The three certainties of a valid trust

The three main certainties refer to a rule which was stated in the UK case of Knight vs Knight. Lord Langd
ale was the first who conceptualised the idea of the three certainties. The case stated that for an express t
rust to be valid, the trust instrument must show certainty of intention, certainty of subject matter and certai
nty of objects.

Certainty of intention
Certainty of intention is also known as certainty of words. This means that it must be clear that the settlor
wishes to create a trust; independently from any particular language used. Looking at Re Kayford (1975),
Megarry J said that, “the question is whether in substance a sufficient intention to create a trust has been
manifested”. Kayford Ltd had disposed customer’s money into a separate bank account. Although not con
clusive, it was held as an indication that there was an intention to create a trust. Words were necessary fo
r the conclusion of this case because a trust was held on the basis of conversations between the compan
y’s managing director, accountant and manager.

However, in contrast to this case, the word ‘trust’ may not be a conclusive evidence of the existence of a
Trust. In the leading case Re Adams & Kensington v Vestry (1883), the testator said: “I give, devise, and
bequeath all my real and personal estate…unto…my wife…in full confidence that she will do what is right
as to the disposal thereof between my children”. Even though the words “in full confidence” were used, it
does not give rise to legal obligation. Hence, in this case there is no trust.

Looking at past court decisions, one could note the emphasis made on the words used to create a trust. T
hese must make it plain that ultimately there was an intention to create a trust. Today, in most instances, t
rust documents are drafted by professionals and one would hope that these should not present any difficu
lty to show certainty of intention.

Certainty of subject matter

The property subject to the trust must be clearly identified. There are two aspects to this requirement that
include the certainty as to what property is to be held upon trust and the certainty as to the extent of the b
eneficial interest of each beneficiary (Norson B Harris 2003). The former is necessary because a trustee
must know what is and what is not included in the trust. It is also essential that the trustee knows what or
how much each beneficiary will be entitled to and what income should be accumulated for the beneficiary.

In the court case Palmer v. Simmonds (1854) it was held that the phrase “the bulk of my residuary estate”
was not certain enough for a trust relationship to subsist. However in another case Re Golay (1965), the
statement “one of my flats and a reasonable income” was enough certain to constitute trust. When it com
es to distinguishing trust property from other assets, the courts have dealt with this according to the natur
e of the subject-matter involved. In Re Goldcorp (1995) the court held that the subject-matter in the trust
was not separate form other assets and so the trust was not valid. On the other hand, in Hunter vs Moss (
1993) it was held that even though the assets (which were fungibles or incorporeal) are not separate, this
does not hinder the constitution of a valid trust.

Certainty of object
This relates to the idea that there must be, in general, a person or persons entitled to the benefit of the tru
st. Such beneficiaries must be clearly identified or at least ascertainable. The test for determining this dep
ends on the type of trust being created. This beneficiary principle in fact is inapplicable to charitable trusts
. Alternatively, beneficiaries may include people not born at the date of the trust (for example, “my future g
randchildren”).

In the case of discretionary trusts, where the trustees have power to decide who the beneficiaries will be, t
he settlor must have described a clear class of beneficiaries. In the court case McPhail v Doulton (1971) it
was established that in the case of a discretionary trust, there is certainty of object if you can determine w
hether any given person is a beneficiary or not. The words used in this case were “my relatives and depe
ndants of staff”. The Court held that there was conceptual certainty. However, one may note that in Brown
 vs Gould (1972) the words “my old friends” lacked precise definition and so the court held that there was
no certainty of objects. In a fixed trust, the trustee has no discretion of how to delegate trust property and t
herefore the class of beneficiaries must be known or else the trust will fail. Objects here may be described
as a class for example “my children”. When the validity of the trust is impeached because of lack of certai
nty of objects, the trustee will hold the assets on trust for the benefit of the settlor and his heirs.

The Effect of Uncertainty

If there is no certainty of intention, the transferee will take the property outright. If there is a lack of certaint
y of subject matter, then the whole transaction is ineffective (with the result of course, that the potential tra
nsferor remains liable for tax purposes). If there is no certainty of objects then the trustee will hold on a re
sulting trust for the transferor, or if he is dead, his estate (Trusts Law and Management, 2008).