1. Certainty of Intention
For a trust to be valid, it must satisfy the three certainties test, established in Knight v Knight (1840). These are certainty of intention, certainty of subject matter and certainty of objects. We begin with the first: the settlor must clearly intend to create a trust.
There must be a clear intention by the settlor to create a trust. This intention may be expressed in words or implied from the settlor's actions or the circumstances. What matters is that the settlor intended to subject the trustee to a binding obligation to hold property for another, rather than to make a gift or merely to express a wish.
The intention must be manifested while the settlor owns the property and prior to its transfer.
The settlor must intend the trust to take effect immediately, not at some future time or upon some future event.
The words must be free from precatory wording. Expressions of mere hope, wish or confidence ('precatory language') usually do not create a trust. Conversely, the use of the word 'trust' will not necessarily make a trust valid — the court looks at substance, not labels.
A written document is not required, and informal words are acceptable. In Paul v Constance [1977], Mr Constance had no legal training and repeatedly said to his partner while playing bingo, 'this money is as much yours as it is mine.' After his death the court held that, although the phrase was informal and not couched in legal language, it demonstrated a clear intention to create a trust over the bank account.
By contrast, in Re Adams and the Kensington Vestry (1884) the words 'in full confidence that she will do what is right as to the disposal thereof between my children' were held to be merely an expression of hope and did not create a valid trust. Compare Comiskey v Bowring-Hanbury [1905], where the same phrase 'in full confidence' was used alongside a direction to distribute among the testator's nieces at the wife's discretion, with a default of equal division failing any such disposition. Read as a whole, that wording showed a clear intention to create a trust.
Intention may also be inferred from conduct alone, even where the settlor never verbalised it. In Re Kayford Ltd [1975] a mail-order company, whose customers paid in advance, opened a separate bank account to receive customers' money for goods not yet delivered, titled the 'Customers' Trust Deposit Account', and only withdrew money once goods had been dispatched. When the company went into liquidation, the court held that the separate account was evidence of an intention to create a trust, so the money belonged to the customers and not to the general creditors.
2. Certainty of Subject Matter
The second certainty requires that the trust property be clearly identified. If the property subject to the trust cannot be ascertained, the trust will fail for uncertainty of subject matter. The property must, where necessary, be segregated from other property so that it is possible to say exactly what is held on trust.
If it is not possible to determine what property is subject to the trust, there is no certainty of subject matter. A classic illustration is Palmer v Simmonds (1854), where the settlor left 'the bulk of my estate' to a beneficiary. The trust was held void for uncertainty, as it was impossible to say what was meant by 'the bulk'.
2.2.1 Fractional Shares
A trust for a fraction of an intangible asset — such as 50% of a holding of identical shares — will not fail for lack of certainty, even though no particular shares have been identified. Because the shares are identical and interchangeable, it does not matter which ones are held on trust. This is the rule in Hunter v Moss [1994], where a declaration of trust over 50 of the settlor's 950 identical shares in a company was held valid without any need to segregate the particular 50 shares.
By contrast, a trust over a fraction of tangible assets — such as 12 bottles from a larger stock of wine — will fail unless those assets have been physically segregated from the rest of the stock. Tangible goods are not necessarily identical, so the law insists on identification by segregation.
The leading tangible-property authority is Re London Wine Co (Shippers) Ltd [1986]. Customers of a wine company had paid for cases of wine shortly before the company went into liquidation. The question was whether a customer was entitled to the wine ordered or had to join the queue as an unsecured creditor. The court held the answer depended on whether the company had segregated the customer's wine from its general stock. As the wine had not been set aside, the trust failed for uncertainty of subject matter and the customers ranked merely as unsecured creditors.
| Aspect | Intangible property (e.g. shares) | Tangible property (e.g. wine, goods) |
|---|---|---|
| Segregation required? | No — items are identical/interchangeable | Yes — items must be physically set aside |
| Leading case | Hunter v Moss [1994] (50 of 950 shares) | Re London Wine Co (Shippers) Ltd [1986] |
| Result if not segregated | Trust still valid | Trust fails; beneficiary is unsecured creditor |
| Rationale | Which particular item is held does not matter | Goods may differ; must identify exactly what is held |
2.2.2 Trust Property Must Be an Existing Interest in Existing Property
A future interest in property (an interest that exists now but falls into possession later) may be held on trust. However, an interest that is not yet in legal existence — a mere expectancy or future property the settlor does not yet own (for example, property the settlor hopes to inherit) — cannot be held on trust, because there is nothing presently capable of being the subject of the trust.
2.2.3 Beneficial Entitlement
It must also be certain how much of the trust property each beneficiary is to receive; failure to make this clear renders the trust void. A beneficial entitlement expressed in objective terms — such as a 'reasonable income' — is generally valid, because the court can quantify it by an objective standard. But where the share is left genuinely uncertain, the trust fails.
Boyce v Boyce (1849) illustrates the point. The testator left two houses: one to be held for his daughter Maria, 'whichever she might choose', and the other for his second daughter. Maria died before making her choice, so it became impossible to determine which house the second daughter was to take. Her beneficial interest being uncertain, the trust failed for uncertainty of subject matter.
