The Three Certainties for Trust Creation

Building Trust That Stands the Test of Time

 

Imagine a family torn apart by disputes over a trust that was meant to secure their financial future. The patriarch had created a trust with the best intentions, hoping to ensure his children and grandchildren were cared for. However, the language in the trust was vague, the assets were not clearly defined, and the intended beneficiaries were unclear. What should have been a lasting legacy became a source of conflict, with the trust ultimately invalidated by the courts. The family not only lost time and money in legal battles but also suffered irreparable damage to their relationships.

 

This story is far too common, yet entirely avoidable. At the heart of every valid trust lie three critical elements known as the three certainties: certainty of intention, certainty of subject matter, and certainty of objects. These principles ensure that the trust is legally enforceable, clearly defines its assets, and leaves no ambiguity about its beneficiaries. Without them, even the most well-meaning trust can fail, leading to disputes, financial loss, and unintended consequences.

 

In this blog, we’ll explore:

• Certainty of Intention: How clear language establishes the settlor’s intent and imposes enforceable duties on the trustee.
• Certainty of Subject Matter: Why precisely defining the trust property is crucial for its validity.
• Certainty of Objects: How to avoid disputes by clearly identifying beneficiaries or purposes.

We’ll dive into relevant case law, including landmark rulings like Re Walker, Re Goldcorp Exchange Ltd, and Re Baden’s Deed Trusts, and show you how these principles apply to families and businesses. Finally, we’ll provide actionable steps to help you create a trust that protects your wealth and aligns with your goals.

 

Failing to meet the three certainties can turn a well-intentioned trust into a legal and financial nightmare. Read on to learn how to build trust that stands the test of time, and discover how Shajani CPA can guide you through every step of the process.  Let’s dive in.

 

Certainty of Intention: The First Pillar of Trust Creation

The certainty of intention is the cornerstone of any valid trust. It requires that the settlor clearly express an intention to create a trust and impose binding fiduciary duties on the trustee. Without this, courts may interpret the arrangement as something else entirely, such as a mere gift or a non-binding moral obligation. This section delves into the definition, importance, and practical applications of certainty of intention, supported by key legal precedents and actionable tips for families and business owners.

 

Definition and Importance of Certainty of Intention

Certainty of intention ensures that the settlor explicitly communicates their desire to create a trust. This communication is critical for establishing the legal relationship between the settlor, trustee, and beneficiaries. The trust must not only reflect the settlor’s intent but also impose enforceable fiduciary obligations on the trustee.

Why It Matters

1. Legal Validity: Without clear intention, the court cannot enforce the trust, potentially invalidating the arrangement.
2. Avoiding Misinterpretation: Ambiguity in the settlor’s words or actions may lead courts to interpret the arrangement as a gift or a simple moral obligation.
3. Preventing Disputes: Clear language ensures that all parties understand the settlor’s intent, reducing the risk of litigation among beneficiaries.

 

Key Case Law Analysis

Over the years, courts have developed guiding principles to determine whether the settlor’s intention meets the required certainty. Below are some landmark cases that provide valuable insights.

1. Knight v. Knight (1840)

This foundational case established the “three certainties” necessary for a valid trust: certainty of intention, certainty of subject matter, and certainty of objects. Lord Langdale held that, without clear evidence of intention, the trust cannot exist.

Key Takeaway: The intention to create a trust must be unambiguous and supported by evidence, either through written documentation or the settlor’s actions.

2. Re Walker

In this case, the court ruled that precatory words like “I hope” or “I wish” were insufficient to establish a trust. The lack of binding language resulted in the arrangement being interpreted as a gift rather than a trust.

Example: The will stated, “I hope my wife will use this money for our children’s benefit.” The court found this language too vague to impose a legal obligation.

Key Takeaway: To avoid ambiguity, the settlor must use definitive and binding language that clearly establishes fiduciary duties.

3. Re Adams and Kensington Vestry

This case further reinforced the insufficiency of precatory language. The testator’s will included the phrase “in full confidence that my wife will do what is right.” The court ruled that this wording failed to demonstrate an enforceable intention to create a trust.

Key Takeaway: Courts prioritize explicit fiduciary language, such as “shall hold in trust,” over expressions of hope or confidence.

 

Practical Implications for Families

For families with personal estates or family-owned enterprises, the lack of certainty of intention can lead to serious consequences, including disputes among beneficiaries, unintended asset distribution, or even the invalidation of the trust.

