Learning Outcomes
After studying this article, you will be able to identify and explain the requirement of certainty of subject matter for express trusts. You will understand how trust property must be specified, the distinction between tangible and intangible assets, and how courts approach uncertainty. You will also be able to apply these principles to SQE1-style scenarios and avoid common pitfalls.
SQE1 Syllabus
For SQE1, you are required to understand the requirements for the creation of express trusts, including the need for certainty of subject matter. This article focuses on:
- The rule that trust property must be clearly identified for a valid express trust.
- The difference in approach between tangible and intangible assets.
- The consequences of uncertainty and how courts resolve issues of identification.
- Application of these principles to practical scenarios and MCQs.
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.
- What is required for trust property to satisfy the certainty of subject matter requirement?
- How do courts treat the certainty of subject matter for tangible assets compared to intangible assets?
- What is the effect if a trust instrument states "the majority of my shares" or "some of my paintings" are to be held on trust?
- In which case did the court hold that a trust over 50 out of 950 identical shares was valid, and why?
Introduction
For an express trust to be valid, the property to be held on trust must be certain. This requirement—certainty of subject matter—ensures that trustees know what assets they must manage and beneficiaries know what they may receive. If the trust property is not clearly identified, the trust will fail for uncertainty, and the property will not be held on trust.
Key Term: certainty of subject matter The requirement that the property to be held on trust is clearly identified or identifiable at the time the trust is created.
The Requirement for Certainty of Subject Matter
The law requires that the assets forming the trust property are described with sufficient clarity. This allows trustees to know what they must hold and administer, and beneficiaries to know what they may claim. If the property is not certain, the trust cannot be enforced.
What must be certain?
There are two aspects to certainty of subject matter:
- The trust property itself must be identified with certainty.
- The beneficial interests (the shares or entitlements of beneficiaries) must be defined with certainty.
If either is uncertain, the trust will fail.
Key Term: trust property The assets or rights which are to be held on trust for the benefit of the beneficiaries.
Certainty of Trust Property
The property must be specified so that it is clear what is to be held on trust. If the property is described in vague or subjective terms, such as "the bulk of my estate" or "some of my shares," the trust will usually fail.
Worked Example 1.1
A testator's will states: "I leave the majority of my shares in Alpha Ltd to be held on trust for my niece." Is this sufficient certainty of subject matter?
Answer: No. "The majority of my shares" is too vague. It is not clear which shares or how many are to be held on trust. The trust fails for uncertainty of subject matter.
Certainty of Beneficial Interests
It must also be clear how the trust property is to be divided among the beneficiaries. If the shares or proportions are not specified, and cannot be determined objectively, the trust will fail.
Key Term: beneficial interest The share or entitlement of a beneficiary in the trust property.
Worked Example 1.2
A will states: "I leave my two houses to my trustees to give one to my daughter, whichever she chooses, and the other to my son." The daughter dies before making a choice. What is the effect?
Answer: The son's entitlement is uncertain because it depends on the daughter's choice, which was never made. The trust fails for uncertainty of beneficial interest.
Tangible vs Intangible Assets
The courts distinguish between tangible and intangible assets when considering certainty of subject matter.
Key Term: tangible assets Physical property, such as wine, paintings, or cars.
Key Term: intangible assets Non-physical property, such as shares in a company or money in a bank account.
For tangible assets, the specific items to be held on trust must be segregated or identified. For intangible assets of the same class (e.g., shares of the same type), segregation is not required if the assets are indistinguishable.
Worked Example 1.3
A wine merchant holds 100 cases of identical wine in bulk. A customer pays for 10 cases, but the merchant does not set aside any specific cases for the customer. The merchant becomes insolvent. Can the customer claim a trust over the wine?
Answer: No. For tangible assets, the specific items must be identified or segregated. Without segregation, there is no certainty of subject matter, and the customer is an unsecured creditor.
Worked Example 1.4
An employer declares a trust over "50 of my 950 ordinary shares in Beta Ltd" for an employee, but does not specify which shares. Are the shares sufficiently certain?
Answer: Yes. For intangible assets of the same class, such as ordinary shares, it is not necessary to identify specific shares. Any 50 shares will suffice, so the trust is valid.
Consequences of Uncertainty
If the trust property or the beneficial interests are uncertain, the trust will fail. The property will either remain with the settlor (if the trust was never constituted) or be held on resulting trust for the settlor or their estate.
Exam Warning
If a trust fails for uncertainty of subject matter, the intended trustee may take the property absolutely, or it may revert to the settlor or their estate. Always check who will take the property if the trust fails.
Objective Assessment by the Court
If the trust instrument uses objective terms, such as "a reasonable income," the court may be able to determine the amount objectively and uphold the trust.
Worked Example 1.5
A will states: "My daughter is to receive a reasonable income from my investments." Is this sufficiently certain?
Answer: Yes. The court can objectively determine what is a reasonable income based on the circumstances, so the trust is valid.
Summary
| Asset Type | Certainty Requirement | Trust Valid? |
|---|---|---|
| Tangible assets | Specific items must be identified or segregated | Only if segregated |
| Intangible assets | No need to identify specific items if fungible | Usually valid |
| Beneficial interest | Shares or entitlements must be objectively defined | Only if certain |
Key Point Checklist
This article has covered the following key knowledge points:
- The trust property must be clearly identified for a valid express trust.
- Both the property and the beneficial interests must be certain.
- Tangible assets require segregation or identification; intangible assets of the same class do not.
- If the property or interests are uncertain, the trust fails.
- Courts may uphold a trust if objective criteria allow certainty.
Key Terms and Concepts
- certainty of subject matter
- trust property
- beneficial interest
- tangible assets
- intangible assets
