Validity and Classification of Rick's Trust in Accordance with Knight v Knight

Introduction

The issues in the current case are whether or not Rick had created a valid trust and to understand the type of trust created in order to fulfil the wishes of Rick that he made in his Will. Lord Langdale MR in the case of Knight v Knight identified the test of three certainties to be satisfied in order that a testator or a settlor has created a valid private express trust. There must be certainty of the intention to create a trust, with regard to the subject or property of the trust, and with regard to the object or beneficiaries or purposes of the trust.

First Test - Intention

No trust will be created unless the testator certainly intended to do so. If the intention was expressed with insufficient certainty to bind the conscience of the recipient, there will not be an express trust.

There is no need of specific words to create a trust as the testator makes the intention to declare a trust clear. If a valid declaration of trust is made, the intended trustee holds the property.

Equity looks to the intent instead of the form. It focuses on the substantial operation of legal rules instead of the precise form and wording. Thus, a trust is established when there is evidence of intention to declare the trust without the need for any specific trust, deed or formula. A court of equity will normally focus on the spirit of law rather than the letter of law.

Insufficient certainty is found in precatory words where a donee appeals to a done to apply the property in a particular way without obliging the donee to apply it in a particular way. In such case, there will be no trust.

In Re Diggles, where a grandfather hands over to his grandchild a sum of a money by stating ‘I trust you will get yourself a nice jumper’, the use of the term ‘trust’ does not necessary intend the creation of a trust. The grandchild has a moral obligation to buy a jumper, but it cannot be enforceable in a court.

If the words used do not give clear direction as to the disposal of the trust property, there is no trust created. In the case of Lambe v Eames, where the testator left his estate to his widow with the languages ‘to be at her disposal in any way she may think best, for the benefit of herself and her family’. The language used was held to not have created a trust in favour of ‘her family’.

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1. Gary Watt, Trusts and Equity (Oxford University Press 2020) 79.
2. Ibid.
3. Ibid.
4. Jonathan Law, A Dictionary of Law (Oxford University Press 2015) 176
5. Kirsten Edwards, Equity and Trusts (Taylor & Francis Group 2000) 8.
6. Gary Watt, Trusts and Equity (Oxford University Press 2020) 80.
7. Re Diggles (1888) 39 Ch D 253.
8. Ibid.
9. Gary Watt, Trusts and Equity (Oxford University Press 2020) 82.
10. Lambe v Eames (1870) L. R. 10 Eq. 267.
11. Ibid.

If there are no detailed directions that create an uncertainty, it was held that that there is no intention to create a trust.

In the case of Jones v Lock, it was ruled that an express trust is a proof of intent to make the gift. A legal interest represents the ownership enforceable by law. The Law of Property Act 1925, s53(1)(b) states that a trust must be declared in writing and be signed by the person declaring it to make the trust enforceable in law. This creates a right to the holder of the interest to take legal action.

A trust is only be enforceable if the donor fulfils the legal formalities. In Milroy v Lord, it was held that a voluntary deed of trust not registered cannot form a valid and effective trust. Equity cannot perfect an imperfect gift.

However, the rule of equity of formalities requirement is subject to the exception that donor does not need to do everything which he can, to transfer the property to the done. This exception to formalities requirement was seen in the case of Choithram International SA v Pagarani where the testator vested the property to a trustees with the intent to make an immediate absolute gift to Choithram International without vesting the property in all the trustees of the Foundation; in Re Rose, where the gift was held valid even if the donor having completed everything necessary to transfer the title but failed to register the gift; or in Pennington and Another v Waine, Crampton and others, which stressed on the principle of unconscionability and held valid an unregistered transfer by gift of shares with the term that the donee must be made a shareholder.

Lord Walker in Cobbe v Yeoman’s Row Management Ltd, held that that equity mitigates the harshness of common law rules. It reconciles the rights of the parties with a general moral understanding and prevents any conduct that disrupts judicial conscience.

Second Test - Property

For certainty of subject matter, there must be clarity as to what property is held on trust and to the beneficial interest in order to enable the determination the object of trust.

In regard to a fixed trust, it must be certain as to the objects when a complete list of all beneficiaries is compiled. In regard to a discretionary trust, it must be certain as to whether or not an individual is a member of the class.

