POWERS AND TRUSTS Flashcards
Duty v Power
- A trust is a duty owed by a trustee to do something or refrain from doing something
- A duty: where the law requires of prevents you from doing something
- A power is something that a trustee or another may choose to exercise
- A power is an authorisation to do certain things which affect property to which the appointor is not solely entitled, and in which he or she may have no beneficial interest at all
- Something you may do but do not have to
- Most express trusts consist of both duties and powers (i.e. things that trustees must do and things they may do)
- Trustees have by statue powers of investment, sale, etc.
- They may also be given other powers by the terms of the trust instrument
- A trust is imperative and mandatory and a power discretionary
- A trust power is a power given to a trustee
What rights does the object of the power have?
- Powers are not mandatory
- No one individual can demand that the power can be awarded in their favour
- Birrs J in Pugachev: “The task of construction is to consider objectively what the purpose is for which the power has been conferred. Putting it another way, the question is: for whose benefit, as a matter of construction of the trust deed, has the power been given?”
- Equity looks to substance rather than form
Bare v fiduciary powers
BARE POWER
FIDUCIARY POWER
Held in personal capacity
- Not held in an office
Held in official capacity for particular purpose
- There is an obligation to consider whether the power is exercised
- It would be inconsistent with the duties of a fiduciary to fail to consider this
No duty to consider whether to exercise
Must consider whether to exercise
e. g. power of appointment in will
e. g. trustees, agents
Administrative v Dispositive powers
- Powers let trustees do things
- The settlor can give certain powers that otherwise the trustee would not have
ADMINISTRATIVE
DISPOSITIVE
Invest
Maintenance
Sell
Advancement
Lease
Appointment
Insure
Rights of the object of dispositive powers
- No property rights
- No right to compel payment
- No right to compel exercise of the power
- Can invite court’s intervention to ensure trustees consider the exercise of the power
- Can prevent invalid exercise of power
Powers, discretionary trusts and fixed trusts
Key differences
MAY DISTRIBUTE
MUST DISTRIBUTE
CHOICE OF OBJECTS
Powers of Appointment, Maintenance, or Advancement
Discretionary Trust
FIXED OBJECTS
Fixed Trust
- These powers might be in favour of a list or class of objects, in which case there would be normally be a choice of objects, but they could be in favour of only one object
Re Gulberkian’s ST
Ruling on trust powers
A power does not require a complete list of objects, whilst discretionary and fixed trusts require a complete list
McPhail v Doulton on trust powers
- A discretionary trust is treated like a power, whilst a fixed trust requires a complete list
- If you do not specify the shares, the trust will be divided equally
- We need to treat a discretionary trust more like a power in terms of the test we adopt even though a power is permissive and a trust is mandatory
Re Hay’s Settlement Trust on trust powers
- “A trustee to whom, as such, a power is given is bound by the duties of his office in exercising that power to do so in a responsible manner according to its purpose. It is not enough for him to refrain from acting capriciously; he must do more”
- The difference between being given a power as a trustee / fiduciary and just being given a power is that you are bound by your obligations of your office as a fiduciary
- You cannot be obligated to exercise the power in favour for someone or exercise it at all, but the court may compel the trustee to consider the exercise of the power
Trust powers and complaining
- The other duties owed as a trustee can be relevant to what people can complain about
- As a trustee, you are obliged to exercise your powers seriously [Turner v Turner]
- The court requires you to do your duty, which is engaged when you come to consider when the power is exercised.
Protector
Pugachev
- Under a trust, there must be trustees, beneficiaries and trust property. In addition, the trustee might appoint someone as a protector
- “A person other than the trustee who, as the holder of an office created by the terms of the trust, is authorised or required to play a part in the administration of the trust” [Duckworth]
- They can give directions to the trustees and keep an eye on things
Pugachev
RULING
- On the facts of the case, it was possible for Mr Pugachev to do whatever he wanted, and so in reality although it was a trust relationship in form, in substance (because he had given himself such extensive powers as protector and a member of the class of beneficiaries) he was able to act as the owner and make the beneficiaries act in his favour
Pugachev
REASONING
- “When considering what powers, a person actually has as a result of a trust deed, the court is entitled to construe the powers and duties as a whole and work out what is going on, as a matter of substance”
- The reality in this case was that Pugachev was the owner
- There is no absolute rule about whether the protector is a fiduciary or not, but the exercise of the powers will be based on normal principles unless the trustee specifies they do not
Powers of appointment
- A power of appointment is one given by the donor of the power to the donee of the power (the appointor) to appoint property to someone (the appointee)
- A power to dispose of assets, but it does not need to be beneficiaries of the trust
- May be given to trustees
- May be given to beneficiaries or others (this is not a breach of trust because the fiduciary has been given the power to do so)
- There is no duty to exercise power unless the trustee imposes a separate duty on you
- Fiduciaries have duty to consider whether to exercise it
- Others are free to do nothing
General powers
- A general power is for many purposes equivalent to ownership
- Unlimited, can be exercised in the favour of anyone you choose
Special powers
- A special power is one in which the choice of appointees is restricted by the terms of power
- Where a list of potential people in whose favour the power can be exercised
- If the trustee is considering to give it to someone who is not eligible, you can complain
Intermediate / hybrid powers
- There can be a donee is given to power to appoint to anyone except certain people or groups of people. These are intermediate or hybrid powers
- Anyone except …
- Usually for tax purposes
Duties of donnee of power
Rights of Object
- This is a bare, or personal, power of appointment
- This must be contrasted with a fiduciary power held by a trustee by virtue of her office, which in turn must be distinguished from the obligation of a trustee of a discretionary trust
Discretionary trust
A discretionary trust is a trust in which the property is held by the trustees on trust, not for named beneficiaries in fixed proportions, but on trust for such members of a class of beneficiaries as the trustees shall in their absolute discretion select
Can a trustee disregard a power
- A trustee may not disregard a power, or forget about it, or release it
- Their fiduciary duty requires them to give consideration to the exercise of power “in a responsible manner according to its purpose … he must do more. He must make such survey of the range of objects or possible beneficiaries” [McPhail v Doulton]
- “What is needed is an appreciation of the width of the field … he is not required to make an exact calculation whether, as between deserving claimants, A is more deserving than B” [McPhail v Doulton]
Power to apply for purposes
- There is no reason why a power should not permit the application of money for specific purposes.
- The purposes must be sufficiently certain to enable a court to determine whether any particular application is within the terms of the power of not [Twinsectra v Yardley]
- This is useful for permitting the application of money to non-charitable purposes
Delegation of powers
- A person to whom a discretion has been given may not delegate their discretion to others
- Delegatus no potest delegare
- A donee may delegate the performance of merely ministerial acts [Re Hetling and Merton’s Contract] and the donee of a general power equivalent to absolute ownership may appoint to a class in such proportion as another shall select
- Many powers involve a personal discretion and this prevents delegation
- There is no objection however to a testator or settlor giving a power of appointment to a trustee. Such a power given by a testator is not to be impugned as a delegation of testamentary disposition
What happens if a donnee appoints on protective trusts
- The determinable life interests will be valid, but the discretionary trusts due to take effect on forfeiture of the life interest are void and the trusts in default take effect [Re Boulton]
- There is no objection to the inclusion in an appointment of a power of advancement [Re Morris’ Settlement]
- Where it is desired that the donee should be able to make an appointment which itself includes a power of appointment or involves any other delegation of discretion, express provision should be made in the instrument creating the power
Fraud on a power
- Not fraud in the usual sense
- Improper motive is fraud, even if it is honest
-
If a power is exercised for purposes it was not intended for
- Conscious impropriety