Equity: Three Certainties

The Three Certainties

A settlor cannot create a private express trust without establishing the three certainties: Knight v Knight (1840) 3 Beav 148

  1. Certainty of intention to create a trust;
  2. Certainty over what constitutes the trust’s subject matter; and
  3. Certainty as to who is the trust’s object.

Certainty of Intention

The settlor must have mental capacity to create a trust and there must be sufficient evidence that they objectively intended to make the trust.

How to Establish Intention

If the settlor states ‘I intend to create a trust’, their intention is normally obvious. Frequently, however, the settlor will not be so clear. The court will construe the trust document to discover the settlor’s objective intention given the information available and circumstances apparent at the time: Re Osoba [1979] 1 WLR 247.

A settlor can demonstrate intention to create a trust without explicitly using the word ‘trust’: Re Kayford [1975] 1 WLR 279.

In rare cases, a settlor might use the word ‘trust’ but not intend to create a trust. For example, they might not understand the implications of the word or mean ‘trust’ in the moral rather than the legal sense: Singha v Heer [2016] EWCA Civ 424.

‘Precatory words’ do not create a trust: Re Diggles (1888) 39 Ch D 252. These are words which appeal to the donee to use the gift a particular way without requiring it. For example: ‘£1000 to my husband in the hopes that he will use it to benefit our daughter’.

The courts are wary of allowing loose language in informal conversations to demonstrate intention: Hilton v Cosnier [2018] EWHC 2728; Jones v Lock (1865) LR 1 Ch App 25. However, factors such as the intention being repeated or third-parties being informed may suffice: Paul v Constance [1977] 1 WLR 527.

Certainty of Subject Matter

The court must be able to identify with certainty what actually constitutes the trust property.

Evidential Uncertainty

If it is possible to identify the property in the abstract, the trust will not fail just because the property’s location is unknown. By contrast, if there is not enough evidence to identify the property in the first place, the trust will fail.

Take this example: the trust concerns ‘my favourite bowtie’. The settlor has ten bowties.

  • In the first case, the settlor identifies which bowtie is their favourite (‘the red one’). However, when the trustee goes to look for it, they cannot find it. There is a valid trust, because the property is identifiable in the abstract.
  • In the second case, the settlor gives no indication of which of the ten bowties is his favourite. This trust fails for uncertainty of subject matter.
Conceptual Uncertainty

If the settlor uses conceptually uncertain language to describe the property, the trust will fail. This also applies to individual trust powers within a trust.

For example, in Re Kolb’s Will Trusts [1962] Ch 531 the settlor granted the trustee a power to invest in ‘blue-chip’ stocks. ‘Blue-chip’ has no legal meaning and is colloquially very vague, so the court held that the power was void.

Trusts of Bulk Property

A settlor might declare a trust over a bulk of generally interchangeable objects. If this constitutes the whole bulk, the trust is valid. If it only constitutes part of the bulk, the trust will fail unless it identifies sufficiently clearly which part of the bulk falls within the trust: Re London Wine Co [1986] PCC 121.

For example, take a settlor who declares a trust of ’10 barrels of white rice from my warehouse’.

  • If there are only 10 barrels of white rice in the warehouse, the trust is certain.
  • If there are 100 barrels in the warehouse, the trust is uncertain.
  • If there are a 100 barrels in the warehouse, but the trust specifies that the settlor means ‘the 10 barrels sat on Shelf A in the warehouse’, the trust is certain.

This rule does not apply to truly identical and homogenous property, such as money or shares: Hunter v Moss [1994] 1 WLR 452. It is possible to declare a trust of ‘£1000 from my bank account with X Building Society’ even if that account has £10,000 in it. If so, however, the fund containing the money must be sufficiently identified.

Certainty of Objects

Finally, the court must be able to work out who the beneficiary is. The beneficiary is known as the trust’s ‘object’.

Fixed Trusts

In a fixed trust, identifying the beneficiary should be straightforward. The trust should name the beneficiaries or provide an objectively certain method for identifying them (e.g. ‘my biological children’). If it does not, the trust will fail for uncertainty of objects.

