Requirements for establishing a Trust

This chapter explains the necessary conditions required for the formation of a trust and impact it may have on a declaration of trust where a settlor fails to meet these conditions. The requirements of formation or declaration of trust are as follows:

To declare a trust the settlor ( the person who is setting up the trust) must satisfy these conditions often known and referred as three certainties.

Certainty of Intention

The words used orally or in writing within a Trust Instrument for a declaration of trust must clearly state the names of the trustees and clearly instruct them what exactly they must do with the trust property.

Example

Simon, my BMW car to my son Mike, all my Shares in Tesco to my daughter Elisa, My only house to my wife.

Simon, my shares in Tesco, 50% to my son Mike and 50% to my daughter Elisa

Simon, my house in London to my son Mike and my house in Glasgow to my daughter Elisa

Important

The words used must be” imperative”. Just asking trustees to do something with the property is not sufficient to establish a trust. The settlor must not use precatory words (requesting words) such as, “desire”, “hope”, “believe “or “discretion”.

Example 1

Simon, my shares in Tesco to be at the “discretion” or disposal of the trustee to distribute these shares among my son Mike, my daughter Elisa, my friend John and my wife Nicole, in any way or proportion trustee may think is right.

This will not give rise to a trust as the words used in setting up a trust are not certain and leaves it up to the discretion of trustees.

Example 2

Simon, I leave all my shares in Tesco to my wife in full confidence that she will do what is right as to the disposal thereof between my children (No Trust due to lack of certainty of intention)

Certainty of Subject Matter

The property both land and other personal property “Must Be Specific or Ascertained” for a trust.The settlor must define the trust property and identify clearly which property belongs to each beneficiary.

Example

Simon, my BMW car to my son Mike, all my Shares in Tesco to my daughter Elisa, my only house to my wife.

Simon, bulk of my property to trustees to hold on for my son Mike and daughter Elisa (No trust as the property, subject matter is not identified which must go to Mike and Elisa, whether it is house, a car or shares etc. What is a bulk? is also a difficult question?)

Certainty of Objects

The beneficiaries of a trust must be identified. The number and identity of the beneficiaries must be known. It must be possible to make a list of all beneficiaries.

Examples

Example 1

Simon, my BMW car to my son Mike, all my Shares in Tesco to my daughter Elisa, My only house to my wife and my music collection to my friend Paul. (Valid Trust as objects are clearly identified)

Example 2

Simon, my bank balance at HSBC to be distributed equally among my old friends (Not a Valid Trust as objects are not identified, who are old friends, how many are they? Whether it includes acquaintances? etc)

Example 3

Simon, all my real and personal estate to Bishop of Canterbury to such objects of benevolence as the Bishop of Canterbury in his own discretion shall approve of… (Not a valid trust as the objects are unidentified)

Impact of lack of Certainties

Lack of Intention

No trust can be formed in the absence of intention. The lack of intention may be interpreted as an outright gift and the donee (receiver of the gift) can keep the property for themselves as they are not trustees in the absence of a trust.

Example

Simon, I leave my all shares in Tesco to my wife Nicole in full confidence that she will do what is right as to the disposal thereof between my children (Nicole will be treated as donee instead of trustee and can keep the shares absolutely)

Lack of Certainty of Subject

A trust will completely fail where the trust property is not identified. Where a trust fails any property will be held on a resulting trust by the trustees for the settlor/testator (the person who has declared/established a trust) and goes to his/her estate.

Example

Simon, the bulk of my property to trustees to hold on for my son Mike and daughter Elisa. (No trust in the property, the subject matter is not certain. Trustees will hold on to the property for the time being on a resulting trust and the property will eventually go to the estate of Simon)

Lack of Certainty of Object

The lack of certainty of the object will result in no trust and trustees will hold the property on a resulting trust for the settlor or his estate.

Example

Simon, all my real and personal estate to Bishop of Canterbury to such objects of benevolence as the Bishop of Canterbury in his own discretion shall approve of… (Trustees will hold the property on resulting trust for Simon or if Simon is deceased trustees will hold the property on resulting trust for his estate)

Disclaimer

While every effort has been made to ensure the accuracy of the information provided in this article, it does not constitute legal advice and cannot be relied upon as such. Each legal case and issue may have unique facts and circumstances, as a result legalally does not accept any responsibility for liabilities arising as a result of reliance upon the information provided. For further help and guidance, you can always rely on and seek advice from our experienced lawyers.