Certainty of intention

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Jump to: navigation, search Previous (Central London Property Trust Ltd v High Trees Ltd (1947)) Next (Certainty of objects) If the existence of a valid express Trust is disputed, a factor that the court will consider is whether there was sufficient certainty of intention; that is, whether the settlor genuinely intended to create a trust (see also three certainties). The party that wishes to assert the existence of the trust must provide evidence of the settlor's intention in the form of written documents, words spoken by the settlor, or the conduct of the settlor. Whether there was certainty of intention is a question of fact, not a question of law, and falls to be determined on the evidence provided to the court. Earlier decisions are, strictly speaking, not binding. Moreover, 'intention' in the law of trusts is an inherently subjective matter, more like intention in the criminal law than in the law of contract. Consequently, the trial judge has a high degree of discretion in interpreting the evidence, and it is difficult (as well as risky) to read too much into the cases in this area of law. However, a few general principles are readily apparent. Most importantly, it is not necessary that the settlor used the word 'trust', nor even that he knew what a trust was, provided the intention was clear. For example, in Paul v Constance 1976 the words 'This money is a much yours as mine', combined with the behavior of the settlor, were held to be sufficient to find that a trust had been created. Where certainty of intention is evidenced by conduct, the conduct must manifest a clear intention to deal with the trust property in the form of a trust (re Kayford 1975) although, again, no reference need be made specifically to a trust. Although the word 'trust' need not be used, it must be clear to the court that the settlor's intention was not to create an outright gift (Jones v Lock 1865). If the court cannot distinguish between an intention to make a gift and an intention to create a trust, then the result is that neither of these outcomes will obtain, and the property will remain with the settlor (Milroy v Lord 1862). At one time it was the case that precatory words could create a trust. The modern position is that the creation of a trust imposes a burden on the trustee, and so a trust should not be inferred from precatory words alone. However it is still possible to find a trust from the overall wording of a will or the conduct of the testator. Not only is the word 'trust' not conclusive that a trust is to be created, but the presence of the word 'trust' does not necessarily imply a trust in the legal sense. For example, in Tito v Waddell

(no 2) 1977 the words 'held in trust for', when used by the Crown, were held to mean that a certain legal obligation was to be imposed, not a trust in the textbook sense. If the test for certainty of intention fails, there cannot be a valid trust, and the person to whom the property is transferred becomes the legal and beneficial owner.

Certainty of objects
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Jump to: navigation, search Previous (Certainty of intention) Next (Certainty of subject matter) For a Trust, Power of appointment, or Testamentory gift to be enforced, it must be possible to determine who the beneficiaries (objects) are (see: Objecttrust), either in person or as members of a particular class. There is a great deal of uncertainty in this area, and the principles vary somewhat according to the meta of trust under consideration. However, what is clear is that certainty of objects, unlike certainty of intention, is a question of law, and therefore the usual rules of precedent apply. Certainty of objects in fixed trusts In a fixed trust, the trustees have no discretion how to distribute the benefits to and between the beneficiaries. Historically, the position has always been that, for the trust to be valid, it must be possible to make a complete list of all the beneficiaries of the trust (often called the `complete list' test). Although McPhail (see below) has undoubedly changed the law with respect to discretionary trusts, and it could be argued that McPhail should apply equally to fixed trusts, it seems to be settled that the `complete list' test continues to apply to fixed trusts. Certainty of objects in powers of appointment Where the trustee has a power of appointment, particularly a Mere power, the Donee of the power is under no duty to exercise the power, although he may have a duty to consider exercising it from time to time. The certainty rule in mere powers is generally taken to be that established in Re gulbenkians settlements (1970). In that case, there was what the trust instrument referred to as a `discretionary trust', but which the House of Lords held to be, in fact, a Mere power. The correct test was taken to be whether it was possible to say with certainty whether a particular person was, or was not, within the class of potential beneficiaries (often called the `is or is not' test, or the `any given postulant' test). The test does not seem to create any serious problems for powers, but it does for discretionary trusts, as we shall see.

