The Terms of the Trust

In order to be a valid trust, the declaration of the terms of the trust must be certain. The settlor must declare the terms with sufficient ‘certainty’ so that the trustees know what they must to do, or the intended trust fails. Lord Langdale MR said that three certainties must be required to establish a valid trust (certainty of intention, certainty of subject matter and certainty of objects).

Intention is the first substantive requirement of a trust which involves the question whether settlor really meant to create a trust. A mere intention to benefit another is not enough for creating a trust. Where the settlor is to be one of co-trustees, the declaration constitutes the trust and it is not necessary for the property to be transferred into the names of all the trustees to give effect to it. The maxim ‘Equity looks to intent, not form’ fully applies to declarations of trust. No particular formula is necessary, not even the use of the word ‘trust’. ‘The money is as much yours as mine’ was held a valid trust. The settlor’s intention can be construed from the trust instrument. Merely precatory words can not create a trust. The courts were not stricter to accept precatory words as constituting trust till 1850. The CA refused to find a testator’s gift to his widow to be a trust for precatory words. Precatory word like “in full confidence” does not create a trust, it was merely a gift. In contrast, “in full confidence” was held a valid trust as the testator had shown a clear intention to benefit his nieces in any event. If there are precatory words in the trust, the trust will fail normally but to construe the intention of the settlor we must consider settlor’s intention as a whole.

The subject matter (the property and the beneficial interest) must also be certain. Particularly there are two areas in certainty of subject matter where courts took different approaches

1. ‘Whatever is left’ trust
2. The identification of specific property out of a larger amount

Traditionally the courts held that unless there is certainty of subject-matter, no trust relationship would subsist. “The bulk of my residuary estate” was held not certain enough for a trust relationship to exist. Here, ‘conceptual uncertainty caused the failure of the trust. By contrast, it was held that the gift of “a reasonable income” was enough certain to constitute trust. In that case the court was willing to stipulate a meaning for ‘reasonable income’.

The question is whether the subject-matter can be distinguished from other assets which are not subject to the trusts. The Courts have dealt with this according to the nature of the subject-matter. The Court held since the bullion subject to trust was not separated from the other, then there was no trust relationship. However, when the assets subject to trust are fungibles or incorporeal (i.e. shares) then the fact that although they are not separate this does not hinder the constitution of a valid trust.

A trust must be for ascertained or ascertainable beneficiaries. The test for certainty differs according to whether it is a fixed trust or discretionary trust. The test for certainty of object in the fixed trust is the ‘fixed list’ test or complete list of the objects. The test for certainty of objects for the discretionary trust is ‘is or is not’ test where HL held that the test was the same as that established for powers. According to the ‘is or is not’ test, a beneficiary must have to prove whether s/he is within the scope of the test.

There is always a question to decide whether conceptual uncertainty can be cured by making a third party as the arbiter. In some circumstances an element of uncertainty may be removed by giving power to determine to one or more persons i.e. to the trustees. Thus, Hayton says that opinion clauses may cure evidential but no conceptual uncertainty.