Avoiding Precatory Language

Vague expressions like “I hope” or “I request” should be replaced with definitive statements. For example:

• Insufficient: “I hope my trustee will distribute these assets wisely.”
• Sufficient: “I declare that my trustee shall hold these assets in trust for my children and distribute them equally.”

Protecting Family Assets

For families with complex assets, such as business shares or real estate, it is crucial to ensure that the settlor’s intentions are explicit. For example:

• A trust document stating, “The trustee shall hold my 100 shares in ABC Corp in trust for my grandchildren” eliminates ambiguity and ensures enforceability.

Preventing Beneficiary Disputes

Clear language minimizes the risk of disagreements among beneficiaries or challenges to the trust’s validity. For instance, specifying the conditions under which beneficiaries receive income or capital prevents misinterpretation.

 

Practical Tips for Drafting Certainty of Intention

Drafting a trust document requires meticulous attention to language and structure to ensure the settlor’s intentions are clear and legally enforceable.

1. Use Explicit Language

Always use binding terms like “declare,” “hold in trust,” or “shall.” These terms leave no room for ambiguity or misinterpretation.

Example:
Instead of: “I request that my trustee uses these funds for educational purposes.”
Use: “I declare that my trustee shall hold these funds in trust to cover the educational expenses of my grandchildren.”

2. Avoid Ambiguity

Include specific details about the trust’s purpose and conditions. Avoid vague or open-ended language that could lead to disputes or legal challenges.

Example: Instead of “support for my family,” specify “monthly payments of $2,000 to my spouse for living expenses.”

3. Seek Professional Guidance

Work with tax advisors, lawyers, and estate planners to ensure your trust document complies with Canadian trust law and reflects your intentions clearly.

• Drafting Expertise: Professionals can help avoid pitfalls like using precatory language or failing to address unique family dynamics.
• Tax Efficiency: A well-drafted trust can minimize tax liabilities while meeting your estate planning goals.

4. Include a Statement of Intent

Incorporating a statement of intent in the trust document reinforces the settlor’s intentions and provides additional clarity for the trustee and beneficiaries.

Example: “It is my intention to create this trust for the benefit of my children to provide financial security and support their educational and personal development.”

5. Review Regularly

Family and financial circumstances change over time. Regularly reviewing and updating the trust ensures that the document continues to reflect the settlor’s intentions and remains legally valid.

Example: A family trust established for minor children should be updated as they grow older and their needs change.

Conclusion

Certainty of intention is the foundation of any valid trust. Without clear and binding language, courts may misinterpret the settlor’s wishes, leading to unintended consequences. By understanding key case law and applying best practices in drafting trust documents, families and business owners can create enforceable trusts that protect their assets and align with their goals.

 

Certainty of Subject Matter: Defining the Foundation of a Valid Trust

The certainty of subject matter is the second pillar of trust creation, requiring that the trust property is clearly identified and that the beneficiaries’ interests in that property are precisely defined. Without this clarity, a trust cannot be valid or enforceable, leaving room for disputes, misinterpretation, and potential invalidation. In this section, we will explore the legal principles behind certainty of subject matter, analyze key case law, and provide practical guidance for families and business owners.

 

Definition and Importance

Certainty of subject matter ensures that the trust property—the assets being placed into the trust—is clearly defined and identifiable. Furthermore, it mandates that the interests of beneficiaries in that property are explicitly stated.

Why It Matters

1. Legal Validity: Without certainty, the court cannot determine what assets are held in trust or how they should be distributed, rendering the trust invalid.
2. Avoiding Disputes: Ambiguity in defining trust property can lead to conflicts among beneficiaries or trustees.
3. Efficient Administration: Trustees need clear instructions to manage and distribute trust property effectively.

Examples of Ambiguity

• Insufficient: “A portion of my estate.”
• Sufficient: “100 shares of XYZ Corporation, my residential property at 123 Main Street, and $50,000 held in my bank account.”

 

Key Case Law Analysis

Courts have consistently emphasized the importance of defining trust property with specificity. The following landmark cases illustrate how ambiguity can undermine the validity of a trust.

1. Sprange v. Barnard (1789)

In this case, the trust property was described as “what is left that he does not want.” The court ruled that this language was too vague to create a trust, as it did not clearly identify the property or the beneficiaries’ interests.

Key Takeaway: Trust property must be specifically described at the time of the trust’s creation. Ambiguous language, such as “what remains,” creates uncertainty and invalidates the trust.

2. Re London Wine Co (Shippers) Ltd (1986)

This case involved a company that sold wine and purportedly held certain bottles in trust for its customers. However, the bottles were not segregated or identifiable as belonging to individual customers. The court held that the trust failed because the subject matter was not clearly defined.

