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The three certainties / voidable trusts (Certainty of object (This…
The three certainties / voidable trusts
One of the most important formalities when constituting a trust is that set down in Knight v Knight (1840), an English trusts law case, embodying a simple statement of the ‘three certainties’ principle. This has the effect of determining whether assets can be disposed of, or whether the wording is too vague to allow beneficiaries to collect what appears on the face to be their entitlement. This case has been followed in most common law jurisdictions and following its judgement the courts have formulated a test to determine whether a trust has been validly created or not.
The principle of the three certainties has been widely accepted in offshore jurisdictions
Certainty of intent
There must be certainty of words or intention
The settlor must have clearly intended to create a trust
A trust instrument with unambiguous wording would demonstrate that the intention was present
Where professionals are appointed as the trustee, it is usual for an experienced trust lawyer to prepare the trust instrument
It is unlikely that precatory words are sufficient to establish this intention
The words used to create a trust must make it plain that a trust is created
Certainty of object
This establishes who could benefit from the assets of the trust
Within express trusts, this is a particularly complex area because the test used to determine certainty varies between fixed trusts, mere powers and discretionary trusts
Fixed trusts are trusts that are constituted for a specific and identifiable person or class of beneficiaries. The test is that the trustees must be able to give a complete list of the beneficiaries. If there any potential beneficiaries of whom the trustees are not certain or the trustees cannot compile a complete list, the trust is void for uncertainty
Very often the objects of the trust, despite having been established with certainty are not obvious from the trust deed. The fact that it is difficult to tell the identity of the beneficiary from the trust documentation will in itself invalidate a trust, what is important is that there is certainty about who they are
Certainty of object must be present throughout the trust period for the trust to remain in existence. If a once valid trust should fund itself without any beneficiaries, the trust will fail for a lack of objects. This is one historical reason for the inclusion of a charity such as the Red Cross to be included in the class of beneficiaries
Beneficiaries do not need to be notified of the trust by a settlor. In addition a beneficiary does not have to take their entitlement under the trust fund because they can disclaim their entitlement under a trust
Charitable trusts are an exception to the rule that a trust must have identifiable beneficiaries in order to be valid. By its nature the trust will be for the benefit of a charitable purpose and not for the benefit of individuals
Certainty of subject
Relates to the asset of the trust
The assets of the trust must have value and they must be idneitifable
They must be described in such a way that it becomes certain and ascertainable. This reasoning can bring its own difficulties even if a trustee can its duties when knowing exactly what those assets are
The settlor must identify the assets which they intend to be the subject matter of the trust
A trust will usually be void if any of the three certainties are missing
A void trust is a trust that is not legally valid and therefore unenforceable. A trust will usually be void if
It was set up contrary to the proper law of that trust
It was established under duress or undue influence
The terms were uncertain
It is immoral or contrary to the public good
It was set up for fraudulent purposes
The assets transferred into the trust were derived from illegal sources
Voidable trusts
A trust will be voidable if it is attempted to be created by a minor, it can be set aside until they reach the age of majority usually 18 years of age
A voidable trust can become a legally constituted trust when certain conditions or circumstances have changed. For example the settlor reaches age of majority or the initial assets have been received or if one the three certainties is missing but will shortly be in place
Where some of the terms of the trust deed are invalid but others are not, the court may declare what assets of the trust are to be held or not held as part of the trust
A resulting trust will occur in respect of any property that has been transferred to the trustee by a settlor who will the trust property for the settlor absolutely or if the settlor is dead, for his personal representative
It is not possible for a void trust to become a legally constituted trust
Re Adams and The Kensington Vestry (1884)
Re Kayford (1975)
Re Endacott (1960)
Palmer v Simmond (1854)
Boyce v Boyce (1849)