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12. Re Williams (1897) 2 Ch 12.
13. Jones v Lock [1865] L.R. 1 Ch. App. 25
14. Ben McFarlane, Nicholas Hopkins and Sarah Nield, Land Law: Text, Cases, and Materials (Oxford University Press 2015) 177.
15. Milroy v Lord (1862) 4 De GF & J 264.
16. T Choithram International SA v Pagarani [2001] 1WLR 1 (PC).
17. Re Rose [1952] Ch 499.
18. Pennington and Another v Waine, Crampton and others [2002] EWCA Civ 227.
19. Cobbe v Yeoman’s Row Management Ltd [2008] 1 WLR 1752, 92.
20. Ben McFarlane, Nicholas Hopkins and Sarah Nield, Land Law: Text, Cases, and Materials (Oxford University Press 2015) 177.
21. Iain McDonald and Anne Street, Concentrate Equity and Trusts (Oxford University Press 2014), 28.
22. Ibid, 24.

If the trust property is a part of a bulk of tangible property, the trust property is certain only when it is separated from the rest.

For example, the ‘bulk of the testatrix’s estate’ in the case of Palmer v Simmonds; ‘some of my best linen’ in the case of Peck v Halsey, and an instruction to purchase ‘blue chip’ investment in re Kold’s WT are examples of uncertain description of property.

Third test - Beneficiaries or purpose

The third test is the certainty in regard to the object or beneficiaries or purposes of the trust. A beneficial interest under a trust must be clear. In Boyce v Boyce, it was held that even though the property is clearly identified, the beneficial interest is not and as such the trust fails. In this case, the trustees were not given any power to choose the house in question. In such absence, the trustees or the court could not determine the beneficial interest.

Instruction given to the trustees must be sufficient to enable them carry out the terms of the trust. In Re Golay’s Wt, where the instruction states that the beneficiary will receive a reasonable income from the property, the court held it was a valid trust. ‘Reasonable income’ allowed the trustees and the court to make an objective assessment of what the testator wanted, based in the beneficiary’s circumstances. As such, the trust was sufficiently certain. If on the other hand, if the properties in question were to be sold for providing the beneficiary a reasonable one-off sum of money, the trust would have failed. There was no yardstick for the trustees to determine what constituted a reasonable payment.

Legal issues related with beneficial interests do not apply to discretionary trusts, which is totally subject to the discretion of the trustees.

Fixed and Discretionary trusts

A fixed trust. A fixed trust is valid only when a complete list of all beneficiaries is drawn up. This ensures that an arrangement can be carried out in accordance with the instructions of the settlor. This is the test of certainty in a fixed trust, which is laid out in the case of IRC v Broadway Cottages, where it was held that there must not be doubt about who the beneficiaries are.

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23. Iain McDonald and Anne Street, Concentrate Equity and Trusts (Oxford University Press 2014) 28.
24. Palmer v Simmonds (1854) 2 Drew 221.
25. Peck v Halsey (1720) 2 PW 38728.
26. Re Kolb's WT [1962]1 Ch 531.
27. Gary Watt, Trusts and Equity (Oxford University Press 2020) 79.
28. Iain McDonald and Anne Street, Concentrate Equity and Trusts (Oxford University Press 2014) 29.
29. Boyce v Boyce (1849) 16 Sim 476.
30. Iain McDonald and Anne Street, Concentrate Equity and Trusts (Oxford University Press 2014) 29.
31. Ibid, 30.
32. Re Golay’s Wt [1965] 2 All ER 660.
33. Ibid.
34. Ibid.
35. Iain McDonald and Anne Street, Concentrate Equity and Trusts (Oxford University Press 2014) 30.
36. Sarah Wilson, Todd & Wilson's Textbook on Trusts & Equity (Oxford University Press 2015) 80.
37. IRC v Broadway Cottages [1955] Ch 20.
38. Ibid.

In a fixed trust, the trust provisions require the property to be held on trust for a fixed number of identified beneficiaries. The trustees in a fixed trust are limited to the obligation identified in the trust instrument. They do not have any discretion to act otherwise. The proprietary rights of the beneficiaries in the equitable interest of the trust fund or property are in accordance with the terms of the trust instrument.

In order to ascertain the objects of fixed trusts, the trustees must be able to list the beneficiaries, which means must name each of the beneficiaries. The trust will be void of uncertainty if the beneficiaries cannot be ascertained or the list of beneficiaries cannot be compiled.

A discretionary trust. Where there is a discretion on the part of a trustee to determine whether or not a person is a beneficiary or not, it is a discretionary trust.

