Certainty of Intention to Create a Trust

This essay will advise Edward, Susanna, Tebbs and Tomlin of their legal position in respect of the facts of the case. In doing so, it will be established whether there has been validly executed trusts so as to ascertain whether they are effective and capable of being effectuated. In doing so, the three certainties for a valid trust will be examined and it will then be shown whether the correct formalities have in fact been complied with. If it is shown that there three certainties are present and the formalities have in fact been complied with then it will be evident that there is a valid trust that has been created and as such they will be capable of overriding any will that has subsequently been made. Nevertheless, if this is not the case, then it will be shown that the will is in fact valid. In identifying such validity, various case law and academic opinion will be looked at as will the relevant statutes so as to ascertain whether the facts of the particular case render the trusts that were created effective.

In advising Edward, Susanna, Tebbs and Tomlin of the legal position in regards to the facts of the case it must first be established whether the trust which was created by Simon for Tebbs and Tomlin to act as trustees was sufficiently certain which will render it effective and valid. This has been shown in the case of Knight v Knight (1840) 3 Beav 148, per Lord Langdale where it was held that “three forms of certainty which the courts require for the creation of a valid express trust: certainty of intention to create a trust; certainty of the identity of the subject matter comprising the trust fund and certainty of beneficiaries (or objects) of the trust.” This was also exemplified by Hudson (2009; 74) who put forward that; “when creating an express trust, it is important that the settlor acts with sufficient certainty” and that in doing so “the settlor must demonstrate a clear intention to create a trust as opposed to creating something else, the trust property must be sufficiently segregated from other property so that the trust fund is certain and the people who are to benefit from the trust must also be identified with sufficient certainty.” In accordance, it is evident that there must be an obvious trust which has been created which can ascertain that there is certainty in respect of intention, identity and objects.

Nevertheless, in view of Knight it was put forward by Conaglen (2009) that “one could conceivably treat the application of the sham doctrine to trusts as no more than an application of that proposition, in that someone who purports to create a trust in order to mislead third parties does not have the intention to create a true trust” and that “the certainty of intention principle generally focuses on the negative fact that the court has been unable to identify a clear objective.” In accordance, this demonstrates the difficult it is in establishing whether there has been certainty of the trust by proving the three requirements. However, it is essential so as to ensure that the testator, namely Simon, intended for the trusts to be created so avoid any shams taking place. This was made clear in the case of National Westminister plc v Jones (1939) 63 CLR 649 where it was held that; “a sham provision or agreement is simply a provision or agreement which the parties do not really intend to be effective, but have merely entered into for the purpose of leading the court or a third party to believe it is to be effective.”

In order to establish whether there is certainty of intention it must be shown that Simon actually intended to create a valid trust. Thus it must not be established that he was trying to confer a gift upon the beneficiaries as it will not be sufficient for a valid trust as shown in Milroy v Lord (1962) 4 De GF & J 264. It does appear that Simon intended to create a trust in respect of his cottage ‘Pendrells’ since he legally transferred it to Tebbs and Tomlin which demonstrates a clear intention and he contacted them in October to inform them to hold it on trust for Anna and Michael. In addition, he also covenanted with Tebbs and Tomlin that he would transfer any property left to him by his Aunt Mabel and told them that he wanted them to hold a painting on trust which is further indicative of his intention. Moreover, it also appears that he had the intention to create a trust in respect of the shares because of the fact that he also told Tebbs and Tomlin to hold them on trust for Ben and Celia. Therefore, even though Simon told Susanna that she was to have the painting and Edward that he was to execute all his property to Tania, the fact that there was an intention to create a trust in the beginning could render such promises ineffective.

