Introduction
Certainty of objects is a key principle in the law of express trusts, requiring that the beneficiaries are clearly identified or identifiable. This doctrine ensures that trust property is administered according to the settlor's intentions and that trustees can effectively carry out their duties. Establishing certainty of objects involves satisfying specific legal tests, which differ depending on whether a trust is fixed or discretionary. Understanding these requirements is essential for determining the validity of a trust and addressing the complexities of trust law.
The Three Certainties: Requirements for a Valid Trust
For an express trust to be valid, it must satisfy the three certainties established in Knight v Knight (1840): certainty of intention, certainty of subject matter, and certainty of objects. These certainties ensure the trust is enforceable and that trustees can fulfill the settlor's wishes accurately.
Certainty of Intention
Certainty of intention requires that the settlor demonstrates a clear and unequivocal intention to create a trust. The language used must impose a binding obligation on the trustee. In Paul v Constance [1977], the phrase "the money is as much yours as mine" was sufficient to establish intention. Here, the court considered the overall context and the relationship between the parties.
Visualize a parent handing money to a trusted friend, saying, "Please hold this for my children's education." The intention to create a trust for the children's benefit is evident.
Certainty of Subject Matter
Certainty of subject matter means the trust property must be clearly defined, as well as the shares to which the beneficiaries are entitled. Vague descriptions can lead to a trust failing for uncertainty. In Palmer v Simmonds (1854), the term "the bulk of my estate" was too ambiguous to identify the trust property.
Envision someone saying, "You can have some of my possessions." Without specifying which items or how many, it's unclear what is being given.
Certainty of Objects
Certainty of objects requires that the beneficiaries are clearly identified or are ascertainable. This ensures trustees know who they owe duties to and who can enforce those duties. The tests for certainty of objects differ between fixed trusts and discretionary trusts.
Historical Development of Certainty of Objects
Knight v Knight (1840)
In Knight v Knight, Lord Langdale MR established the three certainties, forming the basis for determining the validity of express trusts. The case emphasized the need for clear expression of intent, property, and beneficiaries to create a valid trust.
McPhail v Doulton [1971]
The landmark case of McPhail v Doulton transformed the approach to certainty of objects in discretionary trusts. The House of Lords replaced the strict "complete list" requirement with the more flexible "any given postulant" test, also known as the "is or is not" test.
Before this case, trustees had to compile a complete list of beneficiaries, much like having a full guest list for a party. McPhail v Doulton acknowledged that for large or undefined groups, this was impractical. Instead, it sufficed if it could be determined whether any given individual was or was not a member of the beneficiary class.
Fixed Trusts: The 'Complete List' Test
In a fixed trust, the trustees have no discretion over how the trust property is distributed; each beneficiary's share is predetermined. Therefore, it's important that all beneficiaries are identified to ensure fair distribution.
The 'Complete List' Test
The 'complete list' test, established in IRC v Broadway Cottages Trust [1955], requires that it must be possible to draw up a complete list of all beneficiaries. If any beneficiaries cannot be identified, the trust may fail.
Consider a trust set up for "all the employees of ABC Ltd as of 1st January 2022." If the company has records of all employees on that date, the beneficiaries can be listed, satisfying the test. However, if the trust was for "all my good friends," the vagueness of "good friends" makes it impossible to compile a complete list.
Discretionary Trusts: The 'Is or Is Not' Test
In discretionary trusts, trustees decide which beneficiaries within a specified class will receive benefits and in what proportions. This flexibility requires a different approach to certainty.
The 'Is or Is Not' Test
As established in McPhail v Doulton, the 'is or is not' test asks whether it can be said with certainty of any individual whether they are or are not a member of the beneficiary class.
Consider a trust for "the grandchildren of Mary Johnson." When an individual claims to be a beneficiary, trustees need only determine whether that person is indeed a grandchild of Mary Johnson. They don't need to list every grandchild in advance.
Conceptual and Evidential Certainty
In Re Baden's Deed Trusts (No 2) [1973], the court distinguished between:
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Conceptual certainty: The clarity of the language used to define the class of beneficiaries. The terms must have precise meanings.
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Evidential certainty: The ability to prove whether a person fits within the class.
Using "relatives" as a class descriptor may be conceptually certain, as it can be legally defined. However, "friends" lacks conceptual certainty because it's subjective.
Administrative Unworkability
Even if a trust satisfies the 'is or is not' test, it can fail if the class of beneficiaries is so broad that it's administratively unworkable.
In R v District Auditor ex parte West Yorkshire Metropolitan County Council [1986], a trust intended for "any or all or some of the inhabitants of the County of West Yorkshire" was deemed invalid due to administrative unworkability. With over two million potential beneficiaries, managing such a trust was impracticable.
It's akin to trying to distribute a limited number of scholarships to an entire country: without a manageable system, the task becomes unfeasible.
Modern Applications and Considerations
Non-Charitable Purpose Trusts and Exceptions
Generally, trusts must have identifiable beneficiaries to be valid. Non-charitable purpose trusts, which lack beneficiaries, often fail for uncertainty of objects. However, there are exceptions for certain specific purposes, such as trusts for the maintenance of graves or care of pets.
Trusts in Commercial Contexts
In business settings, courts have sometimes adopted a pragmatic approach to certainty of objects.
For instance, in Re Baden's Deed Trusts (No 2), the court accepted some uncertainty in defining "dependants" and "relatives" within an employee benefit trust. Recognizing the practicalities of such trusts, the courts have allowed for operational flexibility while maintaining legal standards.
Practical Implications for Trustees
Trustees must be able to identify the beneficiaries to perform their duties effectively. This involves:
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Clearly defining the class of beneficiaries in the trust deed.
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Ensuring the terms used are conceptually certain.
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Keeping thorough records and documentation.
If there's uncertainty, trustees may face challenges in administering the trust and could be at risk of breaching their fiduciary duties.
Conclusion
Certainty of objects is an essential requirement for the validity and enforceability of express trusts. It ensures that trustees can identify the beneficiaries and administer the trust according to the settlor's intentions. The legal tests for certainty of objects—the 'complete list' test for fixed trusts and the 'is or is not' test for discretionary trusts—provide explanations for determining whether a trust meets this requirement.
The evolution of the law, particularly through cases like McPhail v Doulton, reflects a balance between the strictness of legal principles and the practicalities of trust administration. Understanding concepts such as conceptual and evidential certainty is important for addressing issues related to beneficiary identification.
Trustees and legal practitioners must apply these principles diligently to ensure trusts are valid and managed effectively. Recognizing the potential challenges of administrative unworkability and the importance of precise language can help prevent trusts from failing due to uncertainty of objects. By following these legal standards, trusts can fulfill their intended purposes and contribute to the equitable distribution of assets in accordance with the settlor's wishes.
