Looking into the flexibility of the test fordiscretionary trusts after the decision in McPhail v Doulton1, some elements of certainty of objects are yet to be concluded. One of the apparentissues regards if the individual certainty test should be used for both thefixed and the discretionary trusts. It is yet to be agreed that there is noreason in principle why the individual certainty test cannot be applied underfixed trusts. This is in recognition of the fact that the court can make anorder for distribution under a discretionary trust, and this may lead to theconclusion that an order can also be made for a fixed trust where one or moreof the objects cannot be verified. Nevertheless, apart from the obvious viewthat the ‘ individual ascertainability test’ is not applicable to fixed trusts, it is equally considered that the approach is more theoretical than practical. Further, the possibility of a case regarding a trust for objects that are notascertainable also involves a provision for sharing amongst them in specificshares is remote. Further, courts have established that for property tobe allocated according to the wishes of the testator, equity recognises both apower of appointment and that of a trust.
Our writers will create one from scratch for
Those donating the power will handout the property through making appointments to the powers of the objects. However, a donee is not obligated to exercise their power, and they haveabsolute discretion to distribute the property. By contrast, a trustee is underan obligation to distribute the property to the objects of the trust, and theycan enforce that obligation should the trustee fail to do so2. The words used in a trustagreement are crucial since they determine if it is a trust or a power that iscreated. Further, the words used also determine if the created trust results tothe objects of the trust being adequately certain; accordingly, where it isestablished that the objects are uncertain, the trust considered void3.
In McPhail v Doulton, the certainty of objects test was considered tobe extensive than it is for certainty of objects test in a trust. Thus, under atrust the certainty of objects can be considered to be valid under the former ratherthan under the later. However, in McPhailv Doulton4the Court amended the test for certainty of objects under a trust such thatthey could not be nullified. In the case Knightv.
Knight5it was famously ruled that for a private express trust to be considered valid, it must clearly show or prove a presence of the “ three certainties.’ Theseinclude certainty of intention, the certainty of subject matter, and certaintyof objects. It is only under such circumstances that the court canconsider the trust to be binding in equity, and as a result, enforce the termstherein so that the beneficiary can be rewarded. The regulations for the firsttwo certainties are very simple- that the certainty of intention should bepresent, which in essence defines that the settling party must clearlydemonstrate that he/she intended (rather than anticipated or expected) that theproperty in trust would be used in a specific manner. Secondly, certainty ofsubject matter must be demonstrated, where in this case, the court can spot theprecise property that is to be the trust’s subject6. Regarding the third test, for the certainty of objects, there are notable complexities, and as suchresulting in many legal battles and debate among law scholars. At its core ofthe matter is the suggestion that a court should be able to establish singleperson(s) who will be deemed to be the trust’s beneficiary or beneficiaries. This is evidently important because the primary role of a trust is to award abenefit on specified person(s)7.
Nonetheless, somepeople argue that the complexity is uncertain and vague, or has large categoriesof beneficiaries. As such, it can be argued that regardless of this position bythe court, the separate tests set out by the courts to identify certainty ofobjects in both discretionary and fixed trusts has functioned well in recentdecades, promoting fair and equitable outcomes where possible. Issues of certainty of objects are real in both fixedor a discretionary trust contexts. However, they differ, and this variance isvery crucial. Specifically, fixed trusts are formed for the purpose ofbenefiting a specific person or classes of individuals whereby each isentitled, in equity, to a fixed share.
On the other hand, a discretionary trustcan be equalized to the gift of the trustees where they distribute the propertytrust among a specific class of beneficiaries, or even at times they haveauthority to decide on the membership of a class of possible beneficiaries. Regarding the fixed trusts, a court must be able to declare with certainty thespecific beneficiaries and trustees. In reality, under a fixed trust, astrict test is mandatory for the purpose of identifying each basic member of aclass. Certainly, the Court of Appeal in IRC v. Broadway Cottages8affirmedthat in fixed trusts, lingual and evidential certainty about the beneficiariesis both crucial.
To this effect, it can be stated that the court uses the” complete list” test to meet the threshold of identifying the full list of thebeneficiaries. In Re Wynn9the ruling judge denied the enforcement of an arrangement claiming to allow thetrustees the authority to deny any benefits might be raised by thebeneficiaries in a dispute between the two classes. Nonetheless, this strictapproach contrasts other cases including ReTuck10, where the court accepted that a third party could give guidance for anexpression that seemed, at face value, to lack conceptual certainty.