Key Takeaway: If the trust property is part of a larger, indistinguishable whole (e.g., fungible goods like wine, cash, or shares), it must be segregated and identifiable to satisfy the certainty of subject matter requirement.

3. Re Goldcorp Exchange Ltd (1995)

Similar to Re London Wine, this case involved customers who purchased gold bullion, which the company claimed to hold in trust. The court found that the gold was not segregated, making it impossible to determine which assets were held for specific customers. The trust was therefore invalid.

Key Takeaway: Trust property must be clearly allocated and identifiable, especially when dealing with fungible goods or assets held in bulk.

 

Practical Implications for Family Enterprises

For families with complex estates or family-owned enterprises, ensuring certainty of subject matter is crucial. Trust property often includes a combination of tangible and intangible assets, such as business shares, real estate, and intellectual property, which must be clearly defined to avoid legal challenges.

1. Defining Trust Property with Precision

When drafting trust documents, it is essential to describe each asset in detail. For example:

• Insufficient: “My business interests.”
• Sufficient: “My 40% shareholding in ABC Corp, including all voting and non-voting shares.”

2. Addressing Complex Assets

Family enterprises often hold assets like trademarks, patents, or digital assets. These must be explicitly included in the trust deed to ensure they are part of the trust property.

Example: “The intellectual property portfolio, including patents filed under #123456 and trademarks registered under #654321, related to XYZ Corporation.”

3. Allocating Beneficiary Interests

Clearly define the beneficiaries’ interests in the trust property, whether it’s equal shares, percentages, or discretionary allocations.

Example: “Each of my children shall receive an equal 25% interest in the trust property, consisting of my shares in ABC Corp.”

 

Avoiding Common Pitfalls

1. Vague Descriptions

Ambiguous language in trust documents can lead to disputes or invalidation. Always specify the assets being placed into the trust.

Example of a Pitfall: “I leave my estate in trust for my children” (unclear what constitutes the “estate”).

2. Lack of Segregation

If the trust property consists of fungible goods (e.g., cash, shares, or inventory), it must be segregated and identifiable.

Example of a Pitfall: Commingling trust assets with personal or business accounts, making it impossible to distinguish between them.

3. Overlooking Intangible Assets

Modern estates often include digital assets (e.g., domain names, cryptocurrency) and intellectual property. Failing to address these assets in the trust deed can create gaps in administration.

 

Practical Tips for Drafting Certainty of Subject Matter

1. Use Detailed Descriptions

When listing assets, provide specific details, such as account numbers, property addresses, or share certificates.

Example:

• Insufficient: “Bank accounts held in my name.”
• Sufficient: “Bank accounts held in my name at ABC Bank, account numbers 12345678 and 98765432.”

2. Segregate and Label Trust Assets

Ensure that trust property is physically or digitally segregated from personal or business assets. For example:

• Maintain separate bank accounts for trust funds.
• Clearly label shares or property held in trust.

3. Collaborate with Professionals

Engage estate planners, tax advisors, and accountants to ensure that trust property is clearly defined and properly allocated.

• Tax Efficiency: Work with tax advisors to minimize tax liabilities when transferring business shares or investment properties into a trust.
• Legal Compliance: Ensure the trust deed meets all provincial and federal legal requirements.

4. Regular Reviews

Trust property and beneficiaries’ interests can change over time. Regularly review and update the trust to reflect these changes.

Example: When acquiring new assets, update the trust deed to include them explicitly.

 

Conclusion

Certainty of subject matter is critical for creating a valid trust. By clearly identifying trust property and defining beneficiaries’ interests, families and business owners can avoid disputes, ensure smooth trust administration, and protect their assets. Key legal precedents like Sprange v. Barnard and Re Goldcorp Exchange Ltd highlight the importance of specificity and segregation when drafting trust documents.

 

Certainty of Objects (Beneficiaries): Ensuring Clarity and Enforceability in Trusts

The certainty of objects, also known as certainty of beneficiaries, is the third essential pillar for creating a valid trust. This requirement ensures that the beneficiaries of a trust—or the purposes in the case of charitable trusts—are clearly defined and identifiable. Without this clarity, the trustee cannot determine who is entitled to benefit, and the trust may fail. This section explores the definition, importance, key case law, and best practices to achieve certainty of objects, providing practical insights for families and business owners.

