Trusts 2 Beneficiaries

Fixed Trust

A trust in which the settlor sets out the entitlement of each beneficiary in the trust instrument

A trust where there is uncertainty as to intention, objects or subject matter…

will fail

Test for Certainty of Objects for Fixed Trusts

Complete List Test

IRC v Broadway Cottages Trust

It must be possible to draw up a complete list of all the beneficiaries

Conceptual Certainty

Refers to the precision of language used by the settlor to define the class of persons whom they intended to benefit

Evidential Certainty

Refers to the extent to which the evidence in a particular case enables the trustees to identify the objects of the trust

Trustee Obligations in Discretionary Trusts

Trustees have an obligation to consider a range of possible beneficiaries but do not need to identify all of those people to exercise their discretion using the is/ is not test

The is/ is not test

A trustee must be able to say with certainty whether “any given individual is or is not a member of the class”

McPhail v Doulton

Used the is/ is not test for a discretionary trust

Discretionary Trusts and Conceptual Certainty

Conceptual Certainty is still required

Re Baden’s Deed Trusts (No 2)

On evidential certainty in a discretionary trust, it is for the claimant to prove to the trustee’s satisfaction that they are within the class

Administrative Unworkability

A discretionary trust can fail because the class of objects is too wide

McPhail (Unworkability)

The population of Yorkshire was too wide a class and therefore the discretionary trust failed

Re Beatty

The court upheld fiduciary power to appoint property to anyone in the world (no administrative unworkability for a fixed trust)

Morice v Bishop v Durham

Two interrelated principles of a Trust: the beneficiary principle and the certainty of objects

Proprietary Rights in Fixed Trusts

May be vested or contingent, can be asserted against third parties, can dispose of interest and right to terminate trust

Personal Rights in Fixed Trusts

Right to compel administration, right to be informed and right to sue trustees for breach

Proprietary Rights in Discretionary Trusts

Only exist if chosen by the trustee, can seek return of misappropriated property to trust and can agree to terminate

Personal Rights in Discretionary Trusts

Right to compel exercise of discretion, right to be informed, right to sue trustees for breach

Successive Interest Trusts

Involve a series of consecutive interest in the same trust property ie a life interest trust

Powers of Appointment

Right to choose from within a specified class of objects who receives the property

Appointment of Powers versus Trusts

AoP are not trusts, it is a personal power given to anyone, they are not even required to consider using it.

Gift-Over

Clarifies what will happen to the property if the powers of appointment are not used

Indicators as to whether an arrangement is a discretionary trust or power of appointment

1. Imperative wording (DT) v permissive wording (PoA) 2. Discretion given to a third party (not a trustee) is a power of appointment 3. Presence of a gift-over indicates a power of appointment

Vested Interest

Current right to property

Contingent Interest

Conditional upon the occurrence of an uncertain future event and becomes vested if the condition is satisfied

Vested in possession

A current right to the current enjoyment of the property

Vested in Interest

A current right to future enjoyment of the property

Capital Assets

Land, Bank Account, Shares and carry the intermediate income

Income Assets

Rent from land, Interest form bank account and dividends from shares

Saunders v Vautier

An adult beneficiary of sound mind with a vested interest in the trust property can terminate the trust early and obtain legal title

Extension of Saunders v Vautier

If each beneficiary has a distinct interest in the trust property, which can be severed without impacting the others, they can separately exercise their Saunders v Vautier rights

Saunders v Vautier and Objects without vested interests

Objects of discretionary trusts (including with a gift over) can agree to collapse the trust and share the property vetween them

Legal Limitations to Saunders v Vautier

Objects cannot interfere in the administration of a trust while it subsists, they can either collapse the trust or allow the trustees to continue