Problems arise where the trust identifies beneficiaries by description but the trustee has imperfect knowledge. Take for example a trust ‘for my biological children’. While the trustee is aware of three biological children, they are unaware of a fourth, estranged biological child. The trustee may lawfully distribute the trust fund to the three known children unless they have notice of the fourth: Trustee Act 1925, s.27(2). This requires the trustee to take certain steps to advertise the trust, however: s.27(1).

As long as a beneficiary is identifiable in the abstract, it does not matter that their location is unknown. Trustees can apply for a ‘Benjamin order’ to distribute trust property without regard to a missing beneficiary: Re Benjamin [1902] 1 Ch 723.

Discretionary Trusts

Discretionary trusts are more problematic than fixed trusts. If a fixed list of potential beneficiaries can be drawn up in advance, then the trust will obviously have certain beneficiaries.

For example, a trust ‘of £1000 to be distributed between my children at the trustee’s discretion’ is sufficiently certain because it is possible to draw up a list of the children. It does not matter that some of those children may ultimately get nothing.

However, a fixed list may not be possible for all discretionary trusts.

For example, a trust might make a gift ‘to the inhabitants of Ellesmere Port at the trustee’s discretion over the next ten years’. Over 10 years, the inhabitants of Ellesmere Port will change and it is not possible to know who they will be in advance.

In these cases, the trust will fail for uncertainty of objects unless it fulfils ‘individual ascertainability test’. It must be possible to say with certainty, of any potential beneficiary that might come forward and claim an interest, whether or not they fall within the scope of the discretion: McPhail v Doulton [1971] AC 424.

For example, if the potential beneficiaries are ‘my friends’ the trust will fail. This is because it is not possible to say whether any given possible claimant is a friend: Re Barlow’s Will Trusts [1979] 1 WLR 278.

By contrast, if the potential beneficiaries are ‘anyone baptised in accordance with the Catholic Church’s doctrine’, then the trust is valid. It is possible to prove whether any given possible claimant was baptised by the Catholic Church.

Fixed Trusts Subject to Conditions

Be sure to distinguish bare fixed trusts and discretionary trusts from fixed trusts subject to conditions. In such a case, the court must consider both whether the object of the gift is certain, and whether the condition is certain. If the gift has an uncertain object, the whole thing fails. If just the condition is uncertain, the court can sever it and leave the gift intact.

There are two kinds of condition:

  • Condition Precedent: This is a gift accompanied with an obligation to distribute trust property provided some condition is met. E.g. ‘A gift of my paintings to my husband Bob, who will give one painting to any of my friends who ask.’
  • Condition Subsequent: This is a gift which terminates if some condition comes about. E.g. ‘A gift of my paintings to my husband Bob, unless he remarries, in which case the paintings shall be divided among my children.’

A condition precedent has certain objects so long as there is at least one person who clearly meets the condition, even if there are others for which it is uncertain: Re Barlow’s Will Trusts [1979] 1 WLR 278.

For example, Laura leaves a collection of paintings in her will to her husband Bob. Bob is identified by name, so there is certainty of objects in that respect. However, the testamentary provision states that if any of her friends come forwards and ask, Bob must give them one painting of their choice. Is this condition it sufficiently certain? There will be some people who were clearly Laura’s ‘friend’, even if it debateable for others. The gift does not fail for uncertainty of objects.

Unlike discretionary trusts, the trustee of a condition precedent power does not need to survey the field for potential beneficiaries nor inform anyone of their potential entitlement.

By contrast, conditions subsequent must be completely conceptually certain. It must be possible to identify with certainty whether or not the condition has come about in any given case: Clayton v Ramsden [1943] AC 320.

The Beneficiary Principle

A sub-rule of the certainty of objects requirement is the beneficiary principle. This holds that there must actually be a human beneficiary – it is not possible to have a trust without one: Re Wood [1949] Ch 498. ‘Private purpose’ trusts – such as ‘£1000 to build a swimming pool in Lincoln’ – are void for lack of objects. There are some exceptions to this, and notably this requirement does not apply to charitable purpose trusts.