Learning Outcomes
This article examines the requirement of certainty of objects for the creation of valid express private trusts. After reading this article, you should be able to distinguish between fixed and discretionary trusts and apply the correct test for certainty of objects to each. You will understand the concepts of conceptual and evidential certainty, administrative unworkability, and capriciousness. This knowledge will assist you in analysing trust scenarios and determining the validity of express trusts in SQE1 assessments.
SQE1 Syllabus
For SQE1, a comprehensive understanding of the requirements for creating a valid express trust is essential. This article focuses specifically on the certainty of objects. Your revision should cover:
- The three certainties required for an express trust.
- The beneficiary principle and its relevance to certainty of objects.
- The test for certainty of objects in fixed trusts (the 'complete list' test).
- The test for certainty of objects in discretionary trusts (the 'is or is not'/'given postulant' test).
- The concepts of conceptual and evidential certainty.
- The principles of administrative unworkability and capriciousness.
- The consequences of uncertainty of objects.
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
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Which test is used to determine certainty of objects for a fixed trust?
- The 'is or is not' test.
- The 'complete list' test.
- The administrative workability test.
- The capricious intention test.
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A trust is created 'for such of my old colleagues as my trustees shall in their absolute discretion select'. Which certainty issue is most likely to cause this trust to fail?
- Certainty of intention.
- Certainty of subject matter.
- Conceptual uncertainty of objects.
- Evidential uncertainty of objects.
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Which of the following correctly states the consequence if an intended express trust fails for uncertainty of objects?
- The property passes to the intended trustee absolutely.
- The property is held on resulting trust for the settlor (or their estate).
- The property passes under the rules of intestacy regardless of any will.
- The court will appoint new beneficiaries.
Introduction
For an express trust to be valid and enforceable, it must satisfy the 'three certainties': certainty of intention, certainty of subject matter, and certainty of objects. This article focuses on the third requirement: certainty of objects. This means that the people who are intended to benefit from the trust (the beneficiaries or 'objects') must be identified or identifiable with sufficient certainty. Without this clarity, the trustees cannot properly execute their duties, and the court cannot supervise the trust's administration. The level of certainty required differs depending on the type of trust created.
The Beneficiary Principle
Fundamental to the requirement for certainty of objects is the beneficiary principle. This fundamental rule states that, subject to limited exceptions (such as charitable trusts or certain anomalous non-charitable purpose trusts), a trust must have ascertainable beneficiaries who are capable of enforcing the trust against the trustees. If there are no beneficiaries, or they cannot be identified, the trust will generally be void.
Key Term: Beneficiary Principle The principle that a valid non-charitable trust must have ascertainable human beneficiaries who can enforce the trustees' obligations.
Key Term: Certainty of Objects The requirement that the beneficiaries of a trust must be sufficiently identifiable.
Fixed Trusts
A fixed trust is one where the entitlement of each beneficiary is determined by the settlor in the trust instrument. The trustees have no discretion regarding who will benefit or in what proportions; their duty is simply to distribute the trust property according to the fixed shares specified by the settlor.
Key Term: Fixed Trust A trust where the beneficiaries and their respective shares of the trust property are predetermined by the settlor.
The 'Complete List' Test
Because the trustees must distribute the property precisely according to the settlor's instructions, they must be able to identify every single beneficiary. Therefore, the test for certainty of objects in a fixed trust is the 'complete list' test. It must be possible, either at the time the trust comes into effect or when the interests vest, to draw up a conclusive list of all the beneficiaries (IRC v Broadway Cottages Trust [1955]).
Key Term: Complete List Test The test for certainty of objects in a fixed trust, requiring that it must be possible to draw up a definitive list of all beneficiaries.
To satisfy the complete list test, both conceptual certainty and evidential certainty are required:
- Conceptual certainty: The description of the class of beneficiaries must be clear and unambiguous. Words like 'children' or 'nephews' are generally conceptually certain, whereas terms like 'good friends' or 'deserving relatives' are usually too vague.
- Evidential certainty: It must be possible in practice to gather sufficient factual evidence to compile the complete list of beneficiaries based on the conceptually certain description. If records are missing or it is impossible to prove who falls within the class, the trust may fail for evidential uncertainty.
The fact that a known beneficiary cannot be located (their whereabouts are unknown) does not cause the trust to fail for uncertainty of objects. In such cases, trustees can apply to the court for directions or pay the missing beneficiary's share into court.
Worked Example 1.1
Ahmed's will leaves '£100,000 on trust to be divided equally amongst all my former colleagues who worked with me at Tech Solutions Ltd between 2010 and 2015'. Tech Solutions Ltd went into liquidation in 2018, and its employment records for that period were destroyed.
Is the trust for Ahmed's former colleagues valid?
Answer: This is a fixed trust, requiring equal division. The test is the 'complete list' test. 'Former colleagues who worked with me at Tech Solutions Ltd between 2010 and 2015' is likely conceptually certain. However, due to the destruction of employment records, it is impossible to compile a complete list of all beneficiaries. The trust fails for lack of evidential certainty. The £100,000 will likely fall into the residue of Ahmed's estate.
Discretionary Trusts
In a discretionary trust, the trustees are given the power (or discretion) to decide which person(s) from within a class defined by the settlor will receive distributions from the trust fund, and often in what amounts. No single potential beneficiary has an absolute right to receive anything; they only have the right to be considered by the trustees.
Key Term: Discretionary Trust A trust where the trustees have discretion regarding which beneficiaries (from a defined class) will receive benefits and potentially the amount of those benefits.
