Guernsey: The Three Certainties Or: When Is A Trust Not A Trust?

Last Updated: 19 March 2003
Article by Norson B Harris

For a trust to be valid, it requires the coincidence of three conditions which are known as "the three certainties". If any of these conditions are absent then the trust will be void ab initio, form the very start. The proposition of the three certainties is taken from the dictum of Lord Langdale in the leading case Knight v Knight 1 :

"As a general rule, it has been laid down, that when property is given absolutely to any person, and the same person is, by the giver who has power to command, recommend, or entreated or wished, to dispose of that property in favour of another, the recommendation, entreaty or wish shall be held to create a trust. First if the words were so used, that upon the whole, they ought to be construed as an imperative; secondly, if the subject of the recommendation or wish is certain; and thirdly, if the objects or persons intended to have benefit of the recommendation or wish also be certain."

With due respect, to paraphrase Lord Langdale, for a trust to be valid there must be: a certainty of words; a certainty of subject-matter; and a certainty of objects.

1. Certainty Of Words Or Intention

The Settlor must have shown to have intended to create a trust before the court will hold that one has been created. No particular form of words is needed and it is not even necessary to use the word "trust". Similarly, there is no actual requirement for the trust to be in writing, but it would be a brave trustee not to have at least some evidence of his appointment.

The words used must show that the obligation on the alleged trustees is sufficiently imperative as to amount to a trust. In the 18 th and 19 th centuries, the English Court of Chancery (now replaced by a division of the High Court) was prepared to accept precatory words. Words in the will or deed expressing the donor’s wish, hope, desire or confidence that the donee should deal with the property in a particular way.

The attitude of the Court changed in 1871 in the Court of Appeal decision in Lambe v Eames 2 . The Testator had left his estate to his widow, "to be at her disposal in any way she may think best, for the benefit of herself and her family" The Court held that the gift was an absolute gift to the widow and not a trust.

The Leading case supporting this position and establishing the accepted position in relation to the use of words was Re Adams and The Kensington Vestry.3 In this case the testator left his estate "unto and to the absolute use of my wife…… in full confidence that she will do what is right as to the disposal thereof between my children, either in her lifetime or by will after her decease". The Court of Appeal held the gift to be absolute, Cotton LJ added:

"I have no hesitation in saying myself, that I think some of the older authorities went a great deal too far in holding some words appearing in a will were sufficient to create a trust…."

Following this decision, the words used to create a trust must make it plain that the intention was to create a trust. In most instances today, trust documents are drafted by lawyers or trust professionals and one would hope that these should not present any difficulty. Where problems commonly arise are where trusts are created under wills and the draftsman has not taken all necessary care in setting out clearly the intentions of the testator or testatrix.

Importantly, the courts will consider the whole context of the case to determine whether a trust has been created. This is to avoid as far as possible the frustration of the testator(ix) or settlor’s wishes. If there is insufficient certainty of intention then the gift takes effect as an absolute gift and no trust will be held to exist.

2. Certainty Of Subject-Matter

There are two aspects to this requirement:

1. There must be certainty as to what property is to be held upon trust; and

2. there must be certainty as to the extent of the beneficial interest of each beneficiary.

The first is essential as a trustee must know exactly what is and what is not included within the trust. A failure to deal with the property that belongs to the trust appropriately may result in a breach of trust.

For example, if the trust is declared of "Blackacre" being a property owned by the settlor or "£100,000" then the requirement is satisfied as these are readily identifiable. However, see Palmer v Simmonds 4 where the Settlor declared that the assets were to be "the bulk of his estate". The trust failed for uncertainty.

The beneficial interest of each beneficiary must be certain so that the trustees know exactly what or how much each beneficiary will be entitled to on distribution of the trust and prior to that, what income should be accumulated for or paid to the beneficiary.

In Boyce v Boyce 5 a trust failed for uncertainty as to beneficial interest where a testator left several houses on trust for his wife for life and on her death to convey any one house to his daughter A, as she might choose and the remaining houses to his daughter B. A died before she could make a choice; this left uncertainty as to what particular house B should receive, so the trust for B was void.

Note however, where the Court can make an interpretation as to the testators or settlor’s intentions they will seek to do so, as in Re Golay 6 where a trust was created providing " a reasonable income" from certain properties, the Court was able to determine what a reasonable income was.

