Creating a Super Fund

Superannuation funds are based on the legal concept of a “trust”. For a trust to be valid the trust must pass the “Three Certainties” test:

(i)                  Certainty of Intention

(ii)                Certainty of Subject Matter

(iii)               Certainty of Object

A trust creates legal rights and obligations therefore it is important that a person is not held as a trustee of property when an outright gift to them was intended.

The rights of the beneficiaries must be clearly established so that they may be allowed to enforce a trust should the incumbent trustee or trustees fail to carry out its terms.

The importance of these matters was recognised by Lord Langdale MR in Knight v Knight (1840) 3 Beav 148  where he enunciated the principle that a trust cannot exist without the “three certainties”.

Certainty of Intention

The Certainty of Intention must be gleaned for the Trust Deed as a whole since even using the terms such as “in trust for” in a deed do not necessarily create a trust “since the circumstances my displace the inference that a trust was intended” {Walsh Bay Developments v FCT (1995) 31 ATR; Paul v Constance [1977] 1WLR 527}.

As a consequence, when determining intention, the test to be used is one of construction in regards to the relevant instrument as a whole {Stephens Travel Service International Pty Ltd v Qantas Airways Limited}, since “equity looks to the intent rather than the form”.

Depending on construction of words in each case, a distinction is drawn between imperative words which show and intention to create legally binding obligations (which will create a trust) and precatory words which merely express a hope or wish and impose more of a moral obligation; of which will not create a trust.

Certainty of Subject Matter

Any property can be the subject of a trust but the trustees must have the ability to identify the property and if it is a fixed trust, identify the exact entitlements that are to be bestowed to the beneficiaries must also be ascertainable.

A trust creates rights and duties at the moment of its creation, and must therefore be certain at the moment of its creation. For a gift however, it only needs to be certain at the moment legal title is transferred.

The Certainty of Object

The “beneficiary principle” requires that when a trust is created it is to be in favour of either one or more persons or a charity, as was stated by Sir Wiliam Grant in Morice v Bishop of Durham (1804) 9 Ves 399, 32 ER 656:

There can be no trust over the exercise of which this court will not assume control; for an uncontrollable power of disposition would be ownership and not trust. If there be a clear trust but for uncertain objects, the property that is the subject of the trust is undisposed of and the benefit of such trust must result to those to whom the law gives the ownership in default of disposition by the former owner….Every trust must have a definite object. There must be somebody, in whose favour the court can decree performance”.

It is important that the courts have someone in whose favour they can decree performance of the trust  and the identity of the beneficiaries must be certain so that the court can police the performance of the trustees properly (IRC v Broadway Cottages [1955] Ch 20, 30 per Jenkins LJ).

Consequently any trust which is uncertain as to its beneficiaries will be void.

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