10. Creating an express trust

Two ways to create a trust

Milroy v Lord recognises two methods. The owner can declare himself trustee, which needs no transfer: he simply holds the property for the beneficiaries from then on. Or the owner can transfer the property to someone else to hold on trust. Then the transfer must be effective. The court will not treat a failed transfer as a declaration of trust.

The three certainties

Lord Langdale MR in Knight v Knight said a trust needs certainty of words, certainty of subject matter and certainty of objects.

Certainty of intention: the settlor must mean to impose a binding obligation, not a moral wish. No special words are needed. In Re Kayford a mail-order company put customers' payments into a separate account so that they could be returned if it failed. That was enough to show a trust, though the word trust was not used. Words of hope, such as "in full confidence that", are usually not enough. In Re Snowden a testatrix left her estate to her brother, saying he would know what to do. That was a moral obligation, not a trust.

Certainty of subject matter: the property must be identified. A trust of "the bulk of my estate" fails. In Re Goldcorp Exchange unallocated bullion could not be held on trust. Where the property is intangible and the parts are identical, such as shares of one class in one company, Hunter v Moss held that a trust of fifty out of nine hundred and fifty shares was valid without separating them. The beneficial shares must also be certain.

Certainty of objects: the beneficiaries must be identifiable. The test depends on the kind of trust.

The tests for certainty of objects

Fixed trusts: the complete list test. It must be possible to list every beneficiary, because each has a fixed share.

Discretionary trusts and powers: the is-or-is-not test from McPhail v Doulton. It must be possible to say of any given person that he is or is not a member of the class. Before 1971 discretionary trusts needed a complete list. The House of Lords changed that.

Four problems can still defeat a discretionary trust.

Conceptual uncertainty: the class must be defined in clear words. Nobel prize winners is clear. My friends, or people who have helped me, is likely too vague.

Evidential uncertainty: difficulty in proving whether someone is in the class does not usually defeat the trust. The court can decide on the evidence.

Administrative unworkability: a class can be so wide that no sensible trust can be run. In R v District Auditor, ex p West Yorkshire Metropolitan County Council a trust for the inhabitants of West Yorkshire, about two and a half million people, failed. This applies to discretionary trusts, not to mere powers.

Capriciousness: a power is void if the class shows no sensible reason for the gift, such as the residents of Greater London where the settlor has no connection with them. In Re Hay's Settlement Trusts the court held that a wide intermediate power was valid, and said a power could be void only if it was capricious.

Capacity

The settlor must be of full age and sound mind, and able to transfer the property. A child cannot make a binding settlement of land. A trust made by someone who lacked mental capacity for the transaction is void.

Formalities

Trusts of personal property, such as money and shares, can be declared orally. Trusts of land must be proved by writing. In Sierra Leone this comes from section 7 of the Statute of Frauds 1677, a statute of general application received under the Courts Act: a declaration of a trust of land must be shown by writing signed by the person who can declare it. Section 9 requires a transfer of an existing equitable interest to be in writing signed by the person transferring it. In England these rules are now in section 53 of the Law of Property Act 1925. Grey v IRC held that an oral direction to trustees to hold shares for others was a disposition of an equitable interest that needed writing. Vandervell v IRC held that writing was not needed where the beneficial owner tells the trustee to transfer the legal title and equitable interest together.

Equity will not let a statute be used as an instrument of fraud. A person who takes land orally agreeing to hold it for another cannot rely on lack of writing to keep it.

A trust that takes effect on death must be in a valid will, which needs the formalities of the Wills Act 1837.