3. Certainty of Objects
The third certainty requires that the objects (beneficiaries) of the trust be clearly identified or at least ascertainable. The test applied depends on which type of trust is in issue: a fixed trust uses the complete list test, while a discretionary trust uses the 'is or is not' (given postulant) test.
For a fixed trust, the beneficiaries must be named or form a class that can be clearly defined (for example, 'my nephews'). Subjective descriptions such as 'my friends' are unlikely to be sufficient, because it cannot be said with certainty who qualifies. For a discretionary trust, it must be possible to say with certainty whether any given individual is or is not a member of the class of beneficiaries.
2.3.1 Fixed Trusts
Under a fixed trust the trustee has no discretion: each beneficiary's share is fixed by the settlor. To distribute the property, the trustee must be able to draw up a complete list of all the beneficiaries. This is the complete list test (also called the 'class ascertainability' test), confirmed in IRC v Broadway Cottages Trust [1955]. The beneficiaries need not be in existence when the trust is created — for example, unborn beneficiaries may be included, provided they are ascertainable by the time their interest falls into enjoyment.
Where a fund is to be divided equally among a described (not named) group, the complete list test demands both conceptual and evidential certainty. Even if the class is conceptually certain, the trust will still fail if it is impossible to prove who the members are. For example, a trust for 'the members of the school's football team' is conceptually certain, but if the school has no surviving record of who played, the trust is void for evidential uncertainty — there is no proof of membership and so no complete list can be drawn up.
2.3.2 Discretionary Trusts
Under a discretionary trust the trustees have a discretion as to which members of the class will benefit, and in what amounts. Here, only conceptual certainty is required. The governing test is the 'is or is not' (given postulant) test laid down by the House of Lords in McPhail v Doulton [1971]: the trust is valid if it can be said with certainty whether any given individual is or is not a member of the class. There is no need to draw up a complete list.
In McPhail v Doulton [1971] the trust was for 'all or any of the officers and employees or ex-employees of the company or to any relatives or dependants of any such persons.' The House of Lords held the trust valid, because it was possible to say with certainty whether any given individual was or was not a member of the class. This aligned the test for discretionary trusts with the test for powers, departing from the old complete list approach.
On the remitted hearing, Re Baden's Deed Trusts (No 2) [1973] confirmed that both 'relatives' and 'dependants' were conceptually certain, and the trust was upheld. Importantly, evidential uncertainty will not cause a discretionary trust to fail: a potential beneficiary who cannot prove that they are within the class simply has no right to be considered by the trustees — the trust itself remains valid.
(i) Administrative unworkability — the class is so wide that it cannot form anything like a class, so the trustees cannot sensibly exercise their discretion. The classic example is 'all the inhabitants of West Yorkshire' (some 2.5 million people): R v District Auditor, ex p West Yorkshire Metropolitan County Council (1986).
(ii) Capriciousness — the trust is void if the settlor had no sensible or rational intention in selecting the class, so that the trustees cannot carry out any sensible exercise of discretion.
| Aspect | Fixed Trust | Discretionary Trust |
|---|---|---|
| Test | Complete list test | 'Is or is not' (given postulant) test |
| Leading case | IRC v Broadway Cottages Trust [1955] | McPhail v Doulton [1971] |
| Conceptual certainty? | Required | Required |
| Evidential certainty? | Required (must list every member) | Not fatal (Re Baden (No 2) [1973]) |
| Extra grounds of failure | — | Administrative unworkability; capriciousness |
4. Key Notes (Chapter Summary)
The following table consolidates the three certainties, the relevant tests and the consequences of failure examined in this chapter. Treat it as a revision checklist — you should be able to state each certainty, its test and the result of failure from memory.
| Certainty | Requirement / Test | Leading cases | Consequence of failure |
|---|---|---|---|
| Intention | Clear intention to impose a binding trust obligation; precatory words usually insufficient; conduct can suffice. | Knight v Knight (1840); Paul v Constance [1977]; Re Adams (1884); Comiskey [1905]; Re Kayford [1975] | Intended trustee takes as an outright gift. |
| Subject matter | Trust property and each beneficial share must be certain. Intangibles need no segregation (Hunter v Moss); tangibles must be segregated. | Palmer v Simmonds (1854); Hunter v Moss [1994]; Re London Wine Co [1986]; Boyce v Boyce (1849) | Property reverts to the settlor / estate. |
| Objects | Fixed → complete list test (conceptual + evidential). Discretionary → 'is or is not' test (conceptual only). | IRC v Broadway Cottages [1955]; McPhail v Doulton [1971]; Re Baden (No 2) [1973]; ex p West Yorkshire MCC (1986) | Resulting trust for the settlor. |
5. MCQ Practice — Five SQE-Style Questions
Each of the following five questions mirrors the style, length and difficulty of the SQE1 FLK1 single best answer questions. Attempt each question closed-book, write down your answer, then turn to the answer key. The answer key explains why each option is correct or incorrect — read every explanation in full.
A. The trust is valid because John's statement shows a clear intention to create a trust over identified property for an identified beneficiary.
