Equity and Trusts
A trust is a relationship formed at the direction of someone, in which one or more persons hold the individuals’ property subject to certain obligations to use and guard it for the advantage of others.
There are two common types of trusts; express and implied. Express trusts are usually created by a person orally or in the form of a written statement and involve all the parties concerned; whereas implied trusts are created by the courts of equity.
A valid trust consists of three parties; firstly the Settlor, the person who is forming the trust. Secondly, the person receiving the trust, known as the beneficiary. Finally, the trustee, who holds the property at the request of the settlor with the intentions of carrying out the stated duties.
For a trust to be effective and meet the objectives for which it has been created, it must meet certain legal requirements. The capacity of the settlor must be considered to ensure that his or her mental state of mind is sound when creating the trust; this includes children who are not yet at the age of sound mind and maturity, otherwise known as minors. The capacity of the beneficiaries must also be considered by the courts to ensure that justice is served and each beneficiary receives their rightful share. In addition to this, the trust must be properly constituted. The settlor must ensure all transfer formalities of the intended trust property are completed to the trustees, if they are not the trust will be invalid. Another criterion of a legally valid trust is the trust duration, more commonly known as the perpetuity period. Trust property must vest within an ascertainable period of time.
This leads to the threefold test, which details the requirements laid down by the courts in Knight v Knight (1840) 3 Beav 148, where Lord Langdale stated;
“First, if the words were so used, that upon the whole, they ought to be construed as imperative; secondly, if the subject of the recommendation or wish be certain; and thirdly, if the objects or persons intended to have the benefit of the recommendation or wish also be certain.”
In doing so he created the three certainties known commonly as; Certainty of intention (words), Certainty of Subject Matter (trust property) and Certainty of Objects (beneficiaries); the Lord further added that a private trust cannot be created unless these three certainties are present. Therefore, evaluating the statement that ‘the three certainties have lost nearly all their significance’ is arguably invalid.
Certainty of intention requires that specific words are used by the Settlor to give rise to the intentions of the settlor; hence if the Settlor wishes to create a trust he or she must give a clear command as to how their estate is to be dispersed. In Wright v Atkyns (1823) Turn & R 143, it was held that the words used must be imperative, but there is no requirement to use particular words, not even the word “trust”. The law of equity looks to the intent of words used...