Introduction
An express inter vivos trust is a legally binding arrangement intentionally established by a settlor during their lifetime, wherein assets are transferred to trustees to hold for the benefit of specified beneficiaries. The establishment of such trusts under English law demands strict compliance with essential legal principles, notably the doctrine of the three certainties—certainty of intention, certainty of subject matter, and certainty of objects—as well as compliance with statutory formalities. These requirements ensure that trusts are validly created and can be effectively enforced, playing a key role in asset management and property law.
The Three Certainties: Foundations of Trust Formation
For a trust to be validly constituted, the three certainties must be satisfied, as established in the seminal case of Knight v Knight (1840). These certainties function as the core principles upon which the trust structure stands.
Certainty of Intention
Certainty of intention necessitates a clear and unequivocal intention on the part of the settlor to create a trust. This intention can be expressed through words or conduct, and it is the court's role to ascertain this intention from the circumstances.
Just as a contract requires mutual agreement to be enforceable, a trust requires that the settlor's intent to create a trust arrangement is evident. In Paul v Constance [1977] 1 WLR 527, the court held that the phrase "the money is as much yours as mine" was sufficient to indicate the necessary intention, despite the absence of formal legal terminology.
Consider a scenario where an individual hands over a treasured heirloom to a friend, stating, "Hold this for my niece until she turns eighteen." Such a statement may demonstrate the necessary intention to establish a trust regarding the heirloom.
Certainty of Subject Matter
Certainty of subject matter requires that the assets comprising the trust property are clearly identified. Without precise identification, the trust cannot be enforced, much like a chef cannot prepare a recipe without knowing the exact ingredients.
In Palmer v Simmonds (1854) 2 Drew 221, the term "the bulk of my estate" was deemed too vague, resulting in the trust failing for uncertainty of subject matter. Conversely, in Hunter v Moss [1994] 1 WLR 452, the Court of Appeal upheld a trust over fifty shares out of a larger holding of identical shares, treating them as fungible assets.
Picture a settlor declaring a trust over "my collection of vintage cars." Clarity is essential—does this refer to all vintage cars owned or only specific ones? Without precise identification, the trust may not meet the certainty of subject matter.
Certainty of Objects
Certainty of objects pertains to the clear identification of beneficiaries. The trust must specify who the beneficiaries are so that the trustees know to whom they owe duties. In fixed trusts, this requires a complete list of beneficiaries, whereas in discretionary trusts, it is sufficient to ascertain whether any given individual is or is not a member of the class of beneficiaries.
The test for certainty in discretionary trusts was established in McPhail v Doulton [1971] AC 424, where the House of Lords adopted the "is or is not" test from Re Gulbenkian's Settlements [1970] AC 508.
Suppose a trust is declared for "all the people I consider my friends." Such a class may be too uncertain, as it is subjective and difficult to determine who qualifies as a "friend." However, a trust for "all my employees as of the date of my retirement" would likely satisfy certainty of objects, as the class is more precisely defined.
Statutory Requirements and Formalities
In addition to the three certainties, certain statutory formalities must be observed for the valid constitution of express inter vivos trusts, particularly those involving land or established through a will.
Trusts of Land
Under Section 53(1)(b) of the Law of Property Act 1925, a declaration of trust concerning land or any interest therein must be evidenced in writing and signed by the person able to declare such a trust.
In Hodgson v Marks [1971] Ch 892, an oral declaration of trust over land was held invalid due to non-compliance with the statutory requirement, despite clear evidence of the settlor's intention.
Think of statutory formalities as essential documentation required for legal recognition. Just as a property sale requires written contracts to be enforceable, a trust over land must comply with the requisite formalities to be valid.
Testamentary Trusts
Trusts created by a will must comply with the formalities set out in the Wills Act 1837, which requires the will to be in writing, signed by the testator, and witnessed by two individuals present at the same time.
In Marley v Rawlings [2014] UKSC 2, the Supreme Court considered the validity of wills where a couple had mistakenly signed each other's wills. The case underscored the importance of strict compliance with statutory formalities in testamentary dispositions.
Constitution of Trusts: Declaration and Transfer
For a trust to be fully constituted, the trust property must be vested in the trustees. This can occur either through the settlor declaring themselves as trustee or by transferring the trust property to the trustees.