Under a discretionary trust, a beneficiary will only acquire a vested right on a property under the trust if the trustee exercises the discretion in favour of the beneficiary. A beneficiary can exercise her right to require the trustee to consider her case fairly and to observe the terms of the trust.

In Saunder v Vautier, a beneficiary with absolute right will have the right to direct the trustees to deliver the trust property to the beneficiary in order that the beneficiary becomes absolutely entitled to the property.

The beneficiary has the possible right is to take control of the trust fund and to direct the manner in which the trustee is able to deal with it. The Saunders’ right cannot be used where there is a possibility of adding further beneficiaries in future or the trustees have the power to retain the trust property.

In a discretionary trust, therefore, the claimants can act together and claim the rights by terminating the trust and calling for the trust property.

In McPhail v Doulton, Lord Wilberforce laid down the ‘individual ascertainability test’ for determining the certainty of objects. This case concerns a trust where the trustees had the absolute discretion to apply the income from a fund for the benefit of ex-employees and ex-officer and also their dependants and relatives. The court held that there was a discretionary trust.

In cases, such as the above, it may not be possible to list all of the beneficiaries, which in that case were relatives. However, the facts show that there was certainty as whether or not a person is a beneficiary. Applying the principle of Saunders’ right, the trust to the residents. Dig deeper into Challenges Facing International Students while Studying Abroad with our selection of articles.



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39. Alastair Hudson, Equity and Trusts (Cavendish Pub. 2005) 110.
40. Ibid.
41. Ibid.
42. John Duddington, Law Express: Equity and Trusts (Pearson Education Limited 2018).
43. Re Brooks’s ST [1993] 1 Ch 993.
44. Re Ralli’s WT [1964] 2 WLR 144.
45. Saunders v Vautier [1841] EWHC Ch J82
46. Alastair Hudson, Equity and Trusts (Cavendish Pub. 2005) 48.
47. Ibid.
48. Ibid, 118.
49. McPhail v Doulton [1971] AC 424 (HL).
50. Ibid.
51. John Duddington, Law Express: Equity and Trusts (Pearson Education Limited 2018).

is no discretionary trust as there is a possibility of adding further beneficiaries in future or the trustees have the power to retain the trust property.

Application of rule to the case

Carl and Lori. There is sufficient certainty as to the intention of Rick to create the trust. The language used ‘leave the bulk of £50,000 in cash to my nephew Negan, as trustee’ shows certainty. This is a valid declaration making a valid express trust.

Rick obliged Negan to distribute the trust money between Carl and Lori. This is enforceable in a court as Rick made the application of the amount of sum in that particular effect. This is an express trust that proves the intent to make the trust. The Will made is sufficient, based on the ruling of Choithramto make the trust valid.

Rick’s will in regard to Carl and Lori is a fixed trust as he identified the beneficiaries. The trustee, who is Negan in this case, can easily lists Carl and Lori beneficiaries without any doubt. They have a proprietary right over the amount of the sum.

The subject or property of the trust is the amount of the sum, which is to be held on trust by Negan. This passes the second certainty test of property to be held on trust.

Further, Rick made in clear in his Will that the beneficiaries are Carl and Lori. The use of the term “as he sees fit”, based on the ruling in Re Golay’s Wt, is sufficient to enable Negan to make objective assessment to carry out the terms of the Will.

Residents of Herefordshire. There is no trust created. The use of the languages ‘may’ and “most prudent residents” create uncertainty about the description of the object of the trust. The words “may pay a reasonable” does not show a certain intention on the part of Rick to create the trust. The insufficient certainty to bind the conscience of Negan does not make an express trust.

The wording used are precatory words as they do not obliged Negan to apply the trust property. The use of “most prudent residents” does not show any detailed directions that create an uncertainty as to the property. Such uncertainty is to the kind of investment that Negan is to make as it cannot be separated due to the absence of clear directions. Based on cases such as Palmer, the uncertain description of the property cannot make a valid trust.

Negan will not be able to list the beneficiaries, who are ‘prudent residents’. He is left with the discretion to determine the residents who are prudent. Applying the ‘individual ascertainability test’, the certainty of beneficiaries as to who could be considered prudent residents cannot be ascertained.

Christmas Turkeys. The words used are sufficiently certain about creating entrusting the Christmas Turkeys to Negan on behalf of the customers who have purchased them. They give clear direction to Negan as to the disposal of Christmas Turkeys by stating that Negan can refer to Tyreese in case of doubt over the customers who purchased the turkeys. The directions are detailed directions as to the intention of the trust.