B. The trust is invalid because John's statement does not constitute a formal legal declaration of trust.
C. The trust is invalid because the beneficiaries are not clearly identified.
D. The trust is invalid because the subject matter, the vintage car collection, is not clearly identified.
E. The trust is invalid because John's statement is too informal to create a trust.
Answer & explanation
A is correct — this scenario closely resembles Paul v Constance [1977], where the informal phrase 'this money is as much yours as it is mine' was held to show a clear intention to create a trust. Here all three certainties are satisfied: intention (the words show John intended Mark to share beneficial ownership), subject matter (the vintage car collection is identified), and objects (Mark is identified).
B is incorrect — no formal declaration is required; informal words can create a trust (Paul v Constance).
C is incorrect — the beneficiary (Mark) is clearly identified.
D is incorrect — the subject matter (the collection) is identified.
E is incorrect — informality does not prevent a trust from arising where the intention is clear. (See Section 2.1.)
A. The sister holds the property on a valid trust for the children, because the testatrix referred to her children.
B. The words are precatory and impose no trust, so the sister takes the property as an outright gift.
C. The trust fails for uncertainty of subject matter, and the property reverts to the testatrix's estate.
D. The trust fails for uncertainty of objects, so the children take nothing.
E. The sister holds the property on a resulting trust for the testatrix's estate.
Answer & explanation
B is correct — the words 'in the full confidence that she will do what is right' are precatory: they express a mere hope and impose no binding obligation. This is precisely Re Adams and the Kensington Vestry (1884). Because certainty of intention is absent, the intended trustee (the sister) takes the property as an outright gift.
A is incorrect — merely referring to the children does not turn precatory words into a trust; compare Comiskey v Bowring-Hanbury [1905], where additional mandatory wording was needed.
C is incorrect — the subject matter is identified; the defect is intention, not subject matter, and the consequence of no intention is a gift, not reversion.
D is incorrect — the defect is intention, not objects.
E is incorrect — failure of intention results in an outright gift to the intended trustee, not a resulting trust. (See Section 2.1.)
A. No, because the 200 shares have not been segregated from the settlor's holding.
B. No, because shares cannot be the subject matter of a trust.
C. Yes, because the shares are identical and interchangeable, so segregation is not required.
D. No, because there is no certainty of objects.
E. Yes, but only if the nephew is in existence at the date of the declaration.
Answer & explanation
C is correct — under Hunter v Moss [1994], a trust over a fraction of identical intangible property (here, 200 of 1,000 identical shares) is valid without segregation, because it does not matter which particular shares are held on trust.
A is incorrect — segregation is required for tangible property (Re London Wine Co), not for identical intangibles.
B is incorrect — shares can certainly be trust property.
D is incorrect — the object (the nephew) is clearly identified; the issue is subject matter.
E is incorrect — the validity of the subject matter does not depend on the nephew's existence at the date of declaration. (See Section 2.2.1.)
A. The trust is valid because 'members of the local rugby club' is conceptually certain.
B. The trust is valid because only conceptual certainty is required for a fixed trust.
C. The trust fails for evidential uncertainty, because a complete list of all the beneficiaries cannot be drawn up.
D. The trust is valid because it can be said of any given individual whether they are or are not a member of the class.
E. The trust fails for administrative unworkability.
Answer & explanation
C is correct — for a fixed trust, the complete list test (IRC v Broadway Cottages) requires both conceptual AND evidential certainty. Although the class is conceptually certain, the destroyed records mean it is impossible to prove who the past members were, so no complete list can be compiled and the trust fails for evidential uncertainty.
A is incorrect — conceptual certainty alone is not enough for a fixed trust.
B is incorrect — conceptual certainty alone suffices only for discretionary trusts, not fixed trusts.
D is incorrect — the 'is or is not' test applies to discretionary trusts, not this fixed trust.
E is incorrect — administrative unworkability is a ground of failure for discretionary trusts; the defect here is evidential certainty. (See Section 2.3.1.)
A. The whole trust fails, because at least one potential object cannot prove membership of the class.
B. The trust fails for conceptual uncertainty, because 'relatives' and 'dependants' have no clear meaning.
C. The trust is valid; the man's inability to prove his relationship simply means he has no right to be considered, but it does not invalidate the trust.
D. The trust is valid only if the trustees can draw up a complete list of every relative and dependant.
E. The trust fails for administrative unworkability, because the class of relatives is potentially very large.
Answer & explanation
C is correct — for a discretionary trust, the test is the 'is or is not' test (McPhail v Doulton). Re Baden's Deed Trusts (No 2) [1973] confirms that 'relatives' and 'dependants' are conceptually certain, and that evidential uncertainty is not fatal: a person who cannot prove membership simply has no right to be considered, but the trust itself remains valid.
A is incorrect — one person's inability to prove membership does not invalidate the trust.
B is incorrect — 'relatives' and 'dependants' are conceptually certain (Re Baden (No 2)).
D is incorrect — a complete list is required for fixed trusts, not discretionary trusts.
E is incorrect — a class of relatives and dependants of employees is not so wide as to be administratively unworkable (contrast 'inhabitants of West Yorkshire'). (See Section 2.3.2.)