Trusts Law
Types of trusts
Express trusts Trusts that are deliberately created - they arise in response to a
person’s intention to create it
Parties are: settlor, trustee and beneficiary/beneficiaries
Resulting trusts Arise where a legal owner has transferred ownership of their property
to a third party but, for whatever reason, equity recognises that the
transferor should retain the beneficial interest in that property.
Constructive trusts Arise to correct unconscionability
Fixed trust The trustee knows exactly what they need to give each beneficiary
Discretionary trust The trustee knows who the potential beneficiaries are, but has the
power to determine who benefits and in what shares.
Bare trusts Involves the trustee simply holding legal title on trust for the sole
benefit of a beneficiary
● Trustee has no discretion and no active management duties -
they are just required to follow the instructions of beneficiaries
Creation and requirements of express trusts
Methods of creating express trusts
Self-declaration of trust Requires the settlor to manifest an intention to hold one of their
assets on trust for the beneficiary
● Once the trust has been created, the settlor remains the legal
owner of the asset but is divested of their beneficial interest in it
○ Change of ONLY EQUITABLE title happens here
Transfer on trust Requires the settlor to transfer the asset to a third party and to
manifest an intention that the third party should hold it on trust for
the beneficiary
● Trustee becomes the legal owner of the property, and a new
equitable interest is created for the beneficiary
○ Change of both LEGAL and EQUITABLE title happens
here
Types of transfer on trust ● Transfer on trust for a third party
○ Trustee holds the property for another beneficiary
○ The settlor has no interest in the property at all
● Transfer on trust for the settlor
○ Trustee holds the property for the settlor, who is now the
beneficiary
○ Settlor parts with legal title, but retains their beneficial
interest
The 3 certainties To create a valid express trust, the following is required:
● Certainty of intention
, ● Certainty of subject matter
● Certainty of objects
Certainty of intention
Outline The trust arrangement is as intended, as opposed to some other
arrangement (gift, loan etc)
Required intention Intention to impose or assume the duty which is characteristic of a
trust - the duty to hold the property for the beneficiary
Example: giving property expressing a ‘desire’ to make provision for
someone else is NOT sufficient certainty of intention
Ascertaining intention Through express words or conduct - the court takes an objective
approach
● So if someone manifests an intention to assume/impose the
duties characteristic of a trust, they intend to create a trust.
○ It does not matter if they didn’t subjectively intend to
create one
Ascertaining intention Determined using the natural and ordinary meaning of the words
through written words used
● Generally, use of the word ‘trust’ is sufficient
○ But the absence of it is not determinative
Segregation of assets Segregation or earmarking of assets into a separate account is often
good evidence of an intention to create a trust, but it is not necessary or
conclusive evidence that a trust is intended.
Case law examples ● ‘This money is as much yours as it is mine’
○ Trust recognised
● Testator gave all his property to his wife ‘feeling confident
that she will act justly to our children’
○ No trust recognised
○ This will just be a gift and the person who has the
property transferred to them will have legal title over the
property
● Consultant told company to open a separate bank account
called the ‘Customers’ Trust Deposit Account’ and pay into
it any further payments received from customers to ensure
that if the company went into liquidation, it would be able to
refund customers
○ Trust recognised with company being beneficiary
○ Consultant may not just be trustee but also bailee (if
possession, but not title is transferred) and agent too (if
acting on behalf of a company)
Certainty of subject matter
Outline It must be possible to identify the trust property, and identify the
beneficiary’s interest in the trust property (the latter also being
called the beneficial entitlement)
The trust property Usually only an issue where the property is identified by description, or
,requirement the settlor attempts to create a trust of a small number of items from a
larger group
Identifying subject matter Where trust property is identified by description, the trust will fail
by description for uncertainty if it is not possible to ascertain the property from the
description
● Example: ‘the bulk of my residuary estate’ is not sufficiently
certain
● Example: ‘net assets’ is not sufficiently certain
Identifying subject of a Generally, shares expressed as a PERCENTAGE are sufficiently
larger mass certain
Only if the shares are identical and of identical class
Tangible and fungible Fungible assets: ones that are readily exchangeable, like ordinary
assets shares
Non-fungible assets: e.g. diamonds, which differ in cut, clarity etc so
will not be interchangeable as they are not worth the same
The bulk must comprise of identical assets in order for the trust to
be valid
● If the trust is fungible and intangible, the trust is valid
● If the trust is tangible but non-fungible, the trust is void for
uncertainty
● If the trust is fungible and tangible, it still fails for uncertainty
even if they appear to be identical (known as chattels)
○ E.g. case about the bottles of wine
○ E.g. gold bars not segregated or earmarked
● If the trust is tangible and non-fungible, the trust is void
The beneficial entitlement A trust will fail for certainty if the beneficial entitlement is not
requirement sufficiently certain
● A discretionary trust will also fail if the person who determines
entitlement dies before they are able to make that determination
E.g. if one beneficiary has to pick from assets first but
then dies, second beneficiary cannot take choice from
assets but trust instead FAILS
Examples ● Paying a ‘reasonable income’ to a beneficiary was
SUFFICIENTLY CERTAIN
● Declaring a trust for 50 out of 950 shares was valid
Certainty of objects
Outline It must be possible to identify the beneficiaries of the trust (or the
purpose of the trust if it is a purpose trust).
