Introduction
The trust is one of the most significant contributions of English law to the legal world and is a central concept within the field of Equity. It is a flexible and versatile tool used for a wide range of purposes, from managing family wealth and making provisions for children, to complex commercial and financial transactions. At its heart, a trust involves a specific arrangement concerning property. This essay will explain the concept of a trust by defining its fundamental characteristics and the roles of the parties involved. It will then outline the main classifications of trusts, including express, resulting, and constructive trusts. Finally, it will discuss the essential requirements needed to create a valid express trust, known as the 'three certainties', as established in case law. This will demonstrate that the trust is a structured yet adaptable legal device built upon the foundation of conscience and the division of ownership.
The Nature of the Trust Relationship
A trust is a relationship where one person, the trustee, holds property for the benefit of another person, the beneficiary. The person who creates the trust is known as the settlor. The settlor transfers the legal title of the property to the trustee, who is then under a legal obligation to manage that property in accordance with the terms of the trust for the beneficiaries. The key feature that distinguishes the trust from other legal concepts is the division of ownership. The trustee holds the legal title to the property, meaning they are the owner in the eyes of the common law. However, the beneficiaries hold the equitable interest (or beneficial interest), which means they are entitled to the benefits of the property. This equitable interest is recognised and protected by the courts of equity.
Lord Browne-Wilkinson provided a modern definition in Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669, stating that a trust requires: (i) property, (ii) a beneficiary (or charitable purpose), (iii) a trustee with legal title to the property, and (iv) a trustee who has an obligation to use the property for the beneficiary's benefit. This obligation is a fiduciary one, meaning the trustee must act in the best interests of the beneficiaries with loyalty and good faith. They cannot profit from their position and must manage the trust property with reasonable care. If a trustee fails in their duties, the beneficiaries can take legal action to enforce the trust and seek compensation for any loss. The trust property itself is also protected. It is ring-fenced from the trustee’s personal assets, meaning that if the trustee becomes bankrupt, their personal creditors cannot claim the trust property (Hudson, 2021). This separation ensures that the property is preserved for the beneficiaries as the settlor intended.
The Main Types of Trusts
Trusts can be created in different ways and for different purposes. They are generally categorised into two main groups: express trusts and implied trusts. Implied trusts are further divided into resulting and constructive trusts.
An express trust is created intentionally by the settlor. The settlor makes a clear declaration that they intend to create a trust, and they define its terms. This can be done in writing, such as in a will or a trust deed, or orally, depending on the type of property involved. For example, a trust of land must be evidenced in writing under section 53(1)(b) of the Law of Property Act 1925. Express trusts can be either fixed or discretionary. In a fixed trust, the share or interest of each beneficiary is specified in the trust instrument. For example, a trust "for my children, A and B, in equal shares" is a fixed trust. In a discretionary trust, the trustees are given the discretion to decide which beneficiaries from a defined class will benefit and in what proportions. For example, a trust of £100,000 "for my former employees and their relatives as my trustees shall in their absolute discretion think fit." The case of McPhail v Doulton [1971] AC 424 is a leading authority on discretionary trusts, establishing the modern test for who can be a beneficiary under such a trust.
Resulting and constructive trusts arise by operation of law rather than by the express intention of a settlor. They are imposed by the courts in certain circumstances to achieve a fair result. A resulting trust typically arises where a person contributes to the purchase price of a property but does not receive legal title proportionate to their contribution. The law presumes that the person holding the legal title holds a share of the property on a resulting trust for the contributor (Martin, 2021). For example, in Re Vandervell's Trusts (No 2) [1974] Ch 269, a resulting trust arose where the beneficial interest in some shares had not been properly disposed of, and so the interest resulted back to the original owner.
A constructive trust is imposed by the court where it would be unconscionable for the legal owner of property to deny the beneficial interest of another person. Unlike resulting trusts, they are not based on presumed intention but on preventing unjust enrichment or fraud. For instance, a constructive trust may be imposed on a person who receives property in breach of a fiduciary duty, as was considered in Chase Manhattan Bank v Israel-British Bank (London) Ltd [1981] Ch 105, where a bank mistakenly paid the same sum twice. The court held that the recipient held the second payment on a constructive trust for the sender.