Definition and Importance

Certainty of objects requires that the beneficiaries or purposes of a trust be defined with sufficient clarity. Beneficiaries may include individuals, classes of people, or organizations, while charitable trusts must have a defined and lawful purpose.

Why It Matters

1. Trust Administration: Without clear identification of beneficiaries, trustees cannot fulfill their duties effectively, leading to potential disputes and mismanagement of assets.
2. Legal Validity: If beneficiaries or purposes are uncertain, the trust may fail, and the assets may revert to the settlor or their estate.
3. Avoiding Litigation: Ambiguity in defining beneficiaries often leads to costly legal disputes among potential claimants.

 

Key Case Law Analysis

Over time, courts have refined the principles governing certainty of objects, establishing clear tests and standards. The following cases highlight these developments and their practical implications.

1. Morice v. Bishop of Durham (1804)

This foundational case established the principle that every trust must have ascertainable beneficiaries or a defined purpose. The court emphasized that without certainty of objects, a trust cannot be enforced.

Case Summary: A trust created for “benevolent purposes” was deemed invalid because the term was too vague to define a specific class of beneficiaries or a charitable purpose.

Key Takeaway: Terms like “benevolent” or “family” are insufficient unless further defined. Beneficiaries or purposes must be specific enough to allow enforcement.

2. McPhail v. Doulton (1971)

This landmark case revolutionized the approach to certainty of objects for discretionary trusts. The House of Lords replaced the traditional “complete list test” with the more flexible “is/is not” test.

Case Summary: The trust deed identified beneficiaries as employees, ex-employees, and their relatives. The court ruled that instead of requiring a complete list of all beneficiaries, it was sufficient to determine whether any given individual “is or is not” a member of the class.

Key Takeaway: The “is/is not” test allows for greater flexibility in defining beneficiaries, making discretionary trusts easier to enforce.

3. Re Baden’s Deed Trusts (No 2)

This case clarified the distinction between conceptual and evidential uncertainty. Conceptual certainty refers to the clarity of the terms used to define beneficiaries, while evidential uncertainty involves the difficulty in proving whether a specific individual falls within the class.

Case Summary: The court upheld the trust despite challenges in evidential certainty, as the class of beneficiaries was conceptually clear.

Key Takeaway: Conceptual certainty is essential for a valid trust. Evidential uncertainty, while potentially problematic, does not invalidate a trust if the class is clearly defined.

 

Practical Considerations for Families and Businesses

For families and business owners, achieving certainty of objects is particularly important to avoid disputes and ensure smooth administration of the trust. This is especially relevant for discretionary trusts, family businesses, and intergenerational wealth planning.

1. Defining the Class of Beneficiaries

Use specific and precise language to define beneficiaries. Avoid vague terms like “family” or “loved ones,” which can lead to ambiguity.

Example:

• Insufficient: “For the benefit of my family.”
• Sufficient: “For the benefit of my children, [list names], and their descendants born during my lifetime.”

2. Addressing Business Interests

Business trusts often involve multiple stakeholders, including unrelated partners, second-generation family members, or employees. Clearly defining their rights and interests is essential to avoid disputes.

Example: A trust holding shares in a family-owned enterprise could specify, “Each of my children shall have an equal 25% interest in the trust property, including voting rights for shares in XYZ Corp.”

3. Anticipating Generational Dynamics

For family trusts, it’s important to account for potential changes in the family structure, such as marriages, divorces, or the birth of new beneficiaries. Regular updates to the trust document can prevent future conflicts.

 

Drafting Best Practices

To ensure certainty of objects, careful drafting and regular maintenance of the trust document are essential. Below are practical tips for achieving clarity and enforceability.

1. Use Precise Language

Clearly describe the class of beneficiaries or the purpose of the trust. For example:

• Beneficiaries: “My children, [list names], and their descendants born during my lifetime.”
• Purpose: “To fund educational scholarships for graduates of ABC High School.”

2. Adopt Flexibility in Discretionary Trusts

Discretionary trusts offer flexibility in allocating benefits among a class of beneficiaries. However, ensure the class is conceptually certain.

Example: Define the class as “all employees of XYZ Corp who have served for at least five years.”

3. Collaborate with Professionals

Engage legal, tax, and estate planning experts to draft and review the trust document. Professionals can help ensure compliance with legal standards and avoid ambiguity.

• Tax Implications: Work with tax advisors to structure the trust for optimal tax efficiency.
• Legal Guidance: Ensure the trust complies with Canadian common law and provincial legislation.

4. Regularly Update the Trust

Family and business circumstances change over time. Regularly review and update the trust to reflect these changes, such as the addition of new family members or changes in business ownership.