The “ complete list” test’s flexibility has proved tobe very rational because it permits the court to make every effort to put inforce the trust. Furthermore, it vitiates a trust if the accurate position ofsome of the likely members of a class is unknown, as long as there is a chanceto arrive at a full list of beneficiaries in an abstract sense. Besides, the Benjamin Order has the power toallow trustees to give the trust property to the identified beneficiariesbefore other additional or absent beneficiaries can be identified. However, this is conditional in that the former will be willing to reimburse the latter parri passu their shares upon demand. The other alternative is to publish an advertisement in the London Gazette toallow beneficiaries who would be unknown a notice of their entitlement. Infact, the mentioned structure for fixed trusts has functioned well since IRC v Broadway Cottages11and, this can be attested through the outcome in Re Tuck12. The primary position under discretionary trusts wasthat courts would rely on the approach in IRCv Broadway Cottages13; that is, depend on the ‘ complete list’ test.
Nonetheless, the ruling for McPhail v Dalton14saw Lord Wilberforce restructure this approach. Noting that it was impossiblein this case to identify the complete list of all the members of the class, thejudge stated that the trust would have failed if the original test structurewas applied. Thus, he held that the operative issue under such circumstanceswas on whether a court could declare with certainty that a specific person wasa member of a class. Since the facts proved the issue, the court enforced thearrangement. In this case, it can be observed that the point was aboutconceptual and not about evidential uncertainty. Accordingly, in therecent past, the ruling in McPhail vDalton15hasoperated effectively, and has given the court a degree of flexibility althoughstill vitiating systems that are genuinely conceptually vague.
The ‘ workability’ introduced by Lord Wilberforce hasbeen polished further with time with the intention to create a more consistent andreasoned set of rules to be used by equity courts. For instance, in Re Hay’s Settlement Trust16, it was ruled that it is possible to rule that an intermediate trust would beadministratively ineffective because the obligations of the trustee in a discretionarytrust since they are highly strict than for the authority to appoint. Thejustification is that trustees are mandated to distribute trust property, andfor this reason, they would be required to carry out an extensive and highlysystematic survey than those holding appointment powers. To this end, it can bestated that the only sensible logic in the ruling was that the duty to conductsuch surveys would ultimately cause to the collapse of the trust fund becauseof the costs, therefore, defeating the object for which it was initiallyintended. As stated above in Re Hay’s Settlement Trust17, it was ruled that it is possible to rule that an intermediate trust would beadministratively ineffective because the obligations of the trustee in adiscretionary trust because they are highly strict than for the authority toappoint. Further, the pronouncement by the House of Lords in McPhail v. Doulton18isthat the validity test of trust powers is “ that the trust is legal wherewith certainty it can be said that any given person is either or not a memberof a class.” This changed the earlier held position set out in I.
R. C. v. BroadwayCottages19by the court of Appeal that “ a trust for such members of a specified classobjects as the trustees are required to choose is invalid for uncertainty, except if the whole range of objects qualified for selection is determined orit has a possibility for ascertainment.” Similarly, the House of Lords was nothighly innovative in relation to maintaining the test proposed in Re Gulbenkian’s Settlement20regarding” powers collateral.
” Accordingly, it can be argued that the rulings in thecases Re Gulbenkian’s settlements21and McPhail v Doultor22have significantly helped in establishing the degree of certainty required todefine the objects or beneficiaries of a power of appointment. To this end, theproblem that a discretionary trust yield is that no person who is considered tobe an object can claim a definite award or any interest can be claimed untiland unless the discretion of the trustee is performed in their favour23. Nonetheless, the power ofsuch trustees is not so final because the courts have the power to restrictthem from acting against the terms of the trust system. In the event of an unpredictable rejection, to distribute to all will attract the court’s intervention for purposes of distributioneither through the selection of new trustees or through invoking the powertherein. A perfect example of this may be found in Re Murphy’s Settlements24which ruled against a settlor demanding that all trustees be identified suchthat a potential beneficiary may be allowed to assert their rights. Whilerecognising that a trustee obligated to distribute the whole of the fund oughtto make “ an exhaustive and extensive systematic survey” of the objects, it waswarned that the cost therein might put the trust in danger. Regardless, in ReGulbenkian’s Settlements25HisLordship Upjohn defended the pre-existing orthodoxy. The general practice (but not necessarily) is thatdiscretionary powers should be held by the trustees and as for this reason, they can be considered to “ fiduciary powers.
