The three certainties
In Knight v Knight (1840), Lord Langdale MR outlined the three legal ‘certainties’ which are essential for the establishment of a valid express trust. These are:
- certainty of intention (there must be intention to create a trust);
- certainty of subject matter (the assets which are to form part of the trust fund must be readily recognisable);
- certainty of objects (the beneficiaries to whom the trustees owe a duty must be readily identifiable).
Certainty of intention
There can be no express trust without the intention to create such a trust. The most obvious way to show intention is to put in writing that both parties clearly intend to create a trust. If the word ‘trust’ is placed in the agreement this is an indicator that the intention is present (Re Harrison (2005)), but as the court held in Kinloch v Secretary of State for India (1882), there is no magic in the use of the word ‘trust’. The test is whether the settlor intended to impose a legally binding obligation on the trustee to hold and manage the property on behalf of intended beneficiary.
Imperative and precatory words
Since Lambe v Eames (1871), a distinction has been drawn between imperative words which stipulate a command, a duty to carry out something. Use of these words indicate that a trust is intended.
This can be contrasted with precatory words which are those of expectation, of hope and desire, but vague in the sense that they are not definitive in explaining how the donee should deal with testator’s property. If, for example, it was stated that, ‘I hope the property should be used in a particular manner’ or ‘I have every confidence the property will be used in this way’, there is no exact intention expressed and it could rise to a different meaning.
Use of such words typically indicates that a gift is intended. An intention to impose a binding trust will not usually be found. The courts, however, have said that if the instrument as a whole suggests a trust instead of a gift, they will allow precatory words to form a trust in these circumstances (Staden v Jones (2008)).
Equity will not ‘perfect an imperfect gift’ by creating a trust
In Jones v Lock (1865) a father placed a £900 cheque made out to himself in the cot of his child stating ‘I give this to baby for himself’. A few days later, Mr Roberts died. It was argued that Mr Roberts’ actions amounted to self-declaration of trust. However, because he had not endorsed the cheque to his son it amounted to a one-off declaration and was not enough to prove he intended to give the baby the money for himself.
Creation of trust by conduct
In Paul v Constance (1977), the court held that an intention to create a trust can be inferred from the donor’s actions. In this case, Mr C was separated from his wife (but not divorced). He had arranged for his new partner, Mrs P to withdraw money from his bank account with his permission. They had paid some joint winnings into the account and he often told Mrs P that the money was ‘as much yours as mine’. It was held these actions and his words were enough to infer that Mr C had made a declaration of trust of the money in the account and Mrs P was therefore entitled to half the money in the account, along with the estranged wife.
Where businesses keep money received from a particular source away from all their other funds (eg, in a different bank account), this has been deemed enough to show an intention to create a trust (Re Kayford Ltd (in liquidation) (1975)).