Example: After acquiring a new business asset, update the trust to include it explicitly as part of the trust property.

 

Conclusion

Certainty of objects is a fundamental requirement for creating a valid trust. By clearly defining beneficiaries or purposes, families and business owners can avoid disputes, ensure smooth trust administration, and protect their assets for future generations. Key legal precedents like Morice v. Bishop of Durham and McPhail v. Doulton underscore the importance of clarity and precision in trust drafting.

 

Practical Applications for Family Enterprises: Leveraging Trusts to Protect Wealth and Ensure Continuity

For family-owned enterprises, trusts are not just estate planning tools—they are critical mechanisms for protecting family wealth, managing business continuity, and avoiding disputes. However, the effectiveness of a trust depends on meeting the three certainties: intention, subject matter, and objects. This section explores how these certainties safeguard family enterprises, provides practical advice for managing business assets, and highlights real-world examples of the consequences of ambiguity.

 

1. Protecting Family Wealth

The Role of the Three Certainties in Family Enterprises

The three certainties act as guardrails that prevent disputes, mismanagement, and unintended outcomes. By ensuring clarity in a trust’s intention, property, and beneficiaries, families can protect their assets, ensure equitable distribution, and reduce the likelihood of conflicts.

• Certainty of Intention: Provides clear legal obligations for the trustee to manage assets according to the settlor’s wishes.
• Certainty of Subject Matter: Clearly identifies the assets being held in trust, ensuring that no valuable family resources are overlooked or misallocated.
• Certainty of Objects: Specifies who benefits from the trust, leaving no room for disputes over who is entitled to what.

How Certainties Prevent Disputes

When the three certainties are met, they create a legally enforceable framework that reduces ambiguity and the potential for disputes. For example, disgruntled heirs or business partners are less likely to challenge a trust if its terms are precise and comprehensive.

Example:
A trust created for a family business might specify:

• Intention: “The trustee shall hold all Class A shares of XYZ Corp in trust for my children.”
• Subject Matter: “The trust property consists of 500 Class A shares of XYZ Corp and associated voting rights.”
• Objects: “The beneficiaries are my children, [list names], who shall each receive an equal 25% interest in the trust.”

By defining these elements, the trust mitigates the risk of legal challenges from beneficiaries who might otherwise feel excluded or shortchanged.

 

1. Managing Business Continuity

The Importance of Certainty in Business Trusts

For family-owned enterprises, trusts are essential for ensuring that business assets are managed effectively across generations. Certainty in the trust’s terms ensures that operations continue smoothly, even during periods of transition, such as the incapacity or death of a key family member.

• Shareholding: Trusts holding business shares must clearly define voting rights, dividend distribution, and transfer restrictions.
• Partnerships: Trusts involving unrelated partners should address succession planning to prevent disputes or operational deadlocks.
• Second-Generation Ownership: Trusts must account for the dynamics of intergenerational wealth transfer, ensuring that younger family members understand their roles and responsibilities.

Practical Advice for Structuring Business Trusts

1. Define Rights and Roles Clearly: Specify how shares or business assets are to be managed, distributed, or sold.
   Example: “The trustee shall hold all voting shares in XYZ Corp and exercise voting rights in consultation with the beneficiaries.”
2. Include Governance Mechanisms: For businesses with multiple stakeholders, establish clear governance rules within the trust deed, such as dispute resolution procedures or approval requirements for major decisions.
   Example: “Decisions to sell trust-held shares require a 75% majority vote from the beneficiaries.”
3. Plan for Unrelated Partners: When a trust involves unrelated partners, include provisions for buyout options or partnership dissolution to prevent operational conflicts.
   Example: A clause allowing surviving partners to purchase the shares held in trust at a fair market value if a beneficiary chooses to exit the business.

 

1. Real-World Example: A Family Trust That Failed

Scenario:
A family-owned manufacturing business was held in a discretionary trust, but the trust deed lacked clarity in defining the beneficiaries’ interests. While the intention to hold the business for the benefit of the “family” was clear, the term “family” was not further defined. Upon the death of the settlor, disputes arose among the children, their spouses, and even distant relatives over who qualified as beneficiaries.

Outcome:
The court ruled that the trust lacked the required certainty of objects, rendering it invalid. As a result, the business assets were treated as part of the settlor’s estate and subjected to intestacy laws. This led to:

1. A court-mandated sale of the business to divide the proceeds among multiple heirs.
2. Disruption of the business’s operations, resulting in financial losses.
3. Deterioration of family relationships due to the prolonged legal battle.

