What are the required certainties when creating a trust instrument?

Date: Sep 01, 2014
Document Type: Newsletter

A person who creates an express trust is the trustee (the settlor), but if the trust is a transfer of property, then whoever the property is to be transferred to on trust, will assume the role of trustee.

When creating a trust, the requisite certainties must be evident, which are:

  • certainty of intention;
  • certainty of subject matter;
  • certainty of object.

Does the trust require particular words to be used in order for it to be valid?

There is no requirement that certain words be used when creating an express trust, but as Richard J stated in Foreman v Hazard [1984] 1 NZLR 586, an express trust can be impressed in two ways:

“… a declaration of trust which involves a change in equitable ownership but not in legal title, or by a transfer of property to be held in trust by the transferee which involves a change in legal title and usually too in equitable ownership. No particular form of words is required but in whatever way the intention is expressed the three certainties must be satisfied… In addition, the object of the trust must be lawful and any formalities required by the law for constituting the trust must have been complied with.”

Certainty of intention

The maxim of ‘equity looks to intent rather than form’ is something to bear in mind when we consider that the trust instrument does not need to take a particular form. Inference can still be drawn from the language used, and the intention of the settlor.

In Walsh Bay Developments v FCT (1995) 31 ATR, one of the interesting points that came out of the case was that even terms such as “in trust for” in a deed, does not necessarily create a trust “since the circumstances may displace the inference that a trust was intended.”

When determining intention, the applicable test used is one of construction to the relevant instrument as a whole (per Stephens Travel Service International Pty Ltd v Qantas Airways Ltd).

Certainty of subject matter

All property, including intangible property, can be subject of a trust. However, the trustee must be able to identify the trust property, and if it is a fixed trust, the exact entitlements must be able to be ascertained. Furthermore, the identity of the precise entitlements to be bestowed to the beneficiaries must also be able to be determined.

Certainty of object

The beneficiary principle requires any trust that is created to favour either a person or charity, as Sir William Grant in Morice v Bishop of Durham (1804) 9 Ves 399, 32 ER 656, observed:

“There can be no trust over the exercise of which this court will not assume a control; for an uncontrollable power of disposition would be ownership and not trust. If there be a clear trust but for uncertain objects, the property that is the subject of the trust is undisposed of and the benefit of such trust must result to those to whom the law gives the ownership in default of disposition by the former owner… Every trust must have a definite object. There must be somebody, in whose favour the court can decree performance.”

The test of certainty in relation to fixed and discretionary trusts

In relation to fixed trusts, the possible objects of the trust which can be compiled (list certainty) is the applicable test relating to fixed trusts. Meanwhile, for discretionary trusts, the applicable test is that a trustee need only to determine with certainty whether a claimant is within the description of the class of beneficiaries.

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