Creation and requirements of express trusts - Certainty of objects (beneficial interests)

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Overview

The certainty of objects is vital in express trust law, essential for the SQE1 FLK2 exam and legal practice. This principle ensures beneficiaries can be clearly identified, facilitating effective trust management and reducing disputes. This article delves into its historical development, key legal concepts, and practical applications, offering a thorough guide for future legal professionals.

The Three Certainties: Fundamental Requirements

Express trusts demand three certainties: intention, subject matter, and objects. Certainty of objects needs particular focus due to its complexities and development in case law.

Certainty of Intention

The settlor must clearly intend to create a trust with language that imposes a binding obligation. In Paul v Constance [1977], the phrase "the money is as much yours as mine" adequately demonstrated intention in the context of the parties' relationship.

Certainty of Subject Matter

Trust property must be precisely defined, covering both the property held in trust and beneficiaries' interests. Palmer v Simmonds (1854) showed that "the bulk of my estate" was too vague for a valid trust.

Certainty of Objects

This principle requires identifiable beneficiaries, with different standards for fixed and discretionary trusts. It is the focal point of our detailed exploration.

Historical Development of Certainty of Objects

Knight v Knight (1840)

This key case introduced the doctrine of the three certainties, forming a structured method to assess trust validity. Lord Langdale MR emphasized that a valid trust must clearly define intention, property, and beneficiaries.

McPhail v Doulton [1971]

This landmark case reshaped approaches to certainty of objects, especially for discretionary trusts. It introduced the 'is or is not' test, replacing the 'complete list' requirement. Lord Wilberforce asserted that the critical question is whether trustees can determine if an individual belongs to the beneficiary class.

Fixed Trusts: Strict Certainty Needed

Fixed trusts require clear identification of beneficiaries, as trustees lack discretion in distributing trust property.

The 'Complete List' Test

Established in IRC v Broadway Cottages Trust [1955], this test demands the ability to list all beneficiaries. A trust "for all the children of X" would satisfy this test, while "for X's friends" would likely fail due to vagueness.

Discretionary Trusts: Flexibility in Approach

Discretionary trusts allow trustees to choose beneficiaries from a specified group, providing more flexibility while ensuring a level of certainty.

The 'Is or Is Not' Test

Following McPhail v Doulton, this test applies to discretionary trusts, determining whether it is possible to identify any individual as a class member. A trust "for the benefit of X's employees" would likely meet this standard.

Conceptual and Evidential Certainty

In Re Baden's Deed Trusts (No 2) [1973], the Court of Appeal distinguished between:

  • Conceptual certainty: terms must clearly describe the beneficiary class.
  • Evidential certainty: practical determination of individuals within the defined class.

Administrative Challenges: Limits to Certainty

Some trusts may be administratively impractical despite meeting the 'is or is not' test. In Re Gulbenkian's Settlement Trusts [1970], Lord Upjohn noted that a trust might fail if the class is too wide to manage effectively.

Modern Applications and Considerations

Purpose Trusts and Beneficiary Needs

Non-charitable purpose trusts often fail due to lack of identifiable beneficiaries, but exceptions exist for specific goals like maintaining graves. The Charities Act 2011 broadens charitable purposes, allowing some previously invalid trusts.

Trusts in Business Settings

Courts have adapted certainty standards for commercial settings like pension funds. In Re Sigma Trusts [1985], a trust for "employees and former employees" was upheld, considering the commercial context.

Case Study: McPhail v Doulton [1971]

In this case, involving a trust for "employees, former employees, and their relatives," the House of Lords ruled the trust met certainty of objects, establishing the 'is or is not' test for discretionary trusts.

Practical Considerations for Trust Management

Trustees of discretionary trusts must carefully evaluate potential beneficiaries for fairness and transparency. Understanding the differences between fixed and discretionary trusts is crucial for effective trust management.

Conclusion

Certainty of objects is key to the validity and enforcement of express trusts. The shift from the 'complete list' test to the 'is or is not' test reflects law's adaptation to societal changes, though flexibility remains balanced by practical limitations. For SQE1 FLK2 candidates, understanding certainty of objects is essential, intersecting with broader themes in trust law such as beneficial interests and trustees' duties. As trust law develops, especially in response to complex commercial scenarios, applying these core concepts to new situations will be essential for legal success.

Key Points:

  1. Certainty of objects is one of the three certainties for valid express trusts.
  2. Fixed trusts require the 'complete list' test; discretionary trusts apply the 'is or is not' test.
  3. McPhail v Doulton shifted the approach to certainty for discretionary trusts.
  4. Courts assess both conceptual and evidential certainty.
  5. Administrative impracticality can invalidate a trust, even if certain tests are met.
  6. Business contexts can influence the interpretation of certainty of objects.
  7. Understanding practical aspects of certainty of objects is crucial for effective legal practice.