The Three Certainties: Foundation of Trust Creation
The Three Certainties, established in Knight v Knight (1840), are the backbone of valid trust creation. All three must be present, or the trust fails completely.
Certainty of Intention
The first certainty requires that the settlor genuinely intended to create a trust. Courts examine the settlor's words and conduct to determine binding intent. The settlor must have intended to impose legal obligations, not merely express a moral wish.
Certainty of Subject Matter
The second certainty has two parts. Certainty of the trust property means the specific property is clearly identifiable. Certainty of beneficial interests means beneficiaries and their shares are clearly defined.
Example: Leaving property to "those family members I deem worthy" fails because the class is too vague. The beneficiaries cannot be determined with certainty.
Certainty of Objects
The third certainty requires that beneficiaries be ascertainable. Courts must be able to determine exactly who is and is not in the beneficiary class. Without this, the trust fails.
If any certainty is missing, the trust becomes void. Property typically returns to the settlor through a resulting trust. This is why courts strictly interpret trust language and apply objective tests to each element.
Formality Requirements for Different Types of Trusts
Different trust types require different formality levels depending on the property involved.
Personal Property Trusts
Trusts of personal property generally require no specific formality beyond proving the Three Certainties. You can create these trusts orally in most jurisdictions. Clear evidence must support your intent.
Land Trusts
Trusts of land face stricter requirements. The Statute of Frauds typically requires written evidence signed by the party being charged. Many jurisdictions follow the Restatement approach, requiring clear and convincing evidence, though some demand a written instrument.
Some jurisdictions recognize the doctrine of part performance. This allows oral land trusts if you perform acts inconsistent with any other relationship. For example, possession combined with improvements may satisfy this doctrine.
Testamentary Trusts
Trusts created through a will must comply with will execution formalities. These include witnessing and testator signature requirements. Writing is always required here.
Express vs. Implied Trusts
Express trusts require clear manifestation of intent. Constructive trusts and resulting trusts are implied by law without formal requirements. The distinction between legal and equitable interests becomes crucial here.
The trustee holds legal title while beneficiaries hold equitable interests. When studying, identify the property type first. Then apply the appropriate formality rules for that category.
The Beneficiary Requirement and Ascertainability
The beneficiary requirement, based on certainty of objects, is heavily tested on exams.
Fixed Trusts vs. Discretionary Trusts
Fixed trusts apply the "complete list" test from Clayton v Clayton. Courts must be able to establish with certainty whether any person is in the beneficiary class. Theoretically, you could list all beneficiaries.
Discretionary trusts use the "given postulant" test. Courts only need to determine whether a specified person is in the class. A complete list is not required.
Applying the Tests
A trust for "my children" passes both tests. You can determine whether any person is a child of the settlor. But a trust for "my friends" may fail the fixed trust test. Friends are hard to define with certainty, though it might pass the discretionary trust test depending on jurisdiction.
Key Distinction
"A for the benefit of such of my relatives as X shall decide" creates a discretionary trust. The trustee has discretion over distributions.
"A to distribute equally among my relatives" creates a fixed trust. All relatives must receive equal shares.
Non-Human Beneficiaries
Most jurisdictions limit express trusts to human beneficiaries or valid charitable purposes. Pets cannot be valid beneficiaries of traditional express trusts. However, all fifty US states now recognize pet trust statutes that allow trusts for pet care. The caregiver (human) becomes the technical beneficiary, but the purpose is the pet's benefit.
Capacity, Declarations, and Transfer Requirements
The settlor must have legal capacity to create a trust at creation. This requires testamentary capacity for testamentary trusts and general capacity for lifetime trusts. Courts examine the settlor's understanding of the property, beneficiaries, and distribution scheme.
How to Declare a Trust
A declaration of trust is how settlors formally express intent. The settlor can declare themselves a trustee (self-declaration) or transfer property to another trustee (transfer).
For self-declarations of land, you must meet the Statute of Frauds. For personal property, oral declarations work. For transfers, the property must be properly delivered to the trustee with the trust declaration.
Property Transfer Methods
The transfer method depends on property type:
- Real property requires deed delivery
- Securities require stock transfer
- Bank accounts require account registration
- Personal property requires physical or constructive delivery
Complete Transfer Requirement
The settlor must transfer all equitable interest in the property. If you retain any equitable interest, the trust fails to that extent. Additionally, the trust property must exist and be identified at creation.
A trust of future property (property you intend to acquire) may fail. Some jurisdictions recognize exceptions for insurance proceeds or expected inheritance if intent is sufficiently clear.
Valid Charitable Purposes and Exceptions to Rules
Charitable trusts receive special treatment and are subject to more lenient requirements than private trusts.
What Makes a Trust Charitable
A charitable trust must serve a charitable purpose as defined by law. Valid purposes typically include advancement of education, religion, health, public safety, or identifiable public benefits.
Relaxed Beneficiary Rules
The beneficiary uncertainty rule is significantly relaxed for charitable trusts. A trust to benefit the poor, elderly, or disabled (groups that are not strictly ascertainable) can still be valid. The key is whether an identifiable category exists, not identifiable individuals.
Courts presume charitable intent when ambiguity exists in the language. They make no such favorable presumptions for private trusts.
The Cy Pres Doctrine
If the original charitable purpose becomes impossible or impractical, courts may modify or redirect the trust's purpose. This flexibility does not exist for private trusts. Settlor's charitable intent is preserved even if the specific purpose changes.
Duration and Perpetuities
The rule against perpetuities does not apply to charitable trusts. A private trust must eventually vest and distribute, typically within lives plus 21 years. Charitable trusts can exist indefinitely as long as they serve their charitable purpose.
Study Strategy
When a fact pattern involves poverty relief or education advancement, recognize that the applicable rules shift significantly. Avoid applying private trust rules to charitable trusts or vice versa.