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What Is Involved In Creating A Valid Trust?



A Settlor creates a Trust by transferring property, to one or more Trustees, to be held on trust for one or more Beneficiaries. Typically, a Trust is created by way of a trust instrument called a “Deed of Settlement” or a “Declaration of Trust”.

The trust instrument imposes a binding obligation on the Trustee to hold, manage and confer the benefit of the property to the Beneficiaries.

The requirements to create a valid Trust are as follows.

The Trust Must Be Properly Constituted

A Trust must be properly constituted by the Settlor lawfully vesting the trust property into the Trust.

Where property is not lawfully transferred to the Trust, then the property remains in the ownership of the Settlor and does not become trust property. This can arise where either the Settlor lacks the legal title required to transfer the property, or the appropriate legal formalities have not been observed.

The Three Certainties

In order for an equitable obligation to be created and enforceable upon the Trustee, the ‘three certainties’ must be present in the trust instrument:

1. Certainty of Intention

It must be clear from the wording of the trust instrument that the Settlor intended to create a Trust and to transfer his ownership of the Trust fund to the Trustee and the Beneficiary respectively.

Without certainty of intention, a Trust will not be valid as it is not clear that the intention of the Settlor is to create a Trust.

2. Certainty of Subject Matter

A Trust is not valid unless it is clear what property forms part of the Trust. The Trustee must be certain about what is intended to be the trust property.

In the absence of certainty of subject matter, a Trust is void and the property remains in the ownership of the purported Settlor.

3. Certainty of Objects

A Trustee must be able to identify with certainty who is a Beneficiary and who is not a Beneficiary.

A Trustee who cannot identify the Beneficiaries cannot take the property for their own benefit and must hold the property on trust for the Settlor. In this scenario, beneficial interest always remained with the Settlor therefore the undertaking achieved nothing.

The Best Approach

Seek professional advice from those with experience and expertise in the field.

The above merely deals with the creation of a Trust. There are also many complex issues to be considered with the administration of Trusts which not dealt with correctly, may result in significant risk for your client and possible litigation.   New Call-to-action

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