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Understanding Trusts: Certainty of Object and Discretionary Powers, Summaries of Law

An in-depth analysis of the certainty of objects in trusts, focusing on the obligation to distribute, discretion to select objects, and the tests for certainty in both fixed interest and discretionary trusts. It covers the concepts of list certainty and criterion certainty, as well as administrative unworkability and capriciousness. The document also discusses the difference between trust powers and mere powers.

What you will learn

  • What are the concepts of list certainty and criterion certainty in trusts?
  • What are the tests for certainty in fixed interest and discretionary trusts?
  • What is the difference between a trust power and a mere power?

Typology: Summaries

2021/2022

Uploaded on 09/12/2022

marcyn
marcyn 🇬🇧

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TOPIC 3A: CERTAINTY OF OBJECT
Pursuant to the beneficiary principle, a trust must be for the benefit of identifiable persons or objects
(Morice). However, the test for certainty depends upon the type of trust created.
Summary
Obligation
to Distribute
Discretion to Select Objects
Test for Certainty
General
Hybrid
Special
Fixed Interest Trust
Yes
No discretion permitted
List Certainty
Discretionary Trust
Yes
No
No
Yes
Criterion Certainty
Mere Power
No
Yes
Yes
Yes
Criterion Certainty
1. Type of Trust
A. OBLIGATION TO DISTRIBUTE?
ASK: Does the wording of the clause indicate that trustee is obliged to distribute property?
If YES, then clause imposes a trust power
If NO, then clause imposes a mere power
I. TRUST POWER
Look at whether there is time limit e.g. T must appoint to B within X years this indicates obligation
Generally, will not have a gift over in default (although not conclusive) (Hays)
Clear and express language e.g. “must”, “on trust” – compare to other sections
To distribute to anyone except T also indicates that cannot keep it for themselves
II. MERE/BARE POWER
Weak language compared to other sections will likely indicate a mere power
A gift over in default clause is conclusive evidence of a mere power (Hays)
B. TYPES OF CLASS OF OBJECTS
Here [CLAUSE #] grants [D] a [GENERAL/HYBRID/SPECIAL] power of appointment, to select to whom
property is distribute from [CLASS OF OBJECTS].
1. General Power
Power to appoint anyone in the world including the donee
2. Hybrid Power
Power to appoint anybody in the world EXCEPT a specified class of individuals
3. Special Power
Power to appoint to anyone WITHIN a specified class of individuals
C. DISCRETION TO SELECT OBJECTS?
I. FIXED INTEREST TRUST
This is where the beneficiaries and their interests are specified (i.e. no POI)
This creates equitable property rights to [B] in [TRUST PROPERTY] as they can insist the trust is
distributed according to their proportionate interests
Where fixed interest beneficiaries are specified but no proportions stated presume equal shares
The test for certainty of object is list certainty and [T] must be able to identify all beneficiaries at the
time of distribution (McPhail)
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TOPIC 3A: CERTAINTY OF OBJECT

 Pursuant to the beneficiary principle, a trust must be for the benefit of identifiable persons or objects (Morice). However, the test for certainty depends upon the type of trust created. Summary Obligation to Distribute Discretion to Select Objects Test for Certainty General Hybrid Special Fixed Interest Trust Yes No discretion permitted List Certainty Discretionary Trust Yes No No Yes Criterion Certainty Mere Power No Yes Yes Yes Criterion Certainty

1. Type of Trust

A. OBLIGATION TO DISTRIBUTE?

ASK: Does the wording of the clause indicate that trustee is obliged to distribute property?  If YES , then clause imposes a trust power  If NO , then clause imposes a mere power I. TRUST POWER  Look at whether there is time limit e.g. T must appoint to B within X years  this indicates obligation  Generally, will not have a gift over in default (although not conclusive) (Hays)  Clear and express language e.g. “must”, “on trust” – compare to other sections  To distribute to anyone except T  also indicates that cannot keep it for themselves II. MERE/BARE POWER  Weak language compared to other sections will likely indicate a mere power  A gift over in default clause is conclusive evidence of a mere power (Hays) B. TYPES OF CLASS OF OBJECTS  Here [CLAUSE #] grants [D] a [GENERAL/HYBRID/SPECIAL] power of appointment, to select to whom property is distribute from [CLASS OF OBJECTS].

  1. General Power  Power to appoint anyone in the world including the donee
  2. Hybrid Power  Power to appoint anybody in the world EXCEPT a specified class of individuals
  3. Special Power  Power to appoint to anyone WITHIN a specified class of individuals C. DISCRETION TO SELECT OBJECTS? I. FIXED INTEREST TRUST  This is where the beneficiaries and their interests are specified (i.e. no POI)  This creates equitable property rights to [B] in [TRUST PROPERTY] as they can insist the trust is distributed according to their proportionate interests  Where fixed interest beneficiaries are specified but no proportions stated – presume equal shares  The test for certainty of object is list certainty and [T] must be able to identify all beneficiaries at the time of distribution (McPhail)

II. EXHAUSTIVE DISCRETIONARY TRUST

 Where there is a general or hybrid class of objects with an obligation to distribute the property, it will fail  the class is simply too wide to allow the trust to be enforced (Re Carville) (Hays)  Where certainty fails due to above, a resulting trust will be established in favour of estate  As [D] is under an obligation to distribute the assets s/he has an exhaustive discretionary power and the test is criterion certainty. III. MERE DISCRETIONARY POWER  As [D] has a mere POI the test for certainty of objects is criterion certainty (McPhail)

2. Test for Certainty

Fixed interest trusts = List Certainty  Discretionary trusts = Criterion Certainty A. LIST CERTAINTY  TEST: T must be able to make a list of all the beneficiaries, if this can’t occur, the trust will fail  List is made at the time of distribution  Shares to be taken may be specified on trust deed or necessarily implied B. CRITERION CERTAINTY  TEST: T must be able to determine whether or not a person is within the class of objects

  1. Semantic certainty  First must show, whether or not the description of the class is semantically certain  Employers (Gulbenkian)  Employee or officer (McPhail)  Inhabitants  Relative (blood relative) (Badens)  Dependents (rely financially) (Badens)  Organisations for the elim of war (Blyth)  Anyone in the world (Re Hays)  Friends (need criteria to identify) (Lempens)  Any person with whom my son resided (Gul)  Future employees  Members in good standing  Organisations to raise the standard of living
  2. Evidentiary certainty  X may argue the objects of the trust are NOT ascertainable by way of evidence (McPhail)  HOWEVER, evidentiary uncertainty is something the court can rule upon and WILL NOT invalidate the clause (Re Gulbenkian)  Being difficult to establish does not equate to evidential uncertainty Summary Obligation to Distribute Discretion to Select Objects Test for Certainty General Hybrid Special Discretionary Trust Yes No No Yes Criterion Certainty Summary Obligation to Distribute Discretion to Select Objects Test for Certainty General Hybrid Special Mere Power No Yes Yes Yes Criterion Certainty