The Three Certainties in Trust Law: A Comprehensive Guide

The three certainties are essential elements for establishing a valid trust. As declared in the landmark case of Knight v Knight, these certainties are: certainty of words (intention), certainty of subject matter, and certainty of objects. These principles ensure that trusts are created with clarity and enforceability, safeguarding the interests of both the settlor and the beneficiaries. Trusts are commonly employed in modern law to protect family assets and manage property ownership within family agreements, either during an individual’s lifetime or after their death.

To create a valid trust, the settlor must express a clear intention to create a trust. This intention must be more than just a wish or a hope; it must be a binding obligation. Case law, including Lamb v Evans, Comiskey v Bowring, and Paul v Constance, demonstrates that an outright gift is generally presumed unless a trust is explicitly intended. In Re Hamilton, Lindley LJ emphasized the importance of examining the settlor’s words in context to determine their true meaning and ascertain whether a trust was intended. This case-by-case approach highlights the absence of rigid rules in determining whether specific words create a gift or a trust. The test for certainty of intention is subjective, focusing on the settlor’s actual intention as derived from the totality of their words, rather than isolated terms. If certainty of intention cannot be established, the arrangement will not be recognized as a trust, and the property will usually revert to the settlor through a resulting trust.

Certainty of subject matter requires that the property to be held on trust be clearly and precisely identified. The settlor must have ownership of the property at the time of creating the trust. If the subject matter is uncertain, it can impact the determination of certainty of intention. Re London Wine exemplifies a case where uncertainty of subject matter arose because the specific property intended to be held on trust could not be ascertained. Two main outcomes can result from a lack of certainty of subject matter. Firstly, as seen in Sprange v Bernard, the intended gift may become an absolute gift to the intended trustee, effectively bypassing the trust and giving the property outright to the person who was supposed to be merely a trustee. Secondly, the gift may fail entirely, reverting back to the settlor’s estate as a resulting trust. In the context of chattels, Palmer v Simmonds established that a trust will not be created if the specific property is not identifiable. The court held that the term ‘bulk,’ used to describe a portion of the estate, was too broad to establish certainty of subject matter. Difficulties can also arise in determining how property should be divided among beneficiaries, as illustrated in Re Golay’s Will Trust. However, the court in that case deemed the phrase ‘a reasonable income’ to be sufficiently certain as it was objectively definable. The case of Re London Wine further highlights that if the trust property is selected from non-interchangeable assets (e.g., unique items like paintings), the specific items intended for the trust must be identifiable. Conversely, if the property consists of interchangeable assets (e.g., shares of the same class), Hunter v Moss confirms that the subject matter will be sufficiently certain.

Certainty of objects requires that the beneficiaries of the trust, or the objects of the trust’s purpose, be clearly identifiable. Lord Denning, in Re Vandervells Trust (No 2), emphasized that a trust must clearly identify its beneficiaries; otherwise, it will be void for uncertainty of objects, and the property will return to the donor. Different types of trusts have different rules regarding certainty of objects. In a fixed trust, the trust document explicitly states each beneficiary’s share of the trust property. IRC v Broadway Cottages established that for a fixed trust to be valid, the trustees must be able to compile a complete list of all beneficiaries. This underscores the requirement for clear identification of beneficiaries, regardless of their location or even if their whereabouts are unknown. In contrast, a discretionary trust allows the settlor to define a class of potential beneficiaries, leaving the ultimate selection to the trustees. The landmark case of McPhail v Doulton prompted a significant shift in the approach to certainty of objects for discretionary trusts. The House of Lords, recognizing that the existing test for certainty of objects in trusts was stricter than that for powers of appointment, adopted the ‘any given postulant test.’ This test, derived from Re Gulbenkian’s Settlements, states that a power is valid if it can be determined with certainty whether any given individual is or is not a member of the class intended to benefit. The Court of Appeal, in Re Baden’s Deed Trusts (No 2), further clarified this test by distinguishing between conceptual certainty (clarity of the class definition) and evidential certainty (ability to prove whether an individual falls within the class). If a trust fails for uncertainty of objects, the trustee cannot take possession of the property, and it will be held on resulting trust for the settlor.