Lesson Learned:
Clearly defining the beneficiaries’ interests and their rights within the trust is essential to prevent similar disputes. Regular reviews and updates to the trust deed could have accounted for changes in family dynamics, ensuring the business remained intact.

 

Best Practices for Family Enterprise Trusts

To safeguard wealth and ensure business continuity, families should adopt the following strategies:

1. Collaborate with Professionals

Work with experienced estate planners, tax advisors, and business consultants to draft a trust that is legally sound and tailored to the family’s needs.

2. Anticipate Generational Changes

Account for potential changes in family structure, such as marriages, divorces, or new births. Regular updates to the trust ensure its terms remain relevant.

3. Incorporate Governance Mechanisms

Include clear rules for decision-making, dispute resolution, and succession planning. For example, specify whether beneficiaries can sell their interests or must retain them within the family.

4. Define Beneficiary Classes Precisely

Avoid vague terms like “family” or “descendants.” Instead, specify:

• Exact names of current beneficiaries.
• Conditions under which new beneficiaries can be added.

5. Address Tax Implications

Trusts holding business assets can have significant tax implications, such as triggering capital gains or attribution rules. Consult a tax advisor to optimize the trust structure for tax efficiency.

Conclusion

For family enterprises, trusts provide a vital framework for protecting wealth, ensuring business continuity, and avoiding disputes. However, these benefits can only be realized if the three certainties—intention, subject matter, and objects—are met with precision. By clearly defining terms, addressing potential conflicts, and incorporating governance mechanisms, families can create trusts that safeguard their legacy and support future generations.

Case Studies: Lessons from Precedents in Trust Law

Trust law provides a wealth of insights through case law, demonstrating both the importance of meeting the three certainties and the consequences of failure. This section explores three pivotal cases—each highlighting a common pitfall in trust creation—offering actionable lessons for families and business owners. By understanding these precedents, you can avoid costly mistakes and ensure your trust achieves its intended purpose.

Case Study 1: Ambiguous Intention

Re Walker

In Re Walker, the trust failed due to a lack of clarity in the settlor’s intention. The settlor used precatory language, such as “I hope” and “I wish,” which the court deemed insufficient to create a binding trust. Instead of imposing fiduciary duties on the trustee, the ambiguous language suggested a non-binding moral obligation.

Key Issue:
The absence of explicit fiduciary language left the trustee without enforceable obligations, leading the court to invalidate the trust.

Lesson: Use Explicit Language

To avoid similar outcomes, settlors must use clear, binding language that leaves no doubt about their intention to create a trust.

Practical Example:

• Insufficient: “I hope my trustee will use these funds to support my children.”
• Sufficient: “I declare that my trustee shall hold these funds in trust for my children to provide for their educational and living expenses.”

Application for Families and Businesses:

• When drafting trust documents, avoid vague expressions like “wish,” “hope,” or “request.”
• Clearly state the trustee’s duties and responsibilities, ensuring the trust’s enforceability.

 

Case Study 2: Unclear Property

Re Goldcorp Exchange Ltd (1995)

In Re Goldcorp Exchange Ltd, customers purchased gold bullion that the company claimed to hold in trust. However, the gold was not segregated or specifically allocated to individual customers. When the company became insolvent, the court ruled that the trust failed because the subject matter—the gold—was not clearly identified.

Key Issue:
The lack of segregation and identification of the trust property created uncertainty, making it impossible to determine which assets were held in trust for specific customers.

Lesson: Clearly Define and Allocate Trust Property

Trust property must be explicitly described and segregated to meet the certainty of subject matter requirement.

Practical Example:

• Insufficient: “The trust property consists of gold bullion purchased by customers.”
• Sufficient: “The trust property consists of 500 ounces of gold bullion, segregated and allocated to individual customers as per their purchase agreements.”

Application for Families and Businesses:

• For family trusts, ensure that business shares, real estate, or other assets are clearly described in the trust deed.
• For businesses holding fungible goods or assets (e.g., inventory or investments), maintain separate accounts or records to demonstrate segregation and allocation.

 

Case Study 3: Undefined Beneficiaries

Re Baden’s Deed Trusts (No 2)

This case clarified the distinction between conceptual and evidential uncertainty in the certainty of objects. The trust named “employees and their relatives” as beneficiaries, raising questions about whether the class was sufficiently certain. The court upheld the trust, noting that conceptual clarity—clear definitions of terms like “employees” and “relatives”—was sufficient, even if proving individual membership in the class (evidential certainty) was challenging.