Certainty of objects in discretionary trusts Historically, discretionary trusts were subject to the same test for certainty (the complete list test) as fixed trusts. This position was confirmed by the Court of Appeal in the very influential case of Ircvbroadway cottages trust 1955. The winning argument was that unless the complete list of beneficiaries could be established, a court would not be able to order the execution of the trust if necessary. A trust that could not be exercised by a court order was, it was argued, undesirable and dangerous. There are two obvious problems with this argument. First, when the court executes a trust, it should do so to give effect to the wishes of the settlor. If a complete list of beneficiaries could be drawn up, the court could, presumably, order an equal distribution to all the beneficiaries. However, unless the court was prepared to assume to role of the trustee, with the trustee's discretion, it could not do any more than this. If the settlor had intended a uniform distribution of income, he would have said so in the trust instrument; the fact that he allowed discretion to the trustees indicated that a uniform distribution was exactly what he was not looking for.In short, it is not necessarily easier for the court to supervise a discretionary trust when the complete list of beneficiaries is known in advance, than when it is not. Second, Broadway Cottages established a rule for certainty in discretionary trusts that was very different from that prevailing in a power of appointment. The distinction between the tests for certainty in mere powers and discretionary trusts was thought by many to be illogical, given that in many cases it is almost impossible to determine from the construction of the trust whether the trustees have a power or a discretion. Consequently, in Mc phail vdoulton (1971) the House took the opportunity to overturn Broadway Cottages, and make the test of certainty in discretionary trusts the same as for mere powers, as set out in Gulbenkian. When this test is applied to discretionary trusts, the test for certainty of objects is whether it is possible to determine whether a particular object is, or is not, entitled to benefit. However, this decision does not appear to disturb the rule for fixed trusts, which remains the `complete list' test. This new test for certainty caused a deal of confusion, as became obvious when the case was remitted back to the high court for reconsideration (as Re Baden No 2). The High Court's decision was appealed to the court of appeal which held that the trusts were valid, but for what appeared to be three different reasons. The differences of approach centred on whether the `is or is not' test was a semantic test or an evidential test. If it is a semantic test, it must be possible to determine the meaning of the class with precision. For example, a trust for the benefit of `my employees' is semantically certain -there is usually no doubt about what the word `employee' means (except in cases of vicarious liability, where employers are wont to argue the toss, for obvious reasons). On the other hand, a trust for the benefit of `my friends' is semantically uncertain -- the term `friend' itself does not really admit of a precise definition.

If the `is or is not' test is an evidential test, then it must be possible to determine with certainty whether for any person whether that particular person is a member of the specified class or not. Most likely an evidentiary test can only be applied if the semantic test is satisfied. A trust for `my employees' might be semantically certain, but evidentially undertain, because even though I know what an employee is, I might have employees who cannot prove that they are employees (casual workers paid in cash, for example). With this semantic/evidentiary distinction in mind, we can consider the tests set out in the Court of Appeal. Stamp LJ imposed the most rigorous test -- it must be possible to say for certain of any individual whether he is, or is not, a member of a conceptually certain class. That is, both conceptual and evidential certainty are required in order for the trust to be valid.In practice, the difference between this test, and the `complete list' test, is very slight. At the other end of the strictness spectrum was the judgement of Megaw LJ. He held that a trust would not fail for uncertainty so long a it was possible to say, of a ``substantial number of people, whether they fell within the terms set out by the settlor. This test does not appear to distinguish conceptual certainty from evidential certainty; most likely it admits a measure of uncertainty in the boundaries of the class, and a good deal of uncertainty in the evidential requirements. The judgement of Sachs LJ fell between these two extremes. In his view, the trust would succeed if it would be possible to determine in theory whether any given person was inside or outside it. That is, he requires semantic certainty, but not evidential certainty. Most commentators seem to have accepted that Sachs' view is the best compromise. On this basis a trust will be workable, to the extent that if a person presents himself to the trustees as a potential beneficiary, the trustees will know the conceptual basis on which to make the determination. There may still be an issue of evidence, but the evidence will be of whether the putative beneficiary falls within the class, not evidence as to the nature of the class itself. The problem with Sachs' view is that it has the same weakness as the original decision in McPhail -- it allows the creation of trusts which cannot be properly managed. Despite their similarities, a trust is not the same as a power. In a trust, the trustees have a duty to disburse benefits, not merely a right to do so. Since they have a duty, and not merely a right, their use of discretion can be challenged in the courts. The trustees may not be able to defend their actions, if they cannot show that they considered the relative merits of all potential candidates for the benefits of the trust. Why? Because they don't know who all the candidates are. Although the Sachs test prevents a situation where a particular person approaches the trustees, and the trustees are unable to tell even in theory whether he is entitled to benefit, only a trust that satisifies the `complete list' test allows the trustees to be certain that they are able to exercise their discretion in favour of all objects. Certainty of objects in gifts subject to condition precedent