Nevertheless, in the case of Paul v Constance [1977] 1 WLR 527 it was held that “the words ‘the money is as much yours as mine’ manifested sufficient intention that Constance hold the property on trust for them both.” Therefore, this could mean that because Simon told Susanna that she could have the painting then such words were sufficient for intention and as such Anna and Michael would be unable to acquire it. In effect, this could mean that although there did initially appear to be certainty of intention, because of the promise made to Susanna, there no longer was. As such, it seems that certainty of intention cannot in fact be established in regards to the painting. What’s more, because Simon stated in his will that Tania was to have all the rest of his property and there was a share transfer form made for the provision of Kline Pharmaceuticals, it could be said that such circumstances place insufficient certainty on the trust. This was made clear by Hudson (2009; 79) when it was said that “the court may look at the surrounding circumstances and decide that, on the facts, there is insufficient intention to create a trust.” Yet, because of the fact that the initial trusts were legally made it seems that this will indicate that there was more of an intention to create a trust as provided for under section 1 of the Law of Property (Miscellaneous) Act 1989.

Assuming that there is certainty of intention for the trusts, it must then be established whether there was certainty of the identity of the subject matter. It was said by Gillen and Woodman (2006; 81) that this will be established when it is shown that there is “certainty of the property that is subject to the obligation that it be held on trust and certainty of the amount or share of the trust property that each beneficiary is to receive.” In addition, it was further made clear in the case of Green v Ontario (1972), [1973] 2 OR 396 where it was shown that in order to establish that the subject matter is sufficiently certain, it must be identified that there has been reference to a specific piece of property. This does appear to be the case in regards to the cottage and the painting, yet it does not appear certain in respect of the shares. Nevertheless, in the case of Hunter v Moss [1994] 1 WLR 452 it was exemplified that “given the fungible nature of the shares, there was sufficient certainty of subject matter without identifying the specific shares.” Therefore, this would mean that there was also certainty of the identity of the subject matter in regards to the shares whether or not the particular ones could be identified.

In light of Hunter it was said by Pigott (1999) that; “in relation to the proposition that a proprietary claim cannot exist over an asset held in a fungible pool, if the asset has not been in some way segregated or appropriated in such a way that it can be identified as belonging to a particular person, there is no sound reasoning for distinguishing trusts of goods from trusts of intangibles”. Therefore, this suggests that shares should be capable of being identified for certainty because it would seem rather absurd if they were not as it is difficult and somewhat impossible to identify any shares in any company. Nevertheless it was also argued that; “Hunter v Moss should not be followed: there is no sound reasoning for distinguishing trusts of goods from trusts of intangibles”. Thus, it is difficult to determine what reasoning is more adequate, yet it is clear that the shares in this case will be capable of being identified because of the difficulty and unfairness it would produce if it were to not otherwise do so.

Still, it must be shown that there is also certainty of objects as shown in IRC v Broadway Cottages [1955] Ch 20, 30 per Jenkins LJ. It does appear that there is certainty of objects in regards to the cottage and the painting since Simon told Tebbs and Tomlin that it was to be Anna and Michael for life with remainder to any children that they might have. What’s more, there is also certainty of objects in regards to the shares since Ben and Celia were to acquire them when they reach the age of 18. Therefore, as in Re Gulbenkian [1968] Ch 126 “for a trust to be valid the trustees must be able to say of any postulant that a person was either within the class of beneficiaries or was not.” Therefore, because of the fact that it is uncertain how many, if any, children Anne and Michael may have, the requirement of certainty of objects will still be capable of being identified since it is clear that there come within a certain class. Therefore, it seems that the three certainties are capable of being identified which means that the trust will be deemed valid and effective.

However, although the three certainties may have been established showing that a trust has been created, this does not mean to say that it will be completely binding since the Will which was written may be shown to be validly executed and thus override the trusts that were created. Nevertheless, it must be shown that the formalities must have been complied with. Therefore, it must be proven that the Will has been validly executed which would ensure that Tania received all of Simon’s property and that the shares could be capable of being transferred to Kline Pharmaceuticals. Under section 9 of the Wills Act 1837 it is provided that “all testamentary trusts must be in writing, signed by the testator or by someone in his presence and by his direction and be attested by two witnesses.” Assuming that the will was validly executed it must then be shown that in respect of the cottage, that the transfer was effective by showing that section 53(1)(b) of the Law of Property Act 1925 is satisfied. This section provides that “a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust by his or her will” as demonstrated in the case of Grey v IRC [1960] AC 1. Since it does not appear that this has been done, it seems that the valid transfer of the cottage has not been effectuated which would mean that Anna and Michael would still acquire the cottage.

