The “Three Certainties” of Trusts

How does a person know whether a trust exists or not? The answer to that question can at times be more complicated than you’d imagine.  There are occasions where a written document, such as a Will, very clearly purports to establish a “trust” but fails to do so. There are other occasions where there is no written document present at all, but nonetheless a trust relationship is deemed at law to have arisen.  In some provincial jurisdictions, a trust to hold land cannot be validly created unless there is a written document in place.

In determining whether a trust is present or not there are certain requirements that have to be present.  Those are commonly referred to as the “three certainties.”

The three certainties are:

• certainty of intention;
• certainty of objects; and
• certainty of subject matter.

Each of them is dealt with in turn below.

• Certainty of Intention – For a valid trust to  exist it must be clear from the circumstances that the person who created the trust intended to create a trust. That intention is very obvious when a person signs a document like a trust declaration that expressly indicates that property is to be held by trustees for the benefit of beneficiaries.  It can be less clear when a person opens a bank account in their own name and asks the banker to use the words “in trust for Billy Smith” in an account agreement. 

• Certainty of Objects – For a trust to exist the persons who are to be the beneficiaries of the trust have to be clearly known. In this context, "objects" refers to the persons who benefit from the trust.  Objects of a trust, however, can also be purposes rather than persons.  A charitable trust is typically established to pursue or further a purpose, without being clear as to the specific persons who are to benefit. For example, a trust might be set up for the general relief of poverty in the greater Vancouver area. The specific persons who are to benefit by the trust would not be at all clear. People can move in and out of the area.  The purpose of the trust would, however, be clear.
• Certainty of Subject Matter – The subject matter of a trust is the property (such as stocks, or cash, or land, as examples) that is to be held by the trustees for the benefit of the beneficiaries. For a trust to come into existence it has to be clear as to what property is being held by the trustees. It must be possible at any point in time, to point to the trust assets. Thus, they are typically (although not always) found in a separate pool. To satisfy this certainty, a trust will often be settled with a coin or bill that is specifically named and described in the trust document.

An understanding of the three certainties can be of practical importance.  It is not uncommon to have clients who have set up an “in-trust” account for a child or other family member.  The account is opened in the name of the child, but with the phrase “in trust for Bobby” written into the account agreement.  Is it a trust?  The answer depends on the specific wording of the account agreement. It depends on whether the three certainties are present.  Without the three certainties, no trust has been created, and CRA will not tax the situation as a trust.

For more information, check out the certificate course: Use of Trusts in Tax & Estate Planning.