The problem of certainty of objects arises not only in the content of a trust, but in the context of a testamentory gifts subject to condition precedent. For example, if a Testator makes a disposition in his will ``to my daughter if she is still unmarried, then this is gift is subject to a condition. The gift in this case is not class-defining -- presumably there is no uncertainty about who the testator's daughter is -- but where gifts are class-defining, the same problems arise as affect trusts. In re barlow 1979, for example, the testatrix left instructions to her executors to allow her paintings to be purchased by ``friends of mine. Browne-Wilkinson J held that the appropriate test in this case was whether it was possible to say for certain whether one or more persons qualified as `friends of mine', even if would be impossible to make such a determination in the general case. It is not clear that this test corresponds to any those set out by the Court of Appeal in Re Baden. It does not, for example, require the class to be conceptually certain -- `friends of mine' is not defineable with any precision -- and in that respect is most similar to the test propounded by Megaw LJ. However, Megaw's judgement required that it be possibile to state of a `substantial number' of persons whether they satisfied the test, while the test in Barlow only requires that `one or more' persons are able to satsify it. The use of outside opinion to resolve uncertainty It is a paramount principle of the construction of trust obligations that the courts are striving to give effect to the wishes of the settlor. It is this principle which gave rise to the decisions in McPhail and Re Barlow_, despite the complications they may engender. If, therefore, the settlor identifies a person with responsibility for resolving uncertainty, there is a strong argument for saying that the courts should defer to that person, rather than declaring the trust invalid. The contrary argument is that it is universally accepted that certainty of objects is an objective matter, not a subjective one, and therefore should not turn on particular person's opinion. This issue was considered in re tuck 1978, in which the settlor required his inheritable baronetcy to pass only to a son who married a woman of the Jewish faith. Where there was any doubt as to the wife's suitability in this regard, the Chief Rabbi was to decide the matter. Although the trust was upheld, it is uncertain whether the basis of the decision was an acceptance of the `Chief Rabbi' clause or something else. Lord Denning, for his part, was unequivocal in his acceptance: ``I do not see any reason why a testator or settlor should not provide that any dispute or doubt is to be resolved by his executors or trustees or even by a third person... Lord Russell held that it was unncessary to consider the Chief Rabbi clause, since the class of persons of the Jewish Faith was already conceptually certain. Everleigh LJ held that nominating the Chief Rabbi only served to indicate the settlor's opinion of Jewishness, and therefore did not require that the Chief Rabbi would have to be consulted at some later stage. At present, therefore, although it is generally accepted that certainty of objects can be resolved by reference to the opinion of a person nominated by the settlor, it is far from clear that the case usually cited to that effect really has that conclusion as part of its ratio.In addition, it should be

noted that Re Tuck_ concerned a succession, not a trust, and -- if different rules apply to gifs and trusts, which is what Re Barlow suggests -- then Re Tuck_ does not have to apply to trusts at all. Conclusion Aside from the case of fixed trusts, the law regarding certainty of objects in most other forms of trust and gift is somewhat unclear. Although the rules for discretionary trusts and powers have been defined to be the same (in McPhail_), powers and trusts are not the same, and Re Baden shows how difficult it can be to apply the McPhail test to discretionary trusts. Although the `is or is not' test is easy to state, it is difficult to apply. Although it seems to be accepted that an outside opinion can be sought to resolve uncertainty, the authority for that proposition is not very strong. Finally, it is unclear whether the certainty test for gifts subject to a condition precent is the same as the test -- or any of the tests -- derived from McPhail.