Note there will be no uncertainty in the following cases:

1. Where the trustees have a discretion as to what each beneficiary should receive in the case of a discretionary trust.

2. Where the trust does not refer to the beneficial interest of the beneficiaries and where it is possible to apply the maxim "equity is equality" and divide the trust equally between the beneficiaries.

3. Where the Settlor declares a trust in respect of an identified bank account, which unknown to the Settlor is subsequently changed in form, i.e. from a cheque account to a deposit account.

4. Where the Settlor declares, say for example, 5% of the shares in a company, X when for example he holds 950 out of the 1,000 issued shares, the Court will seek to identify the 50 shares to be held on trust.

Again, if uncertainty persists, the gift will be absolute.

3. Certainty of Objects

It is essential that the beneficiaries under a trust should be clearly defined or that a formula exists which enables the trustees to ascertain them. If a trustee makes a distribution to non-objects, then they may be held personally liable to replace the assets.

There are different tests for certainty of objects in fixed and discretionary trusts.

FIXED TRUSTS

A fixed trust is one under which the Settlor has defined the beneficial interests which the beneficiaries are to receive and the trustees have no authority to alter them, for example, "£10,000 to my children in equal shares" or "£10,000 to A for life, remainder as to two-thirds to B and one-third to C"

The test in fixed interest trusts is that it must be possible to draw up a complete list of all the beneficiaries and if not the trust is void. This is known as the "Class Ascertainability Rule"

DISCRETIONARY TRUSTS

The trustees have the discretion as to who shall receive income and/or capital from the trust, and in some cases, what amounts they will receive, if any. It is essential therefore, as the trustees can choose amongst a class of beneficiaries who can benefit that the class is determined.

Note, except in rare cases where the trust instrument includes a discretion to distribute only, the trustees merely have to consider whether it is appropriate to exercise their discretion from time to time.

There appear to be two types of discretionary trusts when applying a test for certainty of objects:

Burrough v Philcox trusts

A power in the nature of a trust arises where an instrument is drafted to give a person a power of selection among a class, but if the power is not exercised or fails to deal with all the property, there must be an equal division amongst the class.

McPhail v Doulton trusts

In these trusts, the equal distribution of the assets is not the intention of the Settlor, but merely the provision of benefits in a most tax efficient manner, or to those who meet specific criteria, for example, in a company benefits scheme, they are current or past employees of a company.

The test historically was the "Class Ascertainability Rule" but this has now been overruled in so far as it applies to discretionary trusts. The test is now based upon the judgement in the leading case McPhail v Doulton [1971] AC 424 7 and the obiter dictum (comments outside of the judgement) of Lord Wilberforce:

"As a matter of reason, to hold that a principle of equal division applies to trusts such as the present is certainly paradoxical. Equal division is surely the last thing the settlor ever intended: equal division among all may, probably would, produce a result beneficial to none. Why suppose that the court would lend itself to whimsical execution? And as regards authority I do not find that the nature of the trust, and the court’s powers over trusts calls for any such rigid rules. Equal division may be sensible and has been decreed in family trusts, for limited class; hence there is life in the maxim "equality is equity", but the cases provide numerous examples where this has not been so, and a different kind of execution has been ordered, appropriate to the circumstances…"

The test is now, "whether it can be said with certainty that any given individual is or is not a member of the class"

Thus it must be possible for the trustee when contemplating exercising their discretion to determine that the individual or individuals intended to receive the benefit are either a member of the beneficial class or not. If they are not, then the trustee cannot make the distribution. Failure to be able to identify the objects with certainty will result in the failure of the trust for uncertainty.

As explained, the "three certainties" have to coincide, or in other words, 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. This means, that rather than the individual or individuals, intended to benefit from the gift, receiving their entitlement, the person intended to act as trustee receives the assets for his own use!

Note, there is one exception to the three certainties requirement and that is "purpose trusts" or charitable trusts and these will be considered separately and are the subject of the next article in this series.

"If a man will begin with certainties, he shall end in doubts; but if he will be content to begin with doubts, he shall end in certainties"

Francis Bacon 1561-1626

The Advancement of Learning (1605) bk.1 ch.5, sect 8

1 (1840) 3 Beav 148

2 (1871) 6 CH App 597

3 (1884) 27 Ch D 394

4 (1854) 2 Drew 221

5 (1849) 16 Sim 476

6 [1965] 1 WLR 1969

7 [1971] AC 424

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions