Family Trusts, Certainty of Objects, Certainty of Intention

Dermot is one of the trustees to a family trust. The beneficiaries are Geraldine and Paul, who are brother and sister.

Under the terms of the trust Geraldine and Paul both receive life interests in the property. On their death the property is to pass to any of their children who attain the age of 25.

Paul has two children, Flora, aged 24 and Hotspur, aged 15. Flora has recently qualified as a veterinary surgeon and is asking for a sum of money from the trust in order to set up her own practice. Paul is keen for Flora
to receive the money. Hotspur is a competent polo player and Paul wishes him to attend a public school with dedicated polo facilities. This would entail boarding and school fees of £20,000 per annum and any other additional costs.

Geraldine has three children, aged 6, 7, and 8. Geraldine wants to move the family to live in northern Spain in order to avoid paying UK tax. She has asked Dermot if the trust can be transferred to Spain.

One of the assets of the trust is a small private company. When the former Managing Director of the company retired two years ago Dermot took over the position for an annual salary of £50,000 plus profit sharing. Since Dermot has become involved in the company his business acumen has led to a massive increase in company business. This has proved extremely profitable to the trust.

Discuss Dermot's powers and duties as a trustee in relation to the above and analyse the likely outcome of the suggestion that the trust should be transferred to Spain.

On first glance under the three certainties set out in the leading case in this area of Knight v Knight 1 this trust is not likely to be constituted as valid. However it is difficult to tell if the wording of the question is meant to portray how the trust is actually worded. The trust must meet the test of certainty of intention test, this trust appears to meet the test, stating that it is for the beneficiaries to be held for life with the remainder to be distributed upon death to the children that have reached 25. Passing the test of Certainty of objects would seem simple enough. They are Paul and Geraldine and any of their children that obtain 25. The subject matter of the trust is stated as 'property' in the question, and this would seem to be were the trust crosses uneasy ground. Is this likely to be held to be sufficiently certain? If not the trust will fail. On the face of it he trust seems not to detail how the property will be separated amongst the beneficiaries either, which again, needless to say problematic for the trust.

It is quite common for the trust to contain express powers allowing the trustee to vary the nature of the trust instrument. It seems that this has not been done here. Yet this is not to say that the trust cannot be altered anyway. One way to vary the trust is under the rule on Saunders v Vautie 2 r. The beneficiaries, (and they must be under all circumstances acting collectively) as adults, and between them entitled to the entirety of the trust property, can halt the trust and then go on to resettle the property on the terms agreeable to themselves. However the rule would not be useful here as the trust property is not necessarily going to go to the current children, as more may be born yet. Indeed, more prominently, only one of the people under 25 is infact an adult who could be party to the action. Does this mean that the trust cannot be varied then?

The Variation of Trusts Act 1958 may be the answer to the prayers of the intended variation. In any application the plaintiffs must be the adult beneficiaries. Application must be supported by affidavits to which a draft scheme of the arrangement will be exhibited. The trustees along with a specified class that are able to have a future interest are the defendants. 3 Under section 1 of the Act the court is vested with the power of the court is to apply its discretion on behalf of several categories of person, including children and the unborn. The proviso of the rule is the court must be satisfied that the alteration of the trust is for the benefit of the people that the variation is advocated to benefit and that the people under the arrangement as a whole will benefit.

The Variation Act Section 1(1)(b) allows the court to consent on behalf of "any person who may become entitled, directly or indirectly, to an interest under the trusts as being at a future date or on the happening of a future event a person of any specified description or a member of any specified class of persons." Yet the court will not vary the interests of people that are sui iuris (legally able) to take the action themselves. For example Flora.

The 1958 Act allows a benefit to be anything that is financially, socially or morally beneficial4. Equally it may be the facilitation of the administration of the settlement. 5 As R.B.M Cottereell reamrked - " the benefit and the measure of it is simply what the court says it is 6 " Any variation made by the court takes place immediately the court order is made without the need for any further instrument. Each party that gave its consent to it will then be bound by it; those adults that did not consent are not bound by the judgement. Thus in Re Holt's settlement7 separate consent form the adult beneficiaries; was said to be required yet it need not be in writing.8 Flora could block the variation of the trust if she wants, however on the face of the facts we are told that she wants the money, so such an action, whilst possible is not very likely given the current scenario.

Re Holt's settlement. 9 Demonstrates how the court will not allow changes that constitute a complete resettlement of the trust, as pointed out in the case of Megarry J stated in Re Ball's settlement "if an arrangement changes the whole substratum of the trust then it may well be that it cannot be regarded merely as varying the trust. But if an arrangement whilst leaving the substratum effectuate the purpose of the trust by other means, it may still be possible to regard the arrangement as merely varying the trust" It is not likely that this case would be seen as anything more than a variation then

As regards to the allocation of the trust to Spain, one of the main uses of the Act is to effectuate a move the trust to reap the rewards of tax saving. If it is deemed to be of the benefit to all of the beneficiaries, born and unborn than there is no reason, that the courts should not approve it.