Certainty of subject matter

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Jump to: navigation, search Previous (Certainty of objects) Next (Cfa) Almost any item of property, real or personal, can be made the subject of a trust. However, the trust instrument must allow the property to be identified clearly. In addition, if the trust property is to be allocated to a number of different beneficiaries, it must be clear from the outset how the allocation is to be made. Thus there are two elements to certainty of subject matter: certainty of trust property and certainty of beneficial interest. Both are questions of law (unlike certainty of intention, which is a question of fact). Consequently, precedent applies in the usual way. Certainty of trust property This element is easy enough to understand -- it must be clear which property is to be put into the trust. For example, in Palmer v Simmonds 1854 it was held that the expression 'the bulk of my said residuary estate' did not allow the subject matter to be identified, even though there was a clear intention to create a trust. Modern practice is to avoid undoing a trust for uncertainty wherever possible. In Re Golays Will Trusts 1965, for instance, a trust to provide a 'reasonable income' was upheld. The justification is that rigid enforcement of the doctrine of certainty (pertaining to subject matter) can lead to outcomes unwanted by any parties to a trust agreement, which seems unjust. For example, early cases involving trusts of money often suggested that individual banknotes should be be identified. Most commentators came to regard this as an absurd situation. Since the courts are now keen to avoid invalidating a trust on the basis of uncertainty where there is no good reason to do so, they readily adopt a certain degree of flexibility, at least where intangible items are concerned.

In Hunter v Moss 1993, a case concerning the allocation of intangible items (in this instance, company shares), the Court of Appeal ruled that the appropriate test for certainty was whether, immediately after the declaration of trust, a court could attach an order to enforce the trust. However, both Hunter and Golay were later criticized for distinguishing earlier cases on the basis that they (Hunter and Golay) were concerned with trusts of intangibles when, in fact, the subject matter of these two trusts involved items that were essentially indistinguishable. The decisions in these cases seemed to imply that trusts involving tangible items remained subject to the earlier, inflexible rules. This suggestion may make perfect sense where the trust property is distinguishable from other property the settlor owns. For example, it would be quite unacceptable to allow a trust of 'a statue' to succeed where the settlor owned a collection of statues with no obvious way to determine which of these was intended. However, in situations such as Re London Wine 1975, where the very tangible trust property (in this instance, identical bottles of wine) happens to be composed of items that are indistinguishable, it is less obvious that the law should still require (as it does) that the settlor segregate the trust property from his own. It can be argued, therefore, that there is no clear logical reason to distinguish trusts of indistinguishable goods from trusts of intangible goods, even if the law does just that. However, a reasonably credible counterargument might be that abolishing this distinction would leave the courts to judge whether particular goods were distinguishable or indistinguishable -- potentially a difficult and perilous thing to do. Certainty of beneficial interest This is a bit more complex. Not only must the identity of the trust property be certain, but so must the distribution of the rights and interests to this property amongst the different beneficiaries. For example, in Boyce v Boyce 1849 a testator left four houses, the first to be chosen by a certain beneficiary and the remaining three then going to another one. In the event, the first beneficiary predeceased the testator, making it impossible to identify which three of the four houses should be settled. The court chose to uphold the principle that a beneficial interest should be precisely determined. In this instance, the uncertainty lay not in the trust property - this was clearly the four houses - but in the beneficial interest to be assigned. The effect of such uncertainty, the court held, was that a resulting trust correspondingly arose in favour of the settlors estate. This certainly seems a harsh rule; the testator in this case wished to dispose of four houses and was not overly concerned with which went to whom. A reasonable alternative to the decision in Boyce v Boyce would have been to have one house, chosen by the executor, go to the testator's residual estate (thereby giving effect to the testator's intention), and then allowing the remaining three to go to the named beneficiary. Consequences of uncertainty of subject matter

If the settlor fails to specify the trust property adequately but the property reaches the intended trustee, the trustee is entitled to the property absolutely. This is sometimes a harsh outcome for the intended beneficiaries, but there is no other logical solution. It might be felt that the transferee should hold the property on resulting or constructive trust, but there is simply no way to determine which portion is to be governed by the trust. Consider a situation where X wills a large sum of money to Y, with the intention that Y holds some money on trust for Z. If some money is insufficiently precise to validate a trust in favour of Z, it equally lacks the precision to validate a resulting trust in favour of the settlor. Any trust whose subject matter is certain enough to form a resulting trust is certain enough to form the trust originally intended. In fact, the transferee in these circumstances is not a trustee at all; he is the recipient of a gift. If the settlor specifies the trust property adequately but fails to make clear the allocation of beneficial interests to the intended beneficiaries, there is a resulting trust in favour of the settlor. In practice, the property will revert to the settlors estate, since the fact that the question of certainty arises at all is probably due to the settlor no longer being alive. This situation differs from the one in which the trust property is itself uncertain in that the intended transferee does in this instance become a trustee. However, he is now trustee of a resulting trust where the settlor (or his estate) is the beneficiary and not, as originally intended, trustee of an express trust favouring a designated set of third-party beneficiaries.