WS 3 Certainty of Objects Flashcards
Stages for a Certainty of Objects Question?
STEP 1: did the settlor try to set up a fixed trust, discretionary trust or power of appointment?
STEP 2: Consider the CERTAINTY OF OBJECTS test that applies to particular trust?
Fixed Trust - Complete list
Discretionary Trust - Given postulant
- BUT trust can still fail due to…
Powers of Appointment - Given postulant
Definition of a fixed trust?
Trusts have no discretion as to how the trust property is distributed among beneficiaries. Where a gift to two or more people is silent on the shares they are to take, it is presumed that they are to share equally.
Definition of Discretionary trust?
Where someone, usually the trustee, is under a duty to select from among a class of Bs those who are to receive and how much they are to receive. (Mettoy Pension Trustees v Evans)
a. Until selected, no possible B has an equitable interest, merely an expectancy or “a spes”
Definition of Powers of Appointment?
A person has authority to deal with property in a particular way, BUT is under no obligation to actually exercise this authority. (Can spot a power of appointment as there will be no duty to select beneficiaries, and there will be a “gift in default of appointment”)
Certainty of objects test for fixed trust?
COMPLETE LIST TEST (a comprehensive list of each and every beneficiary) (IRC v Broadway Cottages Trust [1955]). Need conceptual (can the group be defined? – what type of person are you looking for?) and evidential certainty (can the people be ascertained?)
Does the certainty of objects test for fixed trusts apply to commercial trusts also?
a. Commercial trusts: Same applies: OT Computers v First National Tricity Finance Ltd [2003] – Put money in trust to protect from creditors. Trust for repayment of customer deposits fine, but trust for “urgent suppliers” failed – lack of certainty of objects
Certainty of objects test for discretionary trust?
GIVEN POSTULANT TEST (McPhail v Doulton [1971]*see end of WS Notes for summary of this). Valid if it can be said with certainty whether any given postulant is or is not a member of the class of objects.
In McPhail and Doulton, according to Lord Wilberforce, why should the same test be used for certainty of objects be applied to discretionary trusts and powers of appointment?
Lord Wilberforce: On why there should be the same certainty of objects test for discretionary trusts and powers of appointment said the two are very similar. Pointed out that lower courts and House of Lords had reached different conclusions on whether Mr Baden had created a discretionary trust or a power of appointment. Validity of disposition should not depend upon “such delicate shading”.
What is the difference? – One of degree. Trustees of DTs must make a wider and more systematic survey of the range of objects than if they were given a power
House of Lords held that to pass the given postulant test, there needed to be sufficient “conceptual” or linguistic certainty.
What happened after the House of Lords decided the certainty of objects test in McPhail v Doulton?
After deciding test for discretionary trusts in McPhail v Doulton, the case was remitted to the HC to decide whether on the facts, Matthew Hall Staff Trust Fund satisfied the GPT. HC and Court of Appeal decided that the trust was valid. Court of Appeal’s decision: Re Baden’s Trust (No. 2) [1973]
What was the big question in Re Baden’s Trust (No.2)?
Whether the description of objects was sufficiently certain if you could envisage “don’t knows”
Stamp L.J.
If you could envisage “don’t knows” the DT would fail the given postulant test. Uncertainty of objects. However - upheld the trust fund as defined relatives as next of kin, so there could be no “don’t knows”
Sachs L.J.
Defined relatives as meaning “descendants from a common ancestor.” Upheld the fund. Conceptual certainty essential. Burden on claimant to prove he was in class of objects. If he couldn’t, he would fall into the “is not” section.
Megaw L.J.
If there are a substantial number of people that are within the class, the trust will pass the GP test.
For what two reasons could a discretionary trust fail?
1) Administrative unworkability
2) Capriciousness
Administrative unworkability?
Size of class/if numbers are too large to form a class – may make trust administratively unworkable. Re District Auditor, ex p West Yorkshire Metropolitan CC [1986] – 2.5m people defeated trust
a. Administrative unworkability does not cause the failure of powers of appointment. Powers of apt for everyone in world are permitted (Re Hay’s Settlement Trusts [1982])
