Trustee Knowledge Series - Foundation Paper Two - Requirements for a Valid Trust
Trusts1 can be established orally, in writing or by conduct (article 7 of the Trusts (Jersey) Law 1984 (as amended)), and may be established during a settlor’s lifetime (an inter vivos trust) or upon death under the terms of the settlor’s will (a testamentary or will trust). Regardless of how a trust is established, the following requirements must be met so that a trust is not declared invalid with the result that the assets revert back into the settlor’s estate:
CERTAINTY OF SUBJECT MATTER
The trust property must be clearly identified. For example, a declaration that a trust is to contain “the bulk of my estate” is insufficient
CERTAINTY OF OBJECTS
It must be possible to determine who the beneficiaries (the objects) are. For “fixed” trusts it must be possible to identify all the beneficiaries in person, but for “discretionary” trusts it must be possible for the trustees to say if the beneficiary comes within a class of identifiable potential beneficiaries.
CERTAINTY OF INTENTION
The settlor must have genuinely intended to create a trust and the court will look at the entire context in determining this, including, where necessary, subsequent behaviour. However, it is always important to use words that make it clear a trust is intended – for example, a settlor who gave his property by will to his wife “in full confidence that she would do what was right as to the disposal thereof between his children, either in her lifetime or by will after her decease” had not done enough to create a trust, but had merely given the property to his widow absolutely. It is also important to note that where the settlor and trustee have a common intention, the acts and documents do not create the legal rights and obligations which they give the appearance of creating, the courts may hold that the trust is a formal “sham” – i.e. is not a valid trust.
Further, to create a valid trust the settlor must divest themselves of their assets completely, as a trust is only established upon the property being transferred to the trustee – not on the signing of the trust instrument. This will involve fulfilling the required formalities to transfer the assets such as signing share transfer forms, transferring property registration etc. It is essential that the settlor does everything they can to ensure the property is transferred.
1This relates to “private” trusts – special rules apply to some non-private trusts such as unit trusts, purpose trusts etc.
