The 3 Certainties
When disputes involving trusts are brought before a court one of the first steps a judge will examine is the foundational issue of whether the trust is valid. If a trust is not validly established it does not exist. A valid trust must meet the “three certainties”, being:
- certainty of intention
- certainty of subject matter; and
- certainty of objects.
Certainty of Intention
The certainty of intention answers the question of what is the purpose behind establishing the trust and identifies the goals of the person establishing a trust – the Settlor. A Trust Deed or Trust Agreement are documents used to record the establishment of a trust. The intention of the Settlor should be clearly established in this document for reference to throughout the term of the trust. While there are no formal requirements or technical terms that must be used here, the intent of a person to establish a trust must be clear. Some commonly used words and phrases include ‘in trust’ and ‘on trust for’ although these words alone do not establish the certainty, they are used together with definitions and clauses to provide a clear declaration of the settlor’s intent to create a trust. Vague or ambiguous terms must be avoided as they create uncertainty and may not hold up under scrutiny by the courts.
A practical way of establishing the certainty of intention is by including a letter of wishes or words of recommendation at the time of establishment of the trust. This letter would include words of guidance or recommendations as to how trust assets are to be held and managed on behalf of the beneficiaries. The letter expresses the belief that a person to whom property is given – the Trustee – will do something with it rather than be directed by the Settlor. Words that may establish intent by way of a letter would include ‘request’, ‘desire’, ‘hope’, etc.
Certainty of intention is also established by identifying the people or organisations who will benefit from the trust. A trust may not be valid when a Settlor is the sole beneficiary of the trust if there is no evidence the Settlor intends to relinquish control of the subject matter of the trust to a third party – the Trustee.
Certainty of Subject Matter
The subject matter of the trust, or, the property held by the trust, must be certain. There can be no trust if there is no property held in trust.
Subject matter may include any asset, property or partial interest in property – except property that by law cannot be transferred or disposed of). It is common for a Trust Deed to identify a nominal initial settlement amount establishing the preliminary subject matter of the trust. Once documented a Settlor may then gift assets to the trust such as a cash, investments or other personal property. To be accepted and become part of the subject matter of the trust, these contributions must be clearly identified and property recorded. A vague amount, description or reference to any item may not be sufficient to show certainty about the property that is bound by the Trust Agreement.
Certainty of Objects
The person establishing the trust, the Settlor, must clearly identify the purpose of the trust, the people who are intended to benefit from the trust and the extent of the benefit – these are often referred to as the ‘objects’ of the trust.
Similar to what has been previously discussed, the more descriptive and identifiable the objects of the trust are, the better; vague, incomplete or insufficiently described beneficiaries may render a trust void for certainty of object. The discretion given to a trustee to select objects will be valid only if the object from which the trustee may choose are clearly designated. Practically speaking, it is best to set out a specific schedule of the objects of the trust when drafting the Trust Agreement. Any amendments to the objects of the Trust must also be clearly recorded to maintain this requirement.
In summary, when establishing a trust for the purpose of asset protection, each of the three certainties must be clearly set out and referenced throughout the term of the trust period to ensure the trust is valid.
