Three Certainties to Form a Trust

In English law it is said that a trust places one of the most powerful obligations on the trustee and as a consequence, its responsibilities should not be taken lightly. Equity requires that the three certainties and formalities be completed before an express trust will be constituted. The three certainties could be said to be ‘a description of a set of conditions which, when fulfilled, exemplify the trust.’ For a trust to be properly constituted, it must consist of a minimum set of requirements: certainty of intention, certainty of subject matter and certainty of object. The importance of these matters was recognised by Lord Langdale MR in Knight v Knight where he put forward the principle that a trust cannot exist without the 'three certainties'.

A trust is a relationship which arises where one person (the trustee) is compelled in equity to hold property for the benefit of another (the beneficiary) or for a purpose permitted by law [1]. A trust must therefore be sufficiently certain to be valid and so enforceable.

Certainty of Intention

The word ‘trust’ is not necessary to satisfy an indication of intention neither are technical words needed as ‘equity looks to the intent rather than the form’. The settlor however has to show a clear intention to create a trust. The court will construe the words used to find the settlor’s intention and even though the word ‘trust’ suggests a trust it is not conclusive.

Depending on construction of words in each case, a distinction is drawn between imperative words which show and intention to create legally binding obligations (which will create a trust) and precatory words which merely express a hope or wish and impose more of a moral obligation; of which will not create a trust.

In cases such as Re Adams and the Kensington Vestry where phrases like “…in full confidence that she will do what is right as to the disposal…” were used, it was held that there was no trust based on the construction of the will as a whole and the construction of the particular words or circumstances. In Comiskey v Bowring-Hanbury the same words were held to impose a trust since the context of the will as a whole indicates that this was the testator’s intention.

There are circumstances where there is no document creating a trust. The courts look at the words or conduct of the parties to determine if there was intention to create such a trust. In Paul v Constance, the county court judge found an intention to create a trust for Mr Constance and Mrs Paul and ordered half the money to be paid to Mrs Paul. The Court of Appeal upheld this and Bridge LJ said that the question was whether in the circumstances “Mr Constance had done something which was equivalent to declaring himself a trustee of the moneys in the account for himself and Mrs Paul in equal shares”. Scarman LJ said that specific moment of declaration could not be pinpointed but in all the circumstances the discussions on numerous occasions between Mr Constance and Mrs Paul constituted an express declaration of a trust. Other cases such as Re Vendervell’s Trusts (No 2) held an intention to declare a trust of shares from various acts of the trustees which were done with the full assent of the settlor.

Certainty of Subject Matter

A trust creates rights and duties at the moment of its creation, and must therefore be certain at the moment of its creation. For a gift however, it only needs to be certain at the moment legal title is transferred.

It must be certain what property is to be subject to the trusts and what part or share of the property each beneficiary is entitled to since the trustee is to know what property he is meant to have in his control in the interests of the beneficiary. In Sprange v Barnard the testatrix provided in her will “…for my husband Thomas Sprange, to bewill to him the sum of £300…for his sole use; and at his death, the remaining part of what is left , that he does not want for his own want and use, to be divided between…” her brother and sisters. The court granted that Thomas Sprange was entitled absolutely to the whole sum as there was no certainty to what part of the property would be left at the widower’s death. One could not say what property the trust was to “bite” on and therefore uncertain. Words such as “the bulk of my estate” in Palmer v Simmonds were not sufficiently certain for a trust.

Where a trust of an unidentified section of chattels (tangible property) will fail, a trust of an unidentified section of intangible property such as shares will be valid. In Re London Wine Co (Shippers) Ltd, buyers of wine could not establish a trust of particular bottles in their favour as the bottles had not been segregated or identified in any way and so could not claim any priority over the other creditors by saying that particular bottles of wine were held on trust for them. In Re Gold Corp Exchange Ltd however, only the group of buyers whose bullion of gold had been segregated were able to claim rights upon insolvency of the company.

Cases of unidentified section of intangible property such as Hunter v Moss show that an oral declaration of a trust of 5% of the issued shares of a particular private company was held to be sufficiently certain even though no particular shares had been identified as subject to the trust. It was held that the intangible property are all the same provided that the shares are of the same class and there will be no need to identify what particular shares are to be held on trust. Dillon LJ did not refer to any distinction between tangible or intangible property but he stated that all the shares were identical. Neuberger J in Holland v Newbury criticised the authorities at length but felt bound to uphold.

Other difficulties have arisen in cases where a testator devises his houses to b held on trust but for which a beneficiary is to pick first and the remainder given to the other beneficiary but then the first beneficiary dies before choosing. In Boyce v Boyce, the trust in favour of the second beneficiary was void as it was uncertain what property the trust applied to. Similarly in Re Golay’s Will Trusts, the testator directed his executors to allow the beneficiary to “enjoy one of my flats during her life time and to receive a reasonable income from my other properties” it was held that the trustees could select a flat but the question arose as to whether the direction for a reasonable income was void for uncertainty. Thomas J said that “the court is constantly involved in making such objective assessments of what is reasonable and is not to be deterred from doing so…the testator intended by reasonable amount, the yardstick which the court could and would apply in quantifying the amount so that the direction in the will is not defeated by uncertainty.”

There have however been cases where the means for determining the subject matter are laid down and would be sufficient such as when the trustees are given discretion to determine the beneficial interests or the settlor lays down an effective determinant (Re Golay) or it is possible to apply the maxim ‘equality is equity’.

Certainty of Object

A trust has to be for ascertainable beneficiaries as the trust needs to be enforced in their favour by the courts, if necessary. In Morice v Bishop of Durham, Sir William Grant MR said that “there must be somebody in whose favour the court can decree performance.” This has also been the source of the beneficiary principle dictating that a private trust must normally be for beneficiaries and not for a ‘purpose’. The claimant needs to establish an interest in the trust if he/she is within the class of objects and thus has locus standi. If however the only reason for a trust failing is that the objects are uncertain, the trustees will hold the property on resulting trust for the settler of the estate.

A test for certainty of objects depends on the type of trust in question as a greater degree of certainty is required for a fixed interest trust than for a discretionary trust.

In McPhail v Doulton the House of Lords somewhat relaxed the test for discretionary trusts adopting a test not less strict which for powers. This has made it less important to distinguish discretionary trusts from powers.

For fixed trusts each beneficiary has a definable interest in the trust fund and a complete list of all the beneficiaries must be complied with. A discretionary trust will be certain as to its objects if it can be said with certainty that any given individual is or is not a member of the given class.

In conclusion, according to case law that have been reported over the years, all trusts must satisfy the three certainties except for charitable trusts which do not need to satisfy that of objects.

The three conditions stated above are cumulative and unless they are all satisfied no effective trust can come into being. If anything, the judgment of Cotton LJ in Re Adams and the Kensington Vestry and inter alia, Re Steele’s WT confirms, the trend since Knight v Knight to impose stricter requirements in terms of certainty and the proof necessary must be compelling in order to settle a trust.

The “three certainties” have to coincide, and, they all have to be present for a trust to be valid. If one of the certainties is missing the trust will be void ab initio and the person intended to act as trustee may be given the assets personally.

The three certainties function as a guarantee that trusts are instilled with clarity and thus enforceability. It is therefore necessary to ensure that trust property can be specified with precision and dealt with according to the intentions of the settlor. If there is ambiguity, the courts would rather allow a trust to fail than take the chance of permitting the inappropriate use of the supposed settlor’s property. Furthermore the certainties are an important safeguard against the risk of fraud, which is ever present in substantial property transfers.