Fixed trusts Specified individuals = ascertainability/complete list test
Trust can fail if specific person is not ascertained e.g. 2 cousins
named John and no further evidence
If there is uncertainty as to the identity of one or more beneficiaries
of a fixed trust, it will not necessarily fail completely.
● if the identifiable beneficiaries have a beneficial entitlement
which is not dependent on the entitlement of the uncertain
, beneficiaries they can still take their interests
○ e.g. a trust to the settlor’s wife for life, and remainder to
their ‘favourite daughter’. The lack of certainty will not
prevent the wife from taking the life interest → only part
of the trust will fail.
Class closing rules NOTE that these only come into effect when the will/trust
instrument does not provide for this already
● Complete list test: it must be possible to draw up a list of all the
beneficiaries
Conceptual and evidential ● Conceptual certainty: the precision of language used by the
certainty: settlor to define the class they intend to benefit
○ E.g. does the class ‘my parents’ only include biological
parents?
● Evidential certainty: the extent to which the evidence in a
particular case enables the trustees to identify the objects of a
trust
○ E.g. once the class of 'my parents' has been held to be
conceptually certain, do I have the necessary evidence
to know who my parents are
○ The most pragmatic approach should be taken
Powers of appointment Powers are discretionary, but when they are exercised the holder of
the power needs to be able to identify who falls within the class
● ‘is/is not test’: requires the trustee to say with certainty whether
‘any given individual is or is not a member of the class’
● Size of class will not make a POA void unlike discretionary
trust
Discretionary trusts ‘Is/is not/ test also applicable here, and conceptual certainty is still
needed.
Applying the is/is not test:
● Employees: is conceptually certain
● Children: is conceptually certain
● Friends and relatives: is not conceptually certain
A discretionary trust is void if the class is ‘so hopelessly wide as not to
form anything like a class and the trust is administratively unworkable
● E.g. ‘all the residents in London’
For discretionary trusts, it is not necessary to draw up a complete
list of beneficiaries.
Duty of the trustees here is to distribute to the objects, but at their
discretion
Consequences of For lifetime trusts:
uncertainty ● If the legal title has not yet been transferred
○ No change in beneficial ownership occurs unless all 3
certainties are satisfied
● If the legal title has been transferred
○ If there is no CERTAINTY OF INTENTION, the
presumption of a resulting trust applies (see below)
Types of trusts
Express trusts Trusts that are deliberately created - they arise in response to a
person’s intention to create it
Parties are: settlor, trustee and beneficiary/beneficiaries
Resulting trusts Arise where a legal owner has transferred ownership of their property
to a third party but, for whatever reason, equity recognises that the
transferor should retain the beneficial interest in that property.
Constructive trusts Arise to correct unconscionability
Fixed trust The trustee knows exactly what they need to give each beneficiary
Discretionary trust The trustee knows who the potential beneficiaries are, but has the
power to determine who benefits and in what shares.
Bare trusts Involves the trustee simply holding legal title on trust for the sole
benefit of a beneficiary
● Trustee has no discretion and no active management duties -
they are just required to follow the instructions of beneficiaries
Creation and requirements of express trusts
Methods of creating express trusts
Self-declaration of trust Requires the settlor to manifest an intention to hold one of their
assets on trust for the beneficiary
● Once the trust has been created, the settlor remains the legal
owner of the asset but is divested of their beneficial interest in it
○ Change of ONLY EQUITABLE title happens here
Transfer on trust Requires the settlor to transfer the asset to a third party and to
manifest an intention that the third party should hold it on trust for
the beneficiary
● Trustee becomes the legal owner of the property, and a new
equitable interest is created for the beneficiary
○ Change of both LEGAL and EQUITABLE title happens
here
Types of transfer on trust ● Transfer on trust for a third party
○ Trustee holds the property for another beneficiary
○ The settlor has no interest in the property at all
● Transfer on trust for the settlor
○ Trustee holds the property for the settlor, who is now the
beneficiary
○ Settlor parts with legal title, but retains their beneficial
interest
The 3 certainties To create a valid express trust, the following is required:
● Certainty of intention
, ● Certainty of subject matter
● Certainty of objects
Certainty of intention
Outline The trust arrangement is as intended, as opposed to some other
arrangement (gift, loan etc)
Required intention Intention to impose or assume the duty which is characteristic of a
trust - the duty to hold the property for the beneficiary
Example: giving property expressing a ‘desire’ to make provision for
someone else is NOT sufficient certainty of intention
Ascertaining intention Through express words or conduct - the court takes an objective
approach
● So if someone manifests an intention to assume/impose the
duties characteristic of a trust, they intend to create a trust.
○ It does not matter if they didn’t subjectively intend to
create one
Ascertaining intention Determined using the natural and ordinary meaning of the words
through written words used
● Generally, use of the word ‘trust’ is sufficient
○ But the absence of it is not determinative
Segregation of assets Segregation or earmarking of assets into a separate account is often
good evidence of an intention to create a trust, but it is not necessary or
conclusive evidence that a trust is intended.