In accordance, as was said by Pearce and Stevens (2006; 174); “the legal title in some forms of property such as shares or land can only be transferred by registration of the transferee as the new legal owner.” Moreover, this does not appear to have happened and so it appears that the proper formalities in respect of this have not been complied with either. This is because, there has been no effective transfer in regards to the shares and although Edward discovered a signed share transfer form it has not been transferred and so cannot be valid. In Vandervell v IRC [1967] 2 AC 291 it was held by the House of Lords that; “section 53 (1) (c) did not have to be satisfied where a beneficiary with a subsisting equitable interest directed the trustees to transfer the shares.” However, there seems to be no direction of the shares to be transferred to Tebbs and Tomlin. Therefore, it seems that such shares cannot as a result be capable of being transferred. Nevertheless, because of the fact that Simon covenanted with Tebbs and Tomlin that he would transfer the shares to them at a later date it could be said that they were in fact to hold the shares on trust for Ben and Celia. This is shown in the case of Fletcher v Fletcher (1844) 4 Hare 67 where it was held that “where a person had covenanted with a trustee to settle an after-acquired sum of money there was a valid trust. Moreover, in Hall v Palmer (1884) 3 Hare 532 it was found that; “a promise made in a deed covenant will have the full force and effect of a binding contract.” Therefore, it seems that the trust in relation to the shares will be valid and as such will be capable of being transferred to Ben and Celia.

What’s more, there are also exceptions to the maxim that “equity will not assist a volunteer” and that “equity will not perfect and imperfect gift”. Therefore, the fact that the share transfer has not been effectuated and equity would not normally be able to intervene in such instances. There are some occasions were this will be capable of occurring. This is shown in the leading case of Re Rose [1952] Ch 499 where it was held that “equity would treat a transfer as complete if the transferor had done everything in his power to transfer the property to the transferee” (Hayton and Mitchell: 2005). However, it is unclear whether Simon had in fact done everything in his power to ensure that the transfer was complete since there is no evidence and it seems that he merely signed the transfer form and did not take any steps to complete the transfer. Therefore, this would mean that the shares would not in fact be capable of being transferred. However, in the more recent case of Pennington v Waine [2002] 1 WLR 2075 it was held that; “mere completion of the relevant transfer documents may be capable of giving rise to an equitable assignment of the property even where the transferor has not done everything in his power” (Martin: 2009). Therefore, this may mean that the share transfer is capable of being effectuated because of the fact that he had filled the forms in and signed the. As such, this may be sufficient which would mean that the shares could be transferred to Tebbs and Tomlin to hold on trust for Ben and Celia.

Overall, it seems that there does appear to be certainty of intention to create a trust by Simon since he legally transferred the cottage over to Tebbs and Tomlin and made it clear that he wanted them to hold the rest of his property on trust for the named beneficiaries. In addition, it is evident that there is certainty of subject matter since the property was capable of being identified and there was certainty of objects as the beneficiaries were too capable of being identified. In effect, it seemed that the trust was in fact valid. Nevertheless, in establishing whether the formalities have been complied with it must be ascertained whether the property in has been correctly transferred. It would seem that the cottage was transferred, yet the shares were not. As for the painting it appears that everything was done that was in fact necessary since Simon gave the key to Susanna. However, in relation to the shares, there are exception which would allow the shares to be effective since Simon must have done all that was necessary and as such it seems that he may have since he filled the share transfer form in and signed it. Accordingly, it seems that Tebbs and Tomlin are capable of holding the trust as it appears to be validly executed as does the share transfer to them, yet it seems that Susanna is to have the painting rather than Anne and Michael since it appears that more was done to transfer it to Susanna than it was to Tebbs and Tomlin for Anne and Michael.