Introduction
An express trust is a legal arrangement where a settlor consciously creates a fiduciary relationship, transferring assets to a trustee to hold for the benefit of designated beneficiaries. Establishing a valid express trust under English law requires adherence to the three certainties: intention, subject matter, and objects. Furthermore, the beneficiary principle ensures that there are identifiable beneficiaries who can enforce the trust, while the rule against perpetuities restricts the duration over which trust property can be bound. This article examines these fundamental components necessary for understanding and creating valid express trusts.
The Three Certainties: Basis of a Valid Trust
Creating a valid express trust hinges on fulfilling the three certainties: intention, subject matter, and objects. Established in Knight v Knight (1840), these principles ensure the settlor's desires are both transparent and actionable, akin to a meticulously crafted blueprint guiding a trust's execution.
1. Certainty of Intention
A critical aspect is the settlor's intention to establish a trust, thereby instituting a binding obligation on the trustee. This intention is evaluated objectively by examining the settlor's words and conduct.
Main points:
- Words rooted merely in hope or general wishes typically fall short.
- The core of the arrangement carries more weight than its form.
- Although specific language isn't mandated, clarity in intention is essential.
Case law:
- Knight v Knight (1840): Established the requirement for intent.
- Paul v Constance [1977]: Demonstrated inference of intention through conduct.
Example: A settlor declaring, "I wish to leave all my shares in Acme Corporation to my daughter, Sarah, to be held in trust for her children," unequivocally signifies an intention to establish a trust.
2. Certainty of Subject Matter
The trust assets must be distinctly delineated to enable trustees to discharge their obligations effectively. Both the assets and the beneficiaries' interests should be certain—a notion somewhat akin to determining the rightful pieces of a jigsaw puzzle before beginning the assembly.
Considerations:
- Precise property descriptions are essential.
- Assets must be identifiable and distinguishable.
- Covers both tangible and intangible assets.
Case law:
- Palmer v Simmonds (1854): Highlighted issues with vague asset descriptions.
- Hunter v Moss [1994]: Tackled the challenge of intangible property.
Example: Declaring, "I give the bulk of my estate to my son, John, to hold in trust for his children," falters due to the vagueness of the term "bulk."
3. Certainty of Objects
Beneficiaries need to be clearly identifiable to guarantee appropriate asset distribution.
Approaches:
- Fixed trusts require a complete list of beneficiaries.
- Conceptual certainty employs distinct descriptions.
- Discretionary trusts require a clearly defined class of beneficiaries.
Case law:
- McPhail v Doulton [1971]: Established criteria for object certainty in discretionary trusts.
- Re Gulbenkian's Settlements [1970]: Applied these criteria to powers of appointment.
Example: The assertion, "I give my entire estate to my trustee to hold for my 'dear friends'," fails due to ambiguity in identifying the beneficiaries.
The Beneficiary Principle: Ensuring Enforceability
The beneficiary principle mandates that a trust must have identifiable beneficiaries who can enforce the trust's terms, ensuring vested interests are tangible.
Main aspects:
- Trusts generally require human beneficiaries.
- Charitable trusts and certain purpose trusts are exceptions.
Case law:
- Morice v Bishop of Durham (1804): Cemented the beneficiary principle.
- Re Denley's Trust Deed [1969]: Described exceptions where non-charitable purpose trusts can be valid if there are ascertainable beneficiaries.
Analogy: The Beneficiary Principle
Consider the beneficiaries as shareholders in a company, whose rights and interests ensure that the company's decisions align with their expectations. Without these stakeholders, there would be no mechanism to ensure adherence to the company's mission.
The Rule Against Perpetuities: Limiting Trust Duration
The rule against perpetuities restricts the duration over which property interests can be bound, ensuring that property remains transferable and does not remain inalienable indefinitely.
Principles:
- Legal interests must vest, if at all, within a prescribed timeframe.
- Under the Perpetuities and Accumulations Act 2009, the permissible period is generally 125 years for instruments made on or after 6 April 2010.
Case law:
- Re Kelly [1932]: Determined that a "life in being" must be a human life.
- Re Hastings-Bass [1975]: Addressed trustees' powers in the context of the rule.
Failure to comply with the rule against perpetuities can render certain trusts or dispositions void. When drafting trusts, it is necessary to ensure that beneficiary interests vest within the allowed period to uphold the validity of the trust.
Practical Applications
In drafting trust documents, it is important to consider the following points:
- Clear Language: Employ precise terms to express the settlor's intentions.
- Defining Assets: Clearly identify and specify the trust property.
- Identifying Beneficiaries: Specify beneficiaries with certainty to satisfy the beneficiary principle.
- Complying with the Rule Against Perpetuities: Ensure that interests vest within the permissible period.
Advanced Scenarios
Complex Discretionary Trusts
Crafting instruments for "descendants who achieve academically" challenges the understanding of discretionary trust objects and the requirement for certainty of objects.
Purpose Trusts
Establishing a trust for "maintaining my rare book collection" highlights specific considerations and exceptions related to purpose trusts, which typically lack beneficiaries but may be upheld under certain conditions.
Commercial Contexts
Handling employee benefit trusts or pension schemes that extend beyond conventional periods showcases the application of modern trust law in commercial settings, necessitating careful consideration of perpetuity rules.
Conclusion
Understanding the rule against perpetuities is fundamental to ensure the validity of long-term trusts by preventing property interests from being perpetually inalienable. This rule interacts closely with the beneficiary principle, which demands identifiable beneficiaries capable of enforcing the trust. Coupled with the essential three certainties—intention, subject matter, and objects—these principles collectively ensure that an express trust is valid and enforceable under English law. As demonstrated in cases such as Knight v Knight (1840) and McPhail v Doulton [1971], the correct application of these doctrines is essential. Drafting a valid express trust, therefore, requires meticulous attention to these concepts to ensure legal enforceability and the intended allocation of assets.
