Creation and requirements of express trusts - Treatment of parts of groups of things

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Overview

Creating and managing express trusts, particularly those involving grouped assets, is vital for the SQE1 FLK2 exam. This topic connects key principles of equity and trust law and requires a clear understanding of the three certainties, asset allocation, and balancing settlor intentions with legal requirements. These concepts are necessary for both exam success and effective practice in trust law.

The Three Certainties: Core of Express Trusts

The doctrine of the three certainties, established in Knight v Knight (1840) 3 Beav 148, forms the core framework for creating valid express trusts. Each certainty must be clearly satisfied to ensure the trust's validity and enforceability.

1. Certainty of Intention

The settlor's intent to create a trust must be clear and demonstrable, not just mere expressions of hope or desire.

Key considerations:

  • Express words aren't always required; actions can imply intent (Paul v Constance [1977] 1 WLR 527)
  • Precatory words may fall short (Lambe v Eames (1871) LR 6 Ch App 597)
  • Courts consider the entire context to determine intention (Milroy v Lord (1862) 4 De GF & J 264)

2. Certainty of Subject Matter

The trust property must be identified clearly. This becomes particularly significant when dealing with parts of asset groups.

Key principles:

  • Trust property must be separate from personal assets (Re London Wine Co (Shippers) Ltd [1986] PCC 121)
  • For fungible assets, clear designation is necessary (Hunter v Moss [1994] 1 WLR 452)

3. Certainty of Objects

The beneficiaries or class of beneficiaries must be identifiable. This varies between fixed and discretionary trusts.

Distinctions:

  • Fixed trusts require identifiable individuals (IRC v Broadway Cottages Trust [1955] Ch 20)
  • Discretionary trusts need a conceptually certain class (McPhail v Doulton [1971] AC 424)

Handling Grouped Assets in Trusts

Managing parts of asset groups in trusts presents challenges, particularly ensuring the certainty of subject matter. This requires precise drafting to maintain trust validity.

Tangible vs. Intangible Assets

Approaches differ based on asset nature:

  1. Tangible Assets: Require physical separation (Re London Wine Co)

    • Example: A trust of "100 bottles from my wine cellar" would need specific identification
  2. Intangible Assets: Physical separation may not be needed (Hunter v Moss)

    • Example: A trust of "5% of my shares in XYZ Ltd" can be valid without specific share certificates

The Hunter v Moss Principle and Its Limits

Hunter v Moss [1994] 1 WLR 452 established that, for shares, specific separation might not be necessary. However, it has limitations:

  • Primarily applies to intangible assets
  • Not always applicable to all fungible goods
  • Still subject to debate

Practical Considerations in Asset Allocation

When dealing with asset groups in trusts, consider:

  1. Clear identification methods (e.g., catalogues, registers)
  2. Regular audits for assurance
  3. Documenting changes to trust assets
  4. Protocols for managing fungible assets

Administrative Aspects of Express Trusts

Beyond the three certainties, administrative factors are essential for trust validity, especially with complex assets.

Administrative Workability

Trusts must be workable to be valid. This principle, from McPhail v Doulton, is critical for discretionary trusts with large or vague classes.

Key aspects:

  • Beneficiary classes must not be too large to manage
  • Trustees need clarity in beneficiary selection

Example: A trust for "all the poor of London" might be unworkable due to size and vagueness.

Capriciousness and Trust Purposes

Trusts need rational, coherent purposes to avoid capriciousness.

Key principles:

  • Trust purposes should offer tangible benefits
  • Arbitrary aims may render a trust invalid

Case study: In Re Astor's Settlement Trusts [1952] Ch 534, a vague trust for national benefit was rejected.

Practical Applications and Case Law Analysis

Case Study: The Art Collection Trust

Scenario: A philanthropist wants to create a trust with "half of my art collection" to support local museums.

Analysis:

  1. Certainty of intention: Clear if expressed in the trust deed
  2. Certainty of subject matter: Needs specific identification
  3. Certainty of objects: Clear if "local museums" are defined
  4. Administrative considerations: Workable if the collection and museums are manageable

Solutions:

  • Detailed catalog of artworks
  • Criteria for selecting changing artworks
  • Define "local museums" specifically

Changing Jurisprudence: Recent Developments

Recent cases have refined trust principles:

  1. Re Lehman Brothers International (Europe) (In Administration) [2012] EWHC 2997 (Ch): Explored Hunter v Moss for client funds in accounts
  2. Akers v Samba Financial Group [2017] UKSC 6: Tackled certainty with foreign law and equitable interests

Conclusion

Understanding the creation and requirements of express trusts, especially with grouped assets, is essential for the SQE1 FLK2 exam. Key points to remember:

  1. The three certainties (intention, subject matter, objects) are essential.
  2. Managing grouped assets requires careful consideration of asset type and identification.
  3. The Hunter v Moss principle provides flexibility for intangibles but has limitations.
  4. Administrative workability and avoiding capriciousness are essential.
  5. Recent case law continues refining trust principles, especially in complex cases.

By understanding these concepts and applications, candidates will be prepared to tackle advanced trust law scenarios in exams and professional settings.