Constituting a Trust: The Certainty Test

This question relates to Equity and Trusts Law. I will address this question by firstly establishing whether Larry’s intention meets the certainty test in Trust law. At this point I shall advise as to how he should properly constitute the trust. I will then consider his intentions in chronological order and how the Trusts of Land and Appointment of Trustees Act 1996 applies to them.

To facilitate the fulfilment of Larry’s intentions he must create a trust. In order to prove that there is a trust there are essential ingredients, which need to exist. In the old case of Knight v Knight^[1] Lord Langdale^[2] said the words used must be couched that, taken as a whole they may be deemed to be imperative and this amounts to certainty of intention. Secondly the subject matter must be certain i.e. certainty of subject matter and finally the persons or objects meant to be benefited must also be certain. Taking into the account the authorities of Re Adams and Kensington Vestry^[3], Re Hamilton^[4] and Comiskey v Bowring-Hanbury,^[5] Larry must ensure that the words he uses in the trust instrument to create the trust are unambiguous and clearly outline his intentions as laid out in the question. Arguably “when they become sensible enough” is an ambiguous phrase that Larry would have to clarify and explain in the trust instrument to fully meet the requirement of certainty. Regarding the requirement that the subject matter be certain the tests laid out in cases such as Palmer v Simmonds,^[6] Bromley v Tryon^[7] and Sprange v Barnard^[8] are clearly met in Larry’s scenario because the subject matter in question is clearly the mansion house. Finally with reference to the requirement that the objects be certain as established in cases such as Knight v Knight,^[9] the objects are certain in Larry’s case as he has listed them as Wendy his wife and Ginny, Reg and Cordie his three children. These “Objects” also meet the requirement of the “Beneficiary Principle” established by Grant MR in Morice v Bishop of Durham^[10] in which he said:

“ there must be someone in whose favour the court can decree performance”

Before Larry can properly constitute the trust he must have capacity to do so, in that he must be over 18 under s.1(1) of the Family Law Reform Act 1969. This is easily proven as he has a child who is 13. As established by Re Marshall^[11] he cannot make a trust if he is mentally incapable of managing his affairs. Assuming Harry is mentally stable it is now appropriate to advise Larry as to how he can properly constitute the trust. Larry has two options. He can constitute via a Testamentary Trust, which is governed by the Wills Act of 1837 and his wife and Children would only have access to the property after his death. Alternatively he could constitute via an Inter Vivos Trust, which would be in existence prior to his death, and his wife could have access to the property during this time if he has the trust instrument drafted to that effect.^[12] There is a clear disadvantage to making a Testamentary Trust as it would be subject to more tax i.e. inheritance tax versus capital gains tax.^[13] If the mansion is his main residence and if he puts it on trust prior to his death via a Inter Vivos trust, his tax liability would even be more substantially reduced. However regardless of how he seeks to give the benefit of the mansion to his wife and children he would have to do so in writing. If he decided to utilise the testamentary route s.9 of the Wills Act 1837 requires that his intentions must be in writing and the document must be signed by him as a testator or by some other person in his presence and by his direction. It must appear that he intended as a result of his signature to give effect to the will and the signature must be made or acknowledged by the testator in the presence of two or more witnesses present at the same time who must either attest and sign the will or acknowledge his signature in the presence of the testator.

Alternatively if he decides to make an Inter Vivos Trust, which I would advise in these circumstances because of the tax benefits, s.53(1)(b) of the Law of Property Act 1925 applies, which says:

“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 or by his will.”

S.53(1)(b) applies because the mansion is land which Larry is declaring a trust in because he implicitly needs the use of the land up until his death, however after this point Larry would want the land to be managed per his instructions in the proposed trust instrument.

Larry does not want Wendy to be able to mortgage or sell the mansion during her life time, but he does want her to be able to remain there. S.12(1)(a) of the Trusts of Land and Appointment of Trustees Act 1996 allows her to occupy the land in keeping with the purpose of the trust. On the facts Wendy appears to be a trustee. S.6 of the same act says:

“ (1) For the purpose of exercising their functions as trustees, the trustees of land have in relation to the land subject to the trust all the powers of an absolute owner.”

An absolute owner can clearly dispose of property via mortgage or sale. In spite of this s.11 says:

“(1) The trustees of land shall in the exercise of any function relating to land subject to the trust-

1. 1. so far as consistent with the general interest of the trust, give effect to the wishes of those beneficiaries, or (in case of dispute) of the majority (according to the value of their combined interests).

If applied properly this section gives rights to the beneficiaries who probably would not want a sale, in addition to giving recognition to the general interest of the trust a primary prerequisite being that under no circumstances during her lifetime should Wendy be able to dispose of the mansion by either mortgage or sale. Under s.9(1) of the same Act Wendy can delegate the day to day management of the mansion house to her children. Although Larry does not want the mansion to be disposed of without the consent of all three children, after Wendy’s death s.10 allows the property to be disposed of with the consent of just two of them as long as they have reached the age of majority, which according to the Family Law Reform Act of 1969, is 18. If Cordie is not 18 by the time Wendy dies and the other two want the property to be sold, Cordie’s opinion will not disadvantage a purchaser under s.10(3)(a). However under s.10)3)(b) the trustees will need to seek the consent of Cordie’s parent or guardian. A potential purchaser will be protected under s.16 if s/he is not aware of any breaches of ss. 6(5), 7(3) or 11(1).

Bibliography

Bromley v Tryon [1952] A.C. 265

Comiskey v Bowring-Hanbury [1905] A.C.

Family Law Reform Act 1969

Knight v Knight (1840) 3 Beav 148 at 173

Law of Property Act 1925

Morice v Bishop of Durham (1804) 9 Ves 399 at 405

Oakley, A J, “Parkers and Mellows: The Modern Law of Trusts”, Sweet & Maxwell p 48

Palmer v Simmonds (1854) 2 Drew 221

Re Adams and Kensington Vestry (1884) 27 Ch.D. 394

Re Hamilton [1895] 2 Ch. 360

Re Marshall [1920] 1 Ch 284

Sprange v Barnard (1789) 2 Bro.C.C

Trusts of Land and Appointment of Trustees Act 1996

Footnotes

^[1] (1840) 3 Beav 148 at 173

^[2] Oakley, A J, “Parkers and Mellows: The Modern Law of Trusts”, Sweet & Maxwell p 48

^[3] (1884) 27 Ch.D. 394

^[4] [1895] 2 Ch. 360

^[5] [1905] A.C. 84

^[6] (1854) 2 Drew 221

^[7] [1952] A.C. 265

^[8] (1789) 2 Bro.C.C 585

^[9] (1840) 3 Beav 148

^[10] (1804) 9 Ves 399 at 405

^[11] [1920] 1 Ch 284

^[12] Oakley, A op cit p 97

^[13] Oakley, A op cit p 198-199