Intention to Create a Trust
This is a critical discussion of whether the settlor’s intention is paramount in determining whether the provisions of a trust ought to be carried out
The statement is suggesting that there is nothing more important than the certainty of intention. First this paper will examine without clarity of intention to form a trust, no legitimate declaration of trust will exist. There will be no need to look further into certainty of subject matter and certainty of objects if intention is not present. Second this paper will discuss the importance the courts have placed on determining intention such as i) imperative and precatory words; ii) creation of trust by conduct; and iii) Equity will not ‘perfect an imperfect gift’ by creating a trust. Third it will discuss the importance of subject matter and objects. Fifth this paper will examine academic opinion on the importance of intention. Lastly this paper will conclude its findings.
Certainty is a necessary requirement for the legitimacy of a trust. Generally, one may derive from the provisions of a trust instrument the testator’s wish for all of his or her property to be held on ‘trust’. Certainty of intention is the first of the three types of certainty and requires that a settlor's actions or words be sufficiently apparent in order to establish a trust, along with the subject matter and defining those who will benefit. [1]
The explanation for the need for intention is that the trustee must first comprehend their obligation. Second, if the settlor's estate ever contests the trust, the court must act clearly and with a thorough understanding of the settlor's intentions. The settlor does not need to have a subjective wish to establish a trust; rather, they must demonstrate purpose that may be construed as an intention to establish a trust in light of applicable legal doctrine. This is a matter of construing the relevant documents and drawing conclusions from the settlor's words or actions in light of all the facts of the case. Section 21 of the Administration of Justice Act 1982 states extrinsic evidence, such as proof of the testator’s purpose, may be admissible to aid in the reading of a will.
The settlor must explain his or her desire to establish a trust or comparable set of arrangements, since courts will not infer it (Re Schebsman [2]). To prove intention, it is said that imperative words or acts are necessary. Precatory words or actions will not be acceptable. As Maitland discovered at the turn of the nineteenth century, the courts are not looking for technical phrases; trusts may be established using the most untechnical of language. [3]
The importance of intention has been emphasised by the courts, who have been reluctant to recognise the existence of a trust when the settlor's evident intention is called into question, particularly when the settlor utilises precatory language. To do differently, according to James L.J. in Lambes v Eames [4] amount to ‘officious kindness’.
In Re Adams and the Kensington Vestry [5], the Court of Appeal was faced with determining certainty of intention, a critical issue, in the case where a testator’s property was bequeathed, “…to the absolute use of [his] wife, … in full confidence that she will do what is right as to the disposal thereof between my children, either in her lifetime or by will after her decease”. In this case, it was decided that the wife received the property as a gift, rather than through a trust. In this instance, no trust was created. Cotton LJ highlighted ‘previous cases’ in which clarity of intention was considered less strictly than is now customary.
Re Adams is sometimes contrasted with Comiskey v Bowring-Hanbury, [6]where the nieces were to receive whatever remaining from the estate in accordance with the terms of the wife’s will; alternatively, the nieces might receive an equal share if the wife was unable to do so. It is worth noting that both Re Adams and Comiskey had sentences that contained the exact wording, in “full confidence”. Having stated that, despite the fact that this was previously followed by the court, the weight given to these words has been reduced. It was no longer recommended to attach special value to certain phrases; rather, the context of a sentence was seen more significant.
It should be emphasised that modern courts are more likely to attempt to validate a trust than judges in certain past cases, which may have been more willing to invalidate a trust in order to uphold certainty rules. The modern judges of Equity are more secure in their ability to administer a trust, even if its meaning is uncertain. Courts are increasingly prepared to establish a trust based on the flimsiest proof of benevolent intent. This change in certainty has also been observed in other domains, including an unidentified selection of assets and a loosely defined group of persons.
Indeed, one may argue that using the term ‘trust’ while forming one is redundant. If a document must be read, regardless of whether it is a will or a trust deed, a court’s attempt to demonstrate the settlor's intention is a very straightforward endeavour. Having stated that, a situation in which a document does not validate a trust becomes far more complicated. This point was made by the court in Paul v Constance. [7] Mr Constance informed Ms Paul that the money in his account belonged to both of them equally. The two utilised the account's funds to make joint purchases and also used the account to deposit their bingo wins. Mr Constance’s wife, on the other hand, was legally entitled to the money in his account upon his death under the Administration of Estates Act 1925; regardless of his intentions, Mr Constance had never written a will or divorced. Ms Paul filed a claim for the money in the account, believing it to be hers. Mr Constance and Ms Paul, the Court of Appeal ruled, were “simple people,” and their lack of formality should have been considered.
