting that excessive complexity and variability in circumstances further complicate simple definitions.

The Main Protagonists: Transfer of Legal and Equitable Title

• Transfer of Legal Title: The settlor transfers the legal title of the trust property to the trustee, who manages it on behalf of the beneficiaries.

  • Settlor (Legal Title): The individual or entity creating the trust and establishing the terms.

  • Trustee (Legal Title): The appointed individual or entity responsible for administering the trust according to its terms.

  • Beneficiary (Equitable Title): The individual or entity entitled to benefit from the trust's assets and income.

The Three Certainties: Knight v Knight (1840) 3 Beav 148

1. Certainty of Intention: Must show a clear and fixed expectation to create a trust, emphasizing the need for specific language or intent.

2. Certainty of Subject Matter: Clarity on the property that the trust attaches to, requiring precise identification to avoid ambiguity.

3. Certainty of Objects: Clear identification of beneficiaries to ensure effective administration and realization of the settlor’s intentions.

Certainty of Intention

• Moffat's Analysis: ("The hallmark of an express trust is the existence of an intention to create a binding trust obligation.")

  • General intentions of benefiting someone are insufficient; there must be specific intentions derived from explicit words or conduct.

  • Snell's Principles of Equity: Highlights that no specific form is required to create a trust; the substance and effect of the intention are critical factors considered by the court.

Judicial Approach to Certainty of Intention

• Courts examine surrounding circumstances including oral/written statements and conduct to determine trust intentions.

  • Jones v Lock:

    • Facts: £900 cheque placed in child’s hands, with words implying a gift yet intention was unclear.

    • Result: No valid gift or trust; intention was not clearly established, as courts require distinct and unequivocal evidence of intent.

  • Paul v Constance:

    • Ruled that no special words were needed; rather, the conduct of the parties indicated intent to create a binding trust. The plaintiff’s claim succeeded due to the clear demonstration of intent through actions.

  • Re Kayford: Illustrates that a trust can be created for customers whose goods were not delivered, departing from traditional banking practices and emphasizing practical considerations in trust creation.

The Problem of Precatory Words

• Precatory words (e.g., desire, hope, wish) can lead to a lack of trust establishment, highlighting the importance of intention clarity.

  • Early Cases: Courts were previously willing to interpret such words as imposing trusts, but judicial attitudes have evolved, now requiring stronger evidence of intent.

  • Lambe v Eames (1871): Demonstrated that courts are now less willing to construct gifts as trusts if the language used does not convey clear intent.

    • Re Adams and Kensington Vestry: Stressed the importance of interpreting the true effects of all words used in establishing a trust intention.

Case Illustrations on Precatory Words

• Re Hamilton: The phrase "I wish them to…" was held to be precatory, resulting in no trust due to lack of a definitive intention.

• Re Diggles: "It is my desire" was found to be precatory, leading to no established trust obligation.

• Marguiles v Margulies: Indicated a lack of intention to create a trust, emphasizing the necessity of clear directives.

• Mussoorie Bank v Raynor: The expression "feeling confident" was deemed precatory, resulting in no trust creation.

Certainty of Subject Matter

• Existing property can be the subject matter for trusts (land, personal goods, shares, etc.), while future acquired property cannot form the subject matter of a trust, underscoring the need for identifiable and specific assets.

• Subject matter must be identifiable, certain, and segregated to ensure clear administration and execution of trust duties.

Case Law on Certainty of Subject Matter

• Palmer v Simmonds (1854): Ruled that the phrase "bulk of my estate" was ineffective for trust creation due to lack of specificity and clarity.

• Sprange v Barnard: The trust failed because the remaining property after the husband's death lacked certainty and clear delineation.

• Re Goldcorp Exchange Ltd (1995):

  • Customers claimed rights to gold after the dealer’s inability to deliver.

  • Established three categories through clear and specific identification of assets, differentiating between identified, future, and unsegregated property.

Hunter v Moss (1994)

• Mr. Hunter claimed entitlement to 50 identifiable shares among 950 unsegregated shares held by Mr. Moss. The court held that a valid trust existed due to the indistinguishable nature of shares, thus demonstrating the intention to create a trust despite unsegregated holdings.

Re London Wine

• Wines sold without individual identification to customers. Claims by customers failed due to the lack of segregation between general stock and specific customer orders, reinforcing the necessity for clear identification in trusts.

Revisiting Issues of Certainty of Subject Matter

• There is a notable distinction between tangible and intangible assets regarding the requirements for certainty of subject matter, influencing how trusts are administered in different contexts.

  • Different expectations are present for trusts of shares versus personal chattels, demonstrating the complexity of trust law.

Reasonable Income in Trusts

• Re Golay’s Will Trusts (1965): A trust specifying reasonable income was validated because it delivered a method to objectively assess income according to individual circumstances, highlighting flexibility in defining beneficiaries’ rights.

Certainty of Objects

• Morice v Bishop of Durham (1805) emphasizes the necessity for identification of both subject and beneficiaries for effective trust administration, asserting that equitable principles require identifiable beneficiaries for enforcement.

  • Moffat further emphasizes the need for clear identification of beneficiaries to uphold the equitable nature of the trust.

Different Forms of Trusts

• Fixed Trust: Legally obligates the trustee to distribute property to specific beneficiaries, with no discretion.

• Discretionary Trust: Allows trustees discretion in selecting beneficiaries, requiring reasonable exercise of judgment in decision-making.

• Fiduciary Power: Trustees have the authority to consider whether to exercise a power without an obligation to do so, implying a level of discretion.

• Mere Powers: No fiduciary duty exists within this form of trust, and there is no requirement to exercise the power provided.

Conceptual and Evidential Uncertainty

• Conceptual Uncertainty: The difficulty in discerning the meaning of terms is addressed in cases such as Re Gulbenkian and Re Baden's Deed Trusts (No.2), highlighting the court's approach to interpreting trust terms.

  • Evidential Uncertainty: Practical difficulties arise in proving whether an individual is a beneficiary, exemplified in OT Computers v First National Tricity Finance Ltd (2003) where evidential uncertainty posed challenges in trust discussions.

Remedies for Uncertainty

• Reference to the opinion of a third party can provide clarity regarding uncertainty within trusts (e.g., determination of existence considered by a third party such as a Rabbi).

• Administrative Unworkability: Identifies cases where an excessively broad definition of beneficiaries challenges the functional execution of the trust, implicitly underscoring the importance of specificity.

Concluding Remarks on Certainty

• Understanding the distinctions between trusts and powers is critical for effective legal practice in trust formation and administration.

• Emphasis on navigating conceptual and evidential uncertainties alongside practical considerations in trust management, reinforcing the complexity surrounding express trusts in legal contexts.