What is the position if Dermot wants to block these variations? In some cases the settlors or trustees views been held to be highly relevant such as in the case of Re Steed's WT10 where the settlors views about the concern for the welfare of the beneficiary under the trust were taken into account, in most cases the settlor's or trustee's views are rarely important, and in the case of Re Remant's ST11 they were simply overridden by the court. In the case of Goulding v James 12where a variation was clearly for the benefit of the testatrix's unborn great grandchildren for whom approval was sought, and would have frustrated then interests of two adult beneficiaries it was held that the views of the settlor had no relevance, it was for the adult beneficiaries to raise the objection.

How likely is it that the moving of the trust to Spain can be blocked? It is extremely unlikely, as it would seem to benefit all including potentially any unborn children. Dermot would need to adduce evidence to the contrary of this.

Dermot's main hope of success in blocking the variations is in regards to those sought by Paul. The court, making the variation, must regard those that are unborn under section 1 (c) of the Variation of Trusts Act 1958. Dermot is likely to be able to block the variation of the trust if he defends the application on the grounds that the unborn children of Paul and Geraldine will have their benefits under the trusts effected to their detriment. It is very unlikely that the courts would allow the variation until the death of Paul and Geraldine. Even then, pending another application to the courts they may be minded that the proposed variations are still not in the interests of all the potential beneficiaries.

The trustee may not place himself in a position where his personal interest and the interests of the trust conflict13. Th rational behind this rule is in order to obtain a high level confidence in the trust institution, there are high standards of conduct for the trustee. Unless he is expressly authorised, he is under no circumstances even allowed to profit from the trust. If the agreement to profit share is held to be valid then Dermot will lawfully be abl 14. fail, and is more than likely to do so.

The test for certainty of subject matter has two parts to it, firstly, the subject matter as whole is one aspect of the test, and secondly if the subject matter is certain, the question of how it is to be split amongst the beneficiaries must then be asked. Failure as to pass either parts of this test will be fatal to the trust instrument. An example of the first is the case of Palmer v Simmonds 15 Here a testatrix left the bulk of her residuary estate, and whilst it was held that the word bulk was in common use, and commonly understood to mean a lot of, it did not refer to anything sufficiently definite for the trust to have as its subject matter. A term such as simply the residuary estate would have been sufficiently certain it was judged however. Thus in this case, if the trust is really in the terms as the question seems to suggest, such as, "I leave all my property on trust for Dermot", then this would be sufficiently certain. However if the trust specifies further than this, something to the effect of "I leave some of my property to Dermot" without specifying what some is does then it will not be sufficiently certain to allow the trust mechanism to be properly constituted legally?

If the subject matter as a whole is judged to be certain and identifiable, the question then arises as to whether the beneficial interest to be taken in the trust property is identifiable in itself. An example of this principle is demonstrated n the leading case of Boyce v Boyce 16 where the testator left "four houses in trust, one for Maria, to do with whatever she shall choose and the other three to Charlotte." Maria predeceased the testator. The effect of this was to cause the gift to her to lapse. One of the houses thus fell into residue. It was held that Charlotte's gift failed for uncertainty as to her beneficial interest as it was impossible to decide which of the three houses she was entitled to. The result was that the four properties were held on resulting trust for the testator's estate. If Maria had survived the testator, then the trust would have been valid as Maria's estate could have made the choice and Charlotte would have been certain as to her beneficial entitlement.
Certainly this trust could be said not to be acceptable as to the objects that it relates to. If the children reach the age of 25 then how exactly is the property to be split? This is very likely to prompt the court that the trust will fail.

What if the trust is held to fail? If the trust is held to fail then the precise consequences depend on the circumstances. If there is absence of certainty to subject matter, as here, then there will be a resulting trust to the residuary legatee, in otherwords Dermot, presuming of course that the settlor has died. If the setttlor is still alive then the property will pass back to the settlor on a resulting trust and he is free to then do with it as he pleases, be it redistribute the property or keep it to himself.

  1. [1840] 3 Beav 148[^ Return]
  2. [1841] 10 LJ Ch 354[^ Return]
  3. Re Druce' s S.T. [1962] 1 WLR 363[^ Return]
  4. Re Towler's S.T.[1964] Ch. 158[^ Return]
  5. Re University of London Charitable Trusts [1964] Ch. 282[^ Return]
  6. [1971] 34 M.LR.98[^ Return]
  7. [1969] 1 Ch 100 115[^ Return]
  8. Under section 53(1) (c) Law of Property Act 1925 the old requirement was that it had to be in writing.[^ Return]
  9. [1969] 1 Ch. 574[^ Return]
  10. [1960] Ch 407[^ Return]
  11. [1970] Ch 560[^ Return]
  12. [1997] 2 All ER 239.[^ Return]
  13. See Bray v Ford [1896] AC 44 [^ Return]
  14. [1967] 2 AC 46 at 128-129[^ Return]
  15. [1854] 2 Drew 221[^ Return]
  16. (1849) 16 Sim 476[^ Return]

BIBLIOGRAPHY

Hayton. D.- Commentary and cases on Law of Trust and Equitable Remedies

Moffat. G.- Trusts Law: Texts and Materials Butterworths Law

Todd. P. - Textbook on Trusts 4th ed Blackstone's Press

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