Key Issue:
The court prioritized conceptual certainty, allowing the trust to remain valid despite difficulties in identifying every potential beneficiary.

Lesson: Define Beneficiary Classes with Precision While Ensuring Flexibility

Clear definitions of beneficiary classes are critical to ensuring trust validity and avoiding disputes.

Practical Example:

• Insufficient: “The trust is for the benefit of my family.”
• Sufficient: “The trust is for the benefit of my children, [list names], and their descendants born during my lifetime.”

Application for Families and Businesses:

• For discretionary trusts, define the class of beneficiaries with enough precision to satisfy conceptual certainty while allowing flexibility for changing circumstances.
• For business trusts, consider the dynamics of second-generation ownership or unrelated partners, ensuring that all stakeholders are accounted for in the trust’s terms.

 

Key Takeaways from the Case Studies

1. Ambiguous Intention Leads to Invalid Trusts:
   Use explicit and binding language in trust documents to avoid ambiguity. Trusts like those in Re Walker fail when the settlor’s intention is unclear.
2. Unclear Property Creates Uncertainty:
   Clearly describe and segregate trust property to ensure it meets the certainty of subject matter requirement, as demonstrated in Re Goldcorp Exchange Ltd.
3. Undefined Beneficiaries Cause Disputes:
   Define beneficiary classes with precision, following the principles established in Re Baden’s Deed Trusts. Conceptual clarity is key, even if evidential certainty is more challenging.

 

Practical Recommendations for Families and Businesses

To avoid the pitfalls highlighted in these cases, consider the following best practices:

1. Draft with Precision

• Clearly articulate the settlor’s intention, using binding language.
• Specify the trust property and allocate it to beneficiaries with detailed descriptions.
• Define beneficiary classes conceptually and consider including examples or exclusions for clarity.

2. Collaborate with Professionals

Engage legal, tax, and estate planning experts to ensure that the trust complies with Canadian common law and addresses potential complexities.

• Legal Expertise: Draft enforceable trust terms that align with the settlor’s goals.
• Tax Guidance: Optimize the trust’s structure for tax efficiency, particularly for family enterprises or multi-generational wealth.

3. Conduct Regular Reviews

Family and business circumstances evolve over time. Regularly review and update trust documents to ensure they remain relevant and legally sound.

 

Conclusion

The lessons from cases like Re Walker, Re Goldcorp Exchange Ltd, and Re Baden’s Deed Trusts underscore the importance of meeting the three certainties for trust creation. By using explicit language, clearly defining trust property, and precisely identifying beneficiaries, families and business owners can avoid the pitfalls that lead to failed trusts and disputes.

 

Practical Steps to Ensure Compliance with the Three Certainties

Creating a valid and enforceable trust requires meticulous attention to detail and adherence to the legal principles of the three certainties: certainty of intention, certainty of subject matter, and certainty of objects. Failure to comply with these principles can result in invalid trusts, disputes among beneficiaries, and unintended financial or legal consequences. This section outlines practical steps to ensure compliance and highlights how professional expertise, regular updates, and structured drafting can safeguard your trust.

 

1. Engage Professionals

Why Professional Guidance Matters

Drafting a trust that meets the three certainties is a complex process that involves legal, financial, and tax considerations. Professionals bring the expertise needed to address these complexities, ensuring that your trust is not only legally valid but also aligned with your financial and estate planning goals.

1. Tax Advisors and Accountants
   Professionals like those at Shajani CPA provide detailed planning memos that outline the steps necessary to achieve your objectives. These memos specify roles and responsibilities, ensuring a seamless implementation process for reorganizations that involve trusts.
2. Legal Experts
   Experienced trust lawyers ensure that the document is drafted according to legal standards and customized to meet your specific requirements. Whether working with your existing lawyer or one from Shajani CPA’s trusted network, collaboration ensures that all aspects of the trust align with your intentions.

How Shajani CPA Can Help

• Detailed Planning: We create planning memos with clear, step-by-step instructions to guide the creation of your trust.
• Collaborative Approach: Our network of lawyers can draft documents according to our detailed plan, or we will work closely with your chosen legal counsel to ensure your objectives are achieved.
• Holistic Solutions: By integrating tax, estate, and business planning, we ensure that your trust complies with legal requirements while optimizing tax efficiency.

 

1. Regular Updates

Why Regular Reviews Are Essential

Trusts are living documents that must adapt to changes in family dynamics, business structures, and legal frameworks. A trust that was effective at the time of creation may become outdated as circumstances evolve, potentially leading to unintended consequences.