Even though a trust had been created, Scarman LJ acknowledged that determining the precise date of creation of the declaration of trust was difficult. As a result, the ambulatory character of the declaration of trust might have posed difficulties for Mr Constance, the trustee; there was no clear point in time where he assumed the responsibilities of a trustee. Additionally, a broad intention to benefit should not be construed as an explicit intent to form a trust. This opinion is affirmed by Moffat, who stated that this particular case assigned unfounded specificity to Mr Constance’s statements, thereby muddying the division between gifts and trusts.[8]
Additionally, it is difficult to accept Paul v Constance in light of Jones v Lock, [9] an earlier case in which a father gave his son a £900 check but died before he could endorse it. Regardless of his declaration, “I give this to baby. It is for himself,” The court disagreed with the father’s assertion that he had transferred his claim to the cheque to his child. Rather than that, the court characterised the father’s statements as "one-off," arguing that the phrase was insufficient to establish the father's unambiguous intention to deliver the cheque to his child. The resemblance between the terminology used in Paul v Constance and Jones v Lock is troubling; both instances employed general terms, implying that purpose was not sufficiently clear in either case. Having said that, there are significant distinctions between the two cases; in Paul v Constance, the terms used were mutually agreed upon, repeated many times, and independently verified by the bank manager. In this instance, their actions took precedence above their words. Gardner adds another dimension to this scenario by arguing that the disparities between Paul v Constance and Jones v Lock just reflect a shift in the courts' thinking over time. [10]
Moreover to create a trust, there must be in existence some type of trust property. When a trust is created, exactly what the trust property is has to be specified at the outset along with the beneficial interest to be taken in the trust property. If the trust property is not defined with sufficient precision then the trust will be invalid. [11] It was held in Re Golay’s Will Trusts [12] that there was certainty of subject matter as the court could determine what was ‘reasonable income’ as this, in itself, contained a degree of objectivity. It should be noted that it has been doubted whether the decision in Re Golay’s Will Trusts is correct in the light of other authorities. [13] However, it has been argued in Parker and Mellows that, whilst the decision in Re Golay’s Will was inconsistent with contemporaneous decisions on certainty, it does seem to be consistent with the more modern practice of the courts in trying to avoid holding dispositions void for uncertainty.[14] In Re Leek [15] Jenkins L.J. stated that “the validity of the trust must be tested by considering its terms and asking oneself whether the court would be able to control and execute the trust if called upon to do so.” Therefore it is argued that the modern law of Equity will not fail a trust if it is administrative workable and thus the equitable intention being paramount over its administration.
Additionally, without identifiable beneficiaries the testator's purpose will fail. Although the term ‘objects’ is a general phrase, it is used here to describe or define the beneficiaries, more exactly who the beneficiaries are, what they are to get, and when they will receive it. The issue here is that the beneficiaries must essentially be certain. Lord Willberforce in McPhail v Doulton, set out the basic rule that: ‘…a trust should be upheld if there is sufficient practical certainty in its definition for it to be carried out, if necessary with the administrative assistance of the court, according to the expressed intention of the settlor’. [16] Lord Willberforce has indicated that the object of a trust does not have to be certain, only ‘sufficient’ with ‘practical certainty’; additionally, the ‘administrative assistance’ provision implies that certain types of cases will be brought to court on a constructive summons, with the court providing constructive meaning to a trust instrument.
However, it is contended that the appointment of a beneficiary is not required. In Vadim Schmidt v Rosewood Trust Ltd, [17] a wealthy Russian billionaire (Mr Vitali Schmidt) established two different trusts (The Angora Trust and The Everest Trust) in 1992 and 1995 with co-settlors who were also directors of Lukoil (Russia's largest and one of the world's largest oil companies). Mr Vitali Schmidt has delegated significant authority to the professional trustees. The settlor had empowered the trustee to appoint a beneficiary (his son) at a later date, under a trust power.
Lord Walker had noticed, without implying impropriety or criminality, that a growing number of rich persons are increasingly using discretionary trusts, particularly offshore trusts, to seek tax benefits. Typically, under such circumstances, trust documents are constructed in broad words and attempts are taken to conceal the settlor’s identity, making it sometimes impossible to ascertain the trust’s genuine purpose.
McCall thinks that one of Lord Walker's motivations in Rosewood was “a slight impatience, and indeed fear, of some attempts to stretch the workings of equity to maximise the scope for asset protection and tax avoidance.” McCall is referring to the practise of establishing an “invisible trusteeship,” which converts the trust into a sort of vanishing trick for property over which the settlor intends to retain ownership. [18] Similarly, Matthews discusses the usage of so-called “black-hole” trusts in offshore countries, which are trusts “where the beneficial ownership of the trust assets is on the face of it impossible to determine”, as though they have vanished into a “black hole”. [19] Using the above example it is argued a trust can be created without an object and what remains paramount is the intention to create the trust.