Declaration of Trust by the Settlor
A settlor may declare a trust by stating that they hold the property on trust for the beneficiaries, effectively constituting the trust without the necessity of transferring the assets. However, the declaration must be clear and comply with any applicable formalities.
In Milroy v Lord (1862) 4 De G F & J 264, it was established that equity will not perfect an imperfect gift. If the settlor intends to transfer legal title to the trustee but fails to do so, the court will not treat it as a self-declaration of trust.
Transfer of Property to Trustees
Alternatively, the settlor can constitute the trust by transferring the legal title of the trust property to the trustees. The method of transfer depends on the nature of the property and must comply with the legal requirements for transferring that type of asset.
In Re Rose [1952] Ch 499, the court held that if the settlor has done everything within their power to transfer the property, equity will consider the transfer effective even if legal formalities are not completely finalized.
Visualize handing over the keys to a house; if all necessary steps to transfer ownership have been taken, the recipient can be regarded as the owner in equity, even if some administrative tasks remain.
Landmark Case Law: Exploring Trust Formation Complexities
Choithram International SA v Pagarani [2001] 1 WLR 1
This Privy Council case discussed the complications arising when a settlor declares a trust but does not complete the formal transfer of assets to all the trustees.
The court held that where a settlor is one of several trustees and declares a trust, the trust is constituted even if the legal title is not transferred to the other trustees. This decision demonstrates the court's willingness to uphold a trust where the settlor's intention is clear, and it would be unconscionable not to enforce it.
Practical Scenarios and Applications
Scenario 1: Family Trust Complexity
Consider Sarah, who wishes to create a trust for her relatives, including current and future family members. She intends the trust to cover various assets, such as real estate, shares, and future acquisitions.
Analysis:
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Certainty of Intention: Sarah must clearly express her intention to create a trust, perhaps by explicitly stating, "I declare that I hold these assets on trust for my relatives."
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Certainty of Subject Matter: The assets must be precisely identified. Including future assets presents challenges, as property not yet owned cannot typically form part of the trust.
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Certainty of Objects: The beneficiaries must be clearly defined. A class described as "relatives" may be too broad unless further specified, such as "my siblings and their descendants."
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Statutory Formalities: If the trust includes land, written documentation complying with Section 53(1)(b) of the Law of Property Act 1925 is necessary.
Scenario 2: Corporate Trust Structure
A multinational corporation desires to establish an employee benefit trust, appointing trustees in various jurisdictions.
Analysis:
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Certainty of Intention: The corporation must evidence a clear intention to create the trust, perhaps through a formal resolution by the board of directors.
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Certainty of Subject Matter: The assets to be held in trust, such as shares or funds, must be clearly identified.
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Certainty of Objects: The class of beneficiaries—employees—must be sufficiently certain. Defining "employees" as those currently employed by the company at a specific date can provide clarity.
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Statutory Formalities: Compliance with formalities in each relevant jurisdiction is required, including adherence to any local laws governing trusts and property transfers.
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Case Law Considerations: Cross-border trusts may raise additional complexities, necessitating careful consideration of conflicts of law and the applicability of foreign trust legislation.
Conclusion
The constitution of express inter vivos trusts involves a complex interplay of legal principles and statutory requirements. The most challenging aspect often arises in satisfying the three certainties—intention, subject matter, and objects—each of which must be precisely established to form a valid trust. Cases like Knight v Knight and McPhail v Doulton illustrate how these principles have been interpreted and applied by the courts, highlighting the necessity of clear intent, well-defined assets, and identifiable beneficiaries.
Understanding how these elements interact is essential. For instance, a failure in the certainty of subject matter can nullify the trust, regardless of the settlor's clear intention. The statutory formalities, particularly for trusts involving land or created by will, impose additional layers of requirements that must be meticulously followed to ensure the trust's validity.
Technical examples, such as the principle from Re Rose on imperfect transfers and the rulings in Hodgson v Marks and Choithram v Pagarani, demonstrate how equity intervenes to uphold or invalidate trusts based on compliance with these core principles. Practitioners must manage these challenges with precision, ensuring that each requirement is met to effectuate the settlor's intentions and establish a legally enforceable trust.
