Trusts & Powers

Question 1

What is a power?

Answer 1

Authority vested in a person to deal with/dispose of property which isn’t their own.

Question 2

What is power of appointment?

Answer 2

This refers to when a right is given by the donor to the donee to appoint the donor’s property to some other person or class of person’s

Question 3

What are the different types of Power of appointment?

Answer 3

1. General power of appointment - appoint anyone in the world
2. Special power of appointment - appoint anyone within a class
3. Hybrid power of appointment - appoint anyone except certain people

Question 4

What is the distinction between powers and trusts?

Answer 4

1. Powers can be legal (power of attorney) whereas trusts are always equitable;
2. Powers are discretionary, the donee does not have to exercise the power whereas a trust is mandatory;
3. If a trustee fails to carry out his duties the court will intervene. The court will not compel the donee of a power to exercise it;
4. The potential object (beneficiary) of a power has no interest in the property which is subject to the power until the power is exercised. A beneficiary under a trust has an equitable interest in the trust property.

Question 5

What are the classification of powers?

Trust Powers

Answer 5

Trust Powers - Discretionary trusts are often referred to as trust powers! They are called trust powers to highlight that they are mandatory not discretionary. A distribution MUST be made within the class, unlike other powers (often referred to as Mere Powers) where distribution is discretionary.

Question 6

What are the classification of powers?

Fiduciary Powers

Answer 6

Fiduciary Powers – This is often used to describe the situation where a power of appointment is conferred upon a trustee. In these circumstances the trustee doesn’t have to exercise the power although they must periodically consider whether to, and if so, how to exercise it eg Blackacre to X for life and then to such of my children as my trustees MAY select. They are also referred to as Mere Powers

Question 7

What are the classification of powers?

Bare Powers

Answer 7

Bare Power - Where a power is conferred on a non trustee. In these situations the donee doesn’t even need to consider whether to exercise the power. They are also referred to as Non Fiduciary Powers

Question 8

What case provides guidelines on how to decide whether you have a discretionary trust or a mere power?

Answer 8

Re Leek [1967]:

If it is a general power of appointment = MERE POWER
If there is a gift over in default = MERE POWER
If distribution is mandatory = DISCRETIONARY TRUST
If discretion as to whether to distribute = MERE POWER

Question 9

What is a gift over in default?

Answer 9

A gift over in default is where:-

a. the donor gives the property to a donee with a discretion as to whether they distribute it or not; AND
b. the donor makes provision for if the donee doesn’t distribute, ie in default of distribution it is to go to X.

Question 10

What was held in McPhail v Doulton 1971?

Answer 10

There was great resemblance between mere powers and discretionary trusts. The distinction between trusts and powers is now diminishing.