Key Events That Require Updates

1. Family Changes:
   • Births, marriages, divorces, or deaths may alter the intended distribution of assets.
   • Example: Adding a new child or removing a former spouse as a beneficiary.
2. Business Changes:
   • Changes in business ownership, acquisitions, or sales may require updates to the trust property or the allocation of interests.
   • Example: Incorporating newly acquired business assets into the trust.
3. Legal Changes:
   • Amendments to tax laws or trust legislation may affect the trust’s validity or tax efficiency.
   • Example: Adapting the trust to comply with new reporting requirements under Canadian trust laws.

Practical Tip: Schedule regular reviews (e.g., every three to five years) or immediately following a significant life or business event to ensure the trust remains relevant and effective.

 

1. Drafting Checklists

Using a Checklist to Ensure Compliance

A comprehensive drafting checklist can help ensure that all elements of the three certainties are addressed. Below are key components to include:

1. Certainty of Intention
   • Use explicit and binding language, such as “declare” or “shall hold in trust.”
   • Avoid precatory language (e.g., “hope” or “wish”), which creates ambiguity.
   • Example: “I declare that my trustee shall hold the following assets in trust for my children.”
2. Certainty of Subject Matter
   • Clearly describe the trust property, ensuring it is identifiable and segregated.
   • Example: Specify “500 Class A shares in XYZ Corp” rather than “some of my shares.”
   • Include any intangible assets, such as intellectual property or digital assets.
3. Certainty of Objects
   • Define beneficiaries or purposes with precision.
   • Example: Specify “my children and their descendants” instead of “my family.”
   • For discretionary trusts, ensure conceptual clarity in defining the class of beneficiaries while allowing flexibility.

Practical Application of the Checklist

Before finalizing the trust, review the document against this checklist to identify any gaps or ambiguities. Engaging professionals to perform this review can provide an added layer of assurance.

 

Why These Steps Matter for Family Enterprises

For families with family-owned businesses or significant estates, these practical steps are especially critical. Trusts often serve as the foundation for intergenerational wealth transfer and business succession planning. Ensuring compliance with the three certainties protects your legacy, reduces the likelihood of disputes, and provides a clear roadmap for trustees and beneficiaries.

Example: Ensuring Business Continuity

A family trust holding shares in a business must:

• Clearly identify the shares and their associated voting rights (certainty of subject matter).
• Specify which family members or employees are beneficiaries (certainty of objects).
• Include unambiguous language imposing fiduciary duties on the trustee (certainty of intention).

Without these elements, the trust may fail, leading to operational disruptions, financial losses, or disputes among stakeholders.

 

Conclusion

Ensuring compliance with the three certainties—intention, subject matter, and objects—is essential for creating a valid and enforceable trust. Engaging experienced professionals, conducting regular reviews, and using a detailed drafting checklist are practical steps that can safeguard your family’s wealth and business continuity.

At Shajani CPA, we provide end-to-end support for trust creation, from drafting detailed planning memos to collaborating with legal experts. Contact us today to ensure your trust meets all legal requirements and protects your legacy for generations to come.

 

Conclusion: The Foundation of a Valid Trust

Creating a valid trust is both an art and a science, requiring meticulous attention to detail and adherence to the three certainties: intention, subject matter, and objects. These pillars form the foundation of any trust, ensuring it is legally enforceable, effective in protecting your wealth, and aligned with your long-term goals. Whether you are safeguarding family assets, planning intergenerational wealth transfers, or structuring a business continuity strategy, the importance of clarity and precision cannot be overstated.

Attempting to draft a trust without professional guidance can lead to costly mistakes, disputes among beneficiaries, or even the invalidation of the trust. Engaging trusted professionals ensures that your intentions are clearly expressed, your assets are properly defined, and your beneficiaries are precisely identified—all while complying with Canadian trust law and optimizing for tax efficiency.

At Shajani CPA, we specialize in providing comprehensive planning solutions tailored to families and business owners. Our team delivers detailed planning memos with step-by-step instructions, clearly outlining responsibilities for every aspect of a reorganization that may include a trust. With our extensive network of experienced lawyers, we can draft trust documents according to our detailed plan or collaborate seamlessly with your chosen legal team to ensure your objectives are achieved.

Let us help you build a solid foundation for your trust and secure your family’s legacy. Contact Shajani CPA today for expert advice and guidance on creating a trust that truly reflects your ambitions.

 

This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. ©2025 Shajani CPA.

Shajani CPA is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning service.

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