Case law examples ● ‘This money is as much yours as it is mine’
○ Trust recognised
● Testator gave all his property to his wife ‘feeling confident
that she will act justly to our children’
○ No trust recognised
○ This will just be a gift and the person who has the
property transferred to them will have legal title over the
property
● Consultant told company to open a separate bank account
called the ‘Customers’ Trust Deposit Account’ and pay into
it any further payments received from customers to ensure
that if the company went into liquidation, it would be able to
refund customers
○ Trust recognised with company being beneficiary
○ Consultant may not just be trustee but also bailee (if
possession, but not title is transferred) and agent too (if
acting on behalf of a company)
Certainty of subject matter
Outline It must be possible to identify the trust property, and identify the
beneficiary’s interest in the trust property (the latter also being
called the beneficial entitlement)
The trust property Usually only an issue where the property is identified by description, or
,requirement the settlor attempts to create a trust of a small number of items from a
larger group
Identifying subject matter Where trust property is identified by description, the trust will fail
by description for uncertainty if it is not possible to ascertain the property from the
description
● Example: ‘the bulk of my residuary estate’ is not sufficiently
certain
● Example: ‘net assets’ is not sufficiently certain
Identifying subject of a Generally, shares expressed as a PERCENTAGE are sufficiently
larger mass certain
Only if the shares are identical and of identical class
Tangible and fungible Fungible assets: ones that are readily exchangeable, like ordinary
assets shares
Non-fungible assets: e.g. diamonds, which differ in cut, clarity etc so
will not be interchangeable as they are not worth the same
The bulk must comprise of identical assets in order for the trust to
be valid
● If the trust is fungible and intangible, the trust is valid
● If the trust is tangible but non-fungible, the trust is void for
uncertainty
● If the trust is fungible and tangible, it still fails for uncertainty
even if they appear to be identical (known as chattels)
○ E.g. case about the bottles of wine
○ E.g. gold bars not segregated or earmarked
● If the trust is tangible and non-fungible, the trust is void
The beneficial entitlement A trust will fail for certainty if the beneficial entitlement is not
requirement sufficiently certain
● A discretionary trust will also fail if the person who determines
entitlement dies before they are able to make that determination
E.g. if one beneficiary has to pick from assets first but
then dies, second beneficiary cannot take choice from
assets but trust instead FAILS
Examples ● Paying a ‘reasonable income’ to a beneficiary was
SUFFICIENTLY CERTAIN
● Declaring a trust for 50 out of 950 shares was valid
Certainty of objects
Outline It must be possible to identify the beneficiaries of the trust (or the
purpose of the trust if it is a purpose trust).
Fixed trusts Specified individuals = ascertainability/complete list test
Trust can fail if specific person is not ascertained e.g. 2 cousins
named John and no further evidence
If there is uncertainty as to the identity of one or more beneficiaries
of a fixed trust, it will not necessarily fail completely.
● if the identifiable beneficiaries have a beneficial entitlement
which is not dependent on the entitlement of the uncertain
, beneficiaries they can still take their interests
○ e.g. a trust to the settlor’s wife for life, and remainder to
their ‘favourite daughter’. The lack of certainty will not
prevent the wife from taking the life interest → only part
of the trust will fail.
Class closing rules NOTE that these only come into effect when the will/trust
instrument does not provide for this already
● Complete list test: it must be possible to draw up a list of all the
beneficiaries
Conceptual and evidential ● Conceptual certainty: the precision of language used by the
certainty: settlor to define the class they intend to benefit
○ E.g. does the class ‘my parents’ only include biological
parents?
● Evidential certainty: the extent to which the evidence in a
particular case enables the trustees to identify the objects of a
trust
○ E.g. once the class of 'my parents' has been held to be
conceptually certain, do I have the necessary evidence
to know who my parents are
○ The most pragmatic approach should be taken
Powers of appointment Powers are discretionary, but when they are exercised the holder of
the power needs to be able to identify who falls within the class
● ‘is/is not test’: requires the trustee to say with certainty whether
‘any given individual is or is not a member of the class’
● Size of class will not make a POA void unlike discretionary
trust
Discretionary trusts ‘Is/is not/ test also applicable here, and conceptual certainty is still
needed.
Applying the is/is not test:
● Employees: is conceptually certain
● Children: is conceptually certain
● Friends and relatives: is not conceptually certain
A discretionary trust is void if the class is ‘so hopelessly wide as not to
form anything like a class and the trust is administratively unworkable
● E.g. ‘all the residents in London’
For discretionary trusts, it is not necessary to draw up a complete
list of beneficiaries.
Duty of the trustees here is to distribute to the objects, but at their
discretion
Consequences of For lifetime trusts:
uncertainty ● If the legal title has not yet been transferred
○ No change in beneficial ownership occurs unless all 3
certainties are satisfied
● If the legal title has been transferred
○ If there is no CERTAINTY OF INTENTION, the
presumption of a resulting trust applies (see below)