The 'Is or Is Not' / 'Given Postulant' Test
Since trustees of a discretionary trust do not necessarily have to distribute to every member of the class, a complete list is not required. The House of Lords in McPhail v Doulton [1971] AC 424 established a less stringent test: the 'is or is not' test, sometimes called the 'given postulant' test. The trust is valid if it can be said with certainty whether any given individual (postulant) is or is not a member of the class described by the settlor.
Key Term: Given Postulant Test The test for certainty of objects in a discretionary trust, requiring that it must be possible to determine with certainty whether any given individual is or is not a member of the beneficiary class. Also known as the 'is or is not' test.
This test focuses primarily on conceptual certainty. The description of the class must be sufficiently clear for a trustee (or the court) to determine if someone meets the criteria. Evidential difficulty (ie, difficulty in proving whether someone falls within the class) will not necessarily invalidate the trust. If a person cannot prove they are within the class, they simply fall outside it.
In Re Baden's Deed Trusts (No 2) [1973] Ch 9, the Court of Appeal considered the terms 'relatives' and 'dependants'. 'Relatives' was held to be conceptually certain (meaning 'descendants from a common ancestor'), although proving this might be difficult evidentially. 'Dependants' was also considered conceptually certain (meaning financially dependent).
Administrative Unworkability
Even if a discretionary trust satisfies the 'is or is not' test for conceptual certainty, it may still fail if the class of potential beneficiaries is so wide that the trust is administratively unworkable. This occurs when the class is 'so hopelessly wide as not to form anything like a class', making it impossible for trustees to sensibly survey the field and exercise their discretion (R v District Auditor ex p West Yorkshire Metropolitan County Council [1986], involving a trust for the 2.5 million inhabitants of West Yorkshire).
Key Term: Administrative Unworkability A reason for the failure of a discretionary trust where the class of potential beneficiaries, although conceptually certain, is considered too large for the trust to be practically administered.
Capriciousness
A discretionary trust might also fail if it is deemed capricious. This means the settlor's intention appears irrational, nonsensical, or serves no sensible purpose, making it impossible for trustees to exercise their discretion in a logical manner (Re Manisty's Settlement [1974]). For example, a trust for 'residents of Greater London' might be considered capricious if the settlor had no connection to London and provided no rationale. Capriciousness is rarely invoked by the courts.
Key Term: Capriciousness A potential reason for the failure of a discretionary trust where the settlor's choice of beneficiaries appears entirely irrational or whimsical, lacking any discernible link or sensible purpose.
Worked Example 1.2
A trust deed establishes a fund 'to be distributed in the trustees' absolute discretion amongst any person with red hair residing in Birmingham'.
Is this trust likely to be valid?
Answer: This is a discretionary trust, so the 'is or is not' test applies. 'Person with red hair' is arguably conceptually certain (though borderline cases might exist). 'Residing in Birmingham' is also likely conceptually certain. Evidential difficulty in identifying every red-haired resident is not fatal. However, the class is potentially extremely large. The trust is likely void for administrative unworkability, similar to the West Yorkshire case. It might also be argued to be capricious if the settlor had no connection to Birmingham or red-haired people.
Consequences of Uncertainty of Objects
If an attempted express trust fails for uncertainty of objects (under either the complete list test or the 'is or is not' test), the trust is void. The person holding the legal title (either the settlor who declared themselves trustee or the third-party trustee to whom property was transferred) cannot take the property beneficially. They hold the property on a resulting trust for the settlor or, if the trust was created by will, for the testator's estate (meaning it passes under the residuary clause of the will or, if none, under the rules of intestacy).
Key Term: Resulting Trust An implied trust where the beneficial interest in property reverts (results back) to the settlor or their estate, often arising when an express trust fails.
Gifts Subject to a Condition Precedent
A distinction is drawn between discretionary trusts and gifts made to individuals subject to meeting a condition precedent (e.g., '£1,000 to any of my friends who attend my funeral'). In Re Barlow's Will Trusts [1979], it was held that for such gifts, a less strict test applies. It is only necessary that at least one person can be clearly identified as satisfying the condition; it is not necessary to be able to say of any person whether they satisfy it or not.
Exam Warning
Be careful not to confuse the test for gifts subject to a condition precedent with the 'is or is not' test for discretionary trusts. The Re Barlow test is less strict and applies only where individuals can claim a specific gift by meeting a condition, not where trustees have a duty to distribute amongst a class.
Key Point Checklist
This article has covered the following key knowledge points:
- Certainty of objects is one of the three certainties required for a valid express trust.
- The beneficiary principle requires ascertainable beneficiaries capable of enforcing the trust.
- Fixed trusts require certainty of objects assessed by the 'complete list' test, needing both conceptual and evidential certainty.
- Discretionary trusts require certainty of objects assessed by the 'is or is not' / 'given postulant' test, primarily needing conceptual certainty.
- Discretionary trusts can fail for administrative unworkability if the class is too wide, or potentially for capriciousness if the purpose is irrational.
- Uncertainty of objects renders the trust void, resulting in the property being held on resulting trust for the settlor or their estate.
- Gifts subject to a condition precedent have a less strict test for identifying beneficiaries than discretionary trusts.
Key Terms and Concepts
- Beneficiary Principle
- Certainty of Objects
- Fixed Trust
- Complete List Test
- Discretionary Trust
- Given Postulant Test
- Administrative Unworkability
- Capriciousness
- Resulting Trust
