Knight v Knight

"Knight v Knight" (1840) 3 Beav 148 is a landmark case in English equity law. It espouses the test that determines whether a trust has been validly constituted. This has the effect of determining whether assets can be disposed of in wills, or whether the wording of the will is too vague to allow beneficiaries to collect what appears on the face of the will to be theirs. The case has been followed in most common law jurisdictions.

Ruling

Lord Langdale MR formulated the test, known as the "three certainties". This test specified that, for a valid trust, there must be certainty of:

* Intention (there must be intention to create a trust)
* Subject matter (the assets constituting the trust fund must be readily determinable)
* Objects (the people to whom the trustees are to owe a duty must be readily determinable)

The qualifications to these certainties are set out below.

The Three Certainties

Intention

There is no formula that specifies whether an intention to create a trust has been demonstrated. Equity looks towards the intent, not the form. Thus, the use of the word "trust", while helpful is not essential. Even if the word "Trust" is used, this alone may not necessarily implicate the presence of one: "Midland Bank v Wyatt" [1995] .

The use of precatory words (words indicating a hope or wish that the recipient will act in a certain way), such as "In full confidence my wife will do what is right in disposing of my assets", are not sufficient to create a trust, as the intention is not sufficiently certain from the words: "Re Adams and the Kensington Vestry" (1884).

To avoid a trust being void for want of intention, imperative words should be used in the trust deed or will's wording, e.g. "I direct my estate will be equally divided between my children".

Subject Matter

Any property to which the legal and equitable titles are owned may be the subject of a trust. However, this must be specifically identified, or it may fall foul of the certainty of subject matter rule. There are limited exceptions to this.

In "Palmer v Simmonds" (1854), the "bulk of my said residuary estate" was deemed insufficient to create a trust, as the word bulk was too ambiguous as to what subject matter should fall within its remit. "Bulk" has no clear meaning. However, if a will was to provide "the remainder of my estate to X", X would be able to enjoy the benefits as the remainder is easily calculable once the other beneficiaries have taken their share: "Re Last" [1958] .

If the property is intangible, no segregation from other property is required. Thus a trust to you for 50 shares from my 950 in a company would be valid, as they are intangible and materially similar: "Hunter v Moss" [1994] However, a trust guaranteeing you 50 bottles of wine from the settlor's cellar would not be, as they are tangible and it is impossible to tell which bottles the settlor was allowing the beneficiary to have.

To avoid a trust failing for want of subject matter, the settlor must specify precisely what property is to be taken, and in what shares it is to be apportioned. For example, "my house to benefit my children equally" would be valid, whereas "my house to benefit my children unequally" would not be, as the settlor did not specified in what shares it should be taken.

Objects

There must be a beneficiary (object) of the trust: it must be in favour of certain persons. This is primarily so there is someone who can enforce the trust, although requiring beneficiaries also helps to prevent fraud on the part of the trustee.

Where there is a fixed trust (the interests of the beneficiaries are apportioned exactly in the trust settlement), for example: "Half my estate to X and half to Y", the courts take a strict approach. A fixed trust is void unless every beneficiary is ascertainable: "Morice v Bishop of Durham" (1804).

Where there is a discretionary trust (where a trustee has discretion to select who, amongst a class of beneficiaries will benefit from the trust), the test is the "any given postulent test". This means determining whether any potential claimant can be said to be part of the class or not: "McPhail v Doulton" [1971] . Thus, a trust to benefit "all my employees" after my death would be enforceable. However, a trust to benefit "my old friends" would not be, as this is not a sufficiently certain class: "Re Barlow" [1970] .

The case law regarding this area is exceedingly complex, and classes that are too broad may be invalid as they are "administratively unworkable", so a trust to benefit "all the people who edit Wikipedia" may be technically valid, as this could be determined via IP tracing, but void as the class of people is too large to be workable.

To avoid falling foul of the beneficiary rule, a settlor should, wherever possible, identify individuals who are to receive a benefit by name.

Exceptions

* Charitable trusts are exempt from the certainty of objects principle, as they do not need beneficiaries to enforce them. This is done by the Attorney General, or the Charities Commission with his consent.
* Non-charitable purpose trusts may, in certain anomalous cases, exist without a specified beneficiary.

Terminology

* A settlor / testator is someone who is leaving property, on trust, for the benefit of others. Also, often referred to as the "author" of the trust.
* A trustee holds property on behalf of the beneficiary.
* A beneficiary receives the benefit of the trust.

There is nothing in law that bars the settlor of the trust to be one of the trustees.