In express trust, intent is critical. Langbein drew a parallel between express trusts and contracts - the concept of “freedom of trusts” - because an express trust can similarly be viewed as a bargain struck between settlor and trustee, with the bargain defining the terms under which the trustee is to hold property; in order to ascertain the trustee’s powers and content of beneficiaries rights, we must look first to the trust instrument, which serves as an expression of the settlor’s intentions. [20]
While general law provides default norms, the major source of the trustee’s powers and obligations is the trust instrument itself - trusts formed to circumvent default laws. Take note that the irreducible core remains. Numerous disagreements do not concern general rules, but rather the development of a trust instrument to ascertain the settlor’s objective intentions (Re Sigma Finance Corporation [21]: emphasised importance of construction of words to determine intention, to express private trust).
Following from this, intention is the most import consideration because of the very function of a private express trust. It is used to control complex beneficial entitlements to property by way of gift. Rudden contends that a trust is simply a long-term gift that controls property interactions. [22] It enables the settlor to create a more sophisticated property right than is authorised under Common Law – for example, under Common Law, the settlor cannot create a legal life interest. Another example is that the trust enables the settlor to impose restrictions on the beneficiary's ability to dispose of property freely. It can be argued that this is driven by the human need to exert influence over the lives of others - for instance, a settlor may put vesting restrictions on gifts - prior to the condition being satisfied, the gift to the beneficiary is dependent, vesting in interest only upon satisfaction, i.e. marriage. The intention here forms the dominant part of the design of the trust.
If we are unable to establish intention the trust fails. The certainty of subject matter and the objects of a trust are contingent on their being intention to create a trust. While these other certainties play some importance, without intention there will be no need to look further into if the certainty of subject matter and certainty of objects are present. So for this reason this paper agrees with the statement in the affirmative that ‘nothing is more important than the settlor’s or the testator’s intention’. Without the intention to establish trust, there can be no express trust. The crucial question is whether the settlor meant to bind the trustee legally to keep and administer the property on behalf of the designated beneficiary.
Bibliography
Books
Gardner, Simon, An introduction to the law of trusts, (Oxford University Press, 2011)
Lawson, F.H., and Bernard Rudden, The law of property, 3rd ed., (Oxford: Oxford University Press, 2002)
Maitland, Frederic William. ‘Equity: Also, the forms of action at common law: Two courses of lectures’, Ed. A. H. Chaytor and W. J. Whittaker, (Cambridge University Press 1913).
Moffat, Graham, and Gerard MD Bean, Trusts law: text and materials, (Cambridge University Press, 2005)
Oakley, A. J., Parker and Mellows, The Modern Law of Trusts, (Sweet & Maxwell, 2006)
Journals
Langbein, John H., ‘The secret life of the trust: the trust as an instrument of commerce’, (1997) 107 Yale Law Journal, 165.
Matthews, P, “The Black Hole Trust – uses, abuses and possible reforms: Part 1”, (2002) (1), Private Client Business, 42-54, p42
McCall, C, “Schmidt v Rosewood: the end of the Trust as a Disappearing Trick”, (2003) Private Client Business, pp358-363, p359
Footnotes
[1] Knight v. Knight (1840) 3 Beav 148
[2] [1944] Ch 83
[3] Maitland, Frederic William. 1913. Equity: Also, the forms of action at common law: Two courses of lectures. Ed. A. H. Chaytor and W. J. Whittaker. Cambridge: Cambridge University Press.
[4] (1871) 6 Ch App 597
[5] (1884) 27 ChD 394
[6] [1905] AC 84
[7] [1977] 1 WLR 527
[8] Moffat, Graham, and Gerard MD Bean, Trusts law: text and materials, (Cambridge University Press, 2005)
[9] (1865) 1 Ch App 25
[10] Gardner, Simon, An introduction to the law of trusts, (Oxford University Press, 2011)
[11] Palmer v Simmonds (1854) 2 Drew 221; and Sprange v Barnard (1789) 2 Bro CC 585
[12] [1965] 1 WLR 969
[13] Re Kolb's Will Trusts [1962] Ch. 531
[14] Oakley, A. J., Parker and Mellows, The Modern Law of Trusts, (Sweet & Maxwell, 2006)
[15] [1967] 12 WLUK 85
[16] [1971] A.C. 424, at 450
[17] [2003] 2 AC 709
[18] McCall, C, “Schmidt v Rosewood: the end of the Trust as a Disappearing Trick”, (2003) Private Client Business, pp358-363, p.359
[19] Matthews, P, “The Black Hole Trust – uses, abuses and possible reforms: Part 1”, (2002) (1) Private Client Business, 42-54, p.42
[20] Langbein, John H., ‘The secret life of the trust: the trust as an instrument of commerce’, (1997) 107 Yale Law Journal, 165.
[21] [2009] UKSC 2
[22] Lawson, F.H., and Bernard Rudden, The law of property, 3rd ed., (Oxford: Oxford University Press, 2002) p.55