” To this end, powers that exist indiscretionary trusts can be classified depending on the collection of objectsof the power. For instance, under a general power, it can be exercised to thebenefit of anyone (even the individual holding the power)26. For special power, itcan only be favour specified persons or a defined class. Hybrid or intermediatepowers can be exercised to benefit anyone but not specified persons or classesof persons. It is also noted that powers can equally be categorised accordingto whether the person holding them has a duty to use them; where suchobligation is not present, the power is called “ mere power” 27.
Accordingly, the trustfund will be held in trust for the entitled persons in default of the power bestowedto the beneficiaries. Such persons can be clearly established through theinstruments of the trust. On the other hand, where the holder of a power alsohas the duty to use it, the resulting type of power is called the “ trustpower.” Therefore, it can be stated that a general power is obviously validalthough it looks like a trust can fail if the class of objects’ definition fora special power can be considered to be administratively unworkable. Thus, if the power of appointment is held by a personin a fiduciary capacity, the person holding it is considered to have afiduciary duty to give proper thoughtfulness when exercising the powers. Often, this is expressed through the statement that an exercise of fiduciary’sdiscretionary power is subject to interventions by the courts if it is notexecuted correctly. Nonetheless, this power can mislead at times because it isfactual that an execution of a fiduciary power can be impugned in situationswhere there is no premeditated wrongdoing28.
As such, it can be saidthat the test of certainty of objectscan be the same for discretionary trusts and powers of appointment. From the above discussion, it is seen that the rulingin McPhail v Doulton29 supportedthat the test for a mere power is more effective for discretionary trusts, unlike the previous strict test which even today is applicable for fixedtrusts. Thus, with the facts showing that beneficiaries were the employees andex-employees of the organisation or any dependants of any such persons, the mainchallenge of certainty was with the terms expression dependant. To this end, the test of IRC v Broadway Cottages30if it were to be used, then the whole list of beneficiaries may not need to beidentified. Conversely, if the test isapplicable to powers used it can be seen that they would only be necessary tosay for certain if or if not any specified individual was within the class ofbeneficiaries. In consideration of the proposition that equity isequality and for this reason the court should be allowed to reward in equalfractions, Lord Wilberforce observed that it was not the accurate position. Implementationis not possible unless an equal division is attainable.
Further, thejustification offered by the judge was that maintaining that a principle ofequal division is applicable on equality applies to trusts is definitelyparadoxical. Equal sharing is certainly the last resort that the settlor alwaysintended31. Lord Wilberforce also cited that the court hadimplemented discretionary trusts by searching for effectiveness to the supposedintention of the settlor instead of through equal division. Subsequent casesestablished that the general approach was to compel that equity be enforced.
Regardless, Lord Wilberforce was of the opinion that the principle of equalsharing failed to ‘ rest on any principle innate in the trusts nature.” Thus, itcan be said that he was in support of the strict rule and it must not be doneaway with and that the ‘ is or is not’ test must be adopted as an alternative. For the purpose of clearing, if any specific person ‘ is or is not’ a member ofthe class of beneficiaries, the denotation of the used word or words toestablish the class must be adequately clear to pressure the trustees to makethe decision; this refers to the principle of conceptual certainty. Therefore, it may be considered that discretionary trusts should be conceptually certain, although there is less stress on evidential certainty than is the case withfixed trusts as not all members of the class should be clearly identified. Certainty of objects test was deemed extensive than is the case for a certaintyof objects test in a trust. Thus, under a trust, the certainty of objects canbe considered to be valid under the former rather than under the later. However, in the case McPhail v Doulton, the Court amended the test for certainty of objects under a trust such thatthey could not be nullified. More so, if the power of appointment is held by aperson in a fiduciary capacity, the person holding it is considered to have afiduciary duty to give proper thoughtfulness when exercising the powers.
Often, this is expressed through the statement that an exercise of fiduciary’sdiscretionary power is subject to interventions by the courts if it is notproperly executed. Nonetheless, this power can mislead at times because it is factualthat an execution of a fiduciary power can be impugned in situations wherethere is no premeditated wrongdoing.