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52. T Choithram International SA v Pagarani [2001] 1WLR 1 (PC).

This trust is a discretionary trust as applying Saunder, the customers have absolute right as they have already purchased the turkeys. They are entitled to direct Negan to deliver the turkeys to such customers as they are absolutely entitled to the property. The customer can take control of the turkeys and direct the manner in which Negan and Tyreese can deal with the turkeys. The description of the beneficiaries will not allow any addition of further beneficiaries.

Residue of estate. The language used “to be sold and the proceeds divided” shows certainty in the intention to create a trust. This is an expressed or declaration of the trust. The language is not precatory as it obliges Negan to sell the residue of the assets of Rick and the proceeds be divided. This constitutes a clear direction as to the disposal of the assets. Applying Jones, the language used is a proof of intent to make dispose the trust.

The language used also is certain about the trust property, which is the residue of Rick’s assets. It is certain as to the object or beneficiaries or purposes of the trust. The instruction in the Will, applying Re Golay’s Wt, is sufficient to enable Negan carry out the terms of the trust.

This is a fixed trust as the beneficiaries are the prized chickens and the Herefordshire Horticultural Society. The language makes it certain to determine prized chickens and the Herefordshire Horticultural Society.as the member of the class that Rick identified.

As such, the language clearly identifies the proceeds from the sale of his estate to be applied to prized chickens and Herefordshire Horticultural Society. The trustees cannot act otherwise.

Conclusion

Trust related to Carl and Lori is a trust as it passes the three certainties tests of intention, subject or property, and object or beneficiaries or purposes of the trust. It is a fixed trust as the beneficiaries are identified. This trust can be enforced.

There is no trust in regard to the residents of Herefordshire as the words used do not obliged Negan to apply the trust. The is no certainty about who the “most prudent residents” be. The words are precatory and do not show any detailed directions to effect the trust.

There is a trust in regard to Christmas Turkeys as the three certainties are met. The words used gives clear direction as to the disposal of Christmas Turkeys. It is a discretionary trust as the customers have absolute right to call for the purchased turkeys. The description of the beneficiaries will not allow any addition of further beneficiaries.

There is a trust in regard to the residue of estate. Intention is found in language that obliges Negan to sell the residue of the assets of Rick and the proceeds be divided. This trust meets the three certainties. Negan must carry out the terms of the trust. This is a fixed trust as the beneficiaries are the prized chickens and the Herefordshire Horticultural Society. Negan cannot act otherwise.

Bibliography

Cases

Boyce v Boyce (1849) 16 Sim 476

Cobbe v Yeoman’s Row Management Ltd [2008] 1 WLR 1752, 92

IRC v Broadway Cottages [1955] Ch 20

Jones v Lock [1865] L.R. 1 Ch. App. 25

Lambe v Eames (1870) L. R. 10 Eq. 267’

McPhail v Doulton [1971] AC 424 (HL)

Milroy v Lord (1862) 4 De GF & J 264

Palmer v Simmonds (1854) 2 Drew 221

Peck v Halsey (1720) 2 PW 38728.

Pennington and Another v Waine, Crampton and others [2002] EWCA Civ 227

Re Brooks’s ST [1993] 1 Ch 993

Re Diggles (1888) 39 Ch D 253

Re Golay’s Wt [1965] 2 All ER 660

Re Kolb's WT [1962]1 Ch 531

Re Ralli’s WT [1964] 2 WLR 144

Re Rose [1952] Ch 499

Re Williams (1897) 2 Ch 12

Saunders v Vautier [1841] EWHC Ch J82

T Choithram International SA v Pagarani [2001] 1WLR 1 (PC)

Legislations

The Law of Property Act 1925

Books

Duddington J, Law Express: Equity and Trusts (Pearson Education Limited 2018) Edwards K, Equity and Trusts (Taylor & Francis Group 2000) Law J, A Dictionary of Law (Oxford University Press 2015) McDonald I and Anne Street, Concentrate Equity and Trusts (Oxford University Press 2014) McFarlane B, Nicholas Hopkins and Sarah Nield, Land Law: Text, Cases, and Materials (Oxford University Press 2015) Watt G, Trusts and Equity (Oxford University Press 2020) Wilson S, Todd & Wilson's Textbook on Trusts & Equity (Oxford University Press 2015)

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