The Requirements for an Express Trust: The Three Certainties
For a valid express trust to be created, the settlor must satisfy what are known as the ‘three certainties’. These were famously set out by Lord Langdale in the case of Knight v Knight (1840) 49 ER 58. They are the certainty of intention, the certainty of subject matter, and the certainty of objects.
First, there must be certainty of intention. This means it must be clear that the settlor intended to create a legally binding trust, rather than just expressing a wish or hope. The courts look at the words used to see if they impose a mandatory obligation on the recipient of the property. Words that are merely precatory, such as 'in the hope that' or 'in full confidence that', will generally not create a trust. For example, in Re Adams and the Kensington Vestry (1884) 27 Ch D 394, the testator left property to his wife "in full confidence that she will do what is right as to the disposal thereof between my children". The court held this did not create a trust; it was a gift to the wife. However, the court will look at the whole context, and no specific technical words are needed. In Paul v Constance [1977] 1 WLR 527, the words "this money is as much yours as mine", combined with the conduct of the parties, were sufficient to show an intention to create a trust.
Second, there must be certainty of subject matter. This means the property that is to be held on trust must be clearly identified. If the trust property is uncertain, the trust will fail. In Palmer v Simmonds (1854) 2 Drew 221, a declaration to leave "the bulk of my residuary estate" was held to be too uncertain because 'bulk' is a subjective term. Similarly, the beneficial interests for each beneficiary must also be certain, at least in a fixed trust. However, the courts have sometimes been flexible. In Hunter v Moss [1994] 1 WLR 452, the Court of Appeal held that a trust of 50 shares out of a total holding of 950 was valid, even though the specific 50 shares had not been segregated. This decision is seen as controversial but shows a more lenient approach when the property is intangible and identical, like shares of the same class (Hudson, 2021).
Third, there must be certainty of objects. The 'objects' of a trust are its beneficiaries. The beneficiaries must be identified with sufficient certainty. The test for certainty of objects depends on whether the trust is fixed or discretionary. For a fixed trust, the 'complete list' test applies: the trustees must be able to draw up a complete list of all the beneficiaries (IRC v Broadway Cottages Trust [1955] Ch 20). For a discretionary trust, the test is less strict. As established in McPhail v Doulton, the test is the 'is or is not' test: it must be possible to say with certainty whether any given individual 'is or is not' a member of the class of potential beneficiaries.
Conclusion
In summary, the concept of a trust is a cornerstone of equity, allowing for the separation of legal ownership and beneficial enjoyment of property. This essay has shown that the trust is defined by the relationship between the settlor, trustee, and beneficiary, where the trustee is bound by a fiduciary duty to manage property for the beneficiaries' benefit. The key distinction between express trusts, which are created intentionally, and resulting and constructive trusts, which are imposed by law, illustrates the trust's adaptability to different situations. Furthermore, the creation of a valid express trust is dependent on the satisfaction of the three certainties of intention, subject matter, and objects, as laid down in Knight v Knight. These requirements provide a clear framework that ensures a trust is workable and enforceable, preventing it from being an abstract or vague arrangement. While complex in its application, the fundamental concept of the trust remains a powerful and enduring legal instrument in England and Wales.
References
Hudson, A. (2021) Equity and Trusts. 10th edn. Routledge.
Martin, J. E. (2021) Hanbury & Martin: Modern Equity. 22nd edn. Sweet & Maxwell.
Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1981] Ch 105.
Hunter v Moss [1994] 1 WLR 452.
IRC v Broadway Cottages Trust [1955] Ch 20.
Knight v Knight (1840) 3 Beav 148; 49 ER 58.
McPhail v Doulton [1971] AC 424.
Palmer v Simmonds (1854) 2 Drew 221; 61 ER 704.
Paul v Constance [1977] 1 WLR 527.
Re Adams and the Kensington Vestry (1884) 27 Ch D 394.
Re Vandervell's Trusts (No 2) [1974] Ch 269.
Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669.
