#3558 - Types Of Trusts And 3 Certainties - Trusts and Equity

TYPES OF TRUSTS/POWERS

1. Fixed trust – trustee must give property out to the named objects + has no discretion as to how it’s to be distributed

2. Discretionary trust – trustee must give property out to the named objects + has discretion as to how it’s to distributed

3. Discretionary power of appointment – trustee has discretion as to whether & to what extent to give the property out to named objects and, to the extent that he decides to do so, in what proportions

4. Fixed power of appointment (least common) – trustee has discretion as to whether to give out the property to the named objects but, if he decides to give out, must do so in pre-determined proportions.

• All imposed trusts will be fixed but when it comes to intended ones, it can be any. It’s for settlor to choose which option he wants and, when language is ambiguous, for courts to determine which of these best mirrors settlor’s intent.

THREE CERTAINTIES

1. Certainty of Intention

• Shad to express intent(could be collected from docs) to create a trust by name or set of arrangements equating to a trust court will not impute such intent w/out any indication(Re Schebsman).

• Precatory words alone intention e.g. request that T ‘do what’s right’

• Moral obligation fiduciary obligation

• in full confidence that mother will look after the children’ (Re Adams & Kingston Vestry)= no trust

• in full confidence that ‘wife will devise property to husband’s nieces as fit’ = a trust

• is mother different from aunt?

• ‘to be disposed of in any way wife may think best for benefit of her & family’ = no trust (Lambe v Eames)

• property ‘is as much yours as mine’ = a trust (Paul v Constance)

• Intent to make a gift intent to create a trust (Jones v Lock– the case of father, baby & the cheque).

2. Certainty of Subject Matter

• Must have intention + physical capacity to transfer (Re Ellenborough)

• Can’t transfer property of which you have only expectancy or assign yourself as trustee over it (Williams v IRC – couldn’t assign expected income)

• Property which isn’t presently owned can’t be impressed with a trust or effectively assigned (ReLondonWine)

• Trust property has to be distinguishable from the general mass (Re London Wine/Re Goldcorp- wine & gold bullion cases), except for intangibles (Re Harvard Securities/Hunter v Moss - shares)

• Lehman Brothers (intangibles) - the test is whether, immediately after declaration of trust, court couldmake an order for execution of the trust. A declaration re definite number of shares, forming part of larger holding, was valid, just as a declaration re corresponding proportion of shares held would have been

• A trust for ‘whatever is left’ (a floating charge) is valid (Ottaway v Norman) despite inherent uncertainty as to what will be left NB: recognised in context of secret trusts so unclear if it applies generally

• Can achieve same result by giving T a life interest in the property w/power to dispose of it then, B being entitled to the remainder

3. Certainty of Objects

1. Fixed trusts - property is to be held equally for certain class of people such that it’s necessary to know how many, where & who b/f the trust can be administered

1. Independent/freestanding fixed trust (B’s interest is defined as distinct from those of others – e.g. 100 to each of my friends) – C must establish that he falls within the class set down by settlor

2. Referential fixed trust (B’s interest is defined by ref to others - 100 to be divided equally b/w my friends) - it’s necessary for trustees to be able to compile a complete list of beneficiaries (IRC v Broadway Cottages; Lord Upjohn Re Gulbekian)

• Trustee must be able to name each possible beneficiary/identify all members of the given class;

• If there are any Cs of which he’s uncertain/isn’t able to compile the list, trust is void for uncertainty

2. Discretionary trusts – whether it can be said w/certainty that any individual is or is not a member of the class (McPhail v Doulton): need certainty no higher than what is necessary for trustees to carry out duties (a reactive test – when confronted w/certain individual, we can say whether he is or is a B)

• Initially, ‘complete list’ required b/c courts considered themselves not entitled to prefer one B to another, unless settlor has provided a basis for it, and b/c drawing up a complete list would enable trustee to acquire further info needed to exercise discretion

• Query is the ‘is or is not’ test adequate to enable trustees & courts to have info they need to administer the trust? It’s reactive, requiring only that we can identify Bs/non Bs as and when they fall for consideration but trustees will be required to do more; i.e. weigh up merits of competing claims by potential Bs, requiring knowledge of size of the class & what sort of people it comprises. The ‘complete list’ test provides trustees w/this raw material whereas is or is not test doesn’t.

• Distinguish (Re Baden No2)

  1. Evidential Uncertainty – the degree to which available evidence enables trustee to identify beneficiaries fatal to FT but not DT

  2. Conceptual Uncertainty - precision of language used by settlor in defining the objects fatal to a FT & DT

• Sachs LJ: is or is not test requires only conceptual certainty b/c court is never defeated by evidential uncertainty and, where facts leave court unsure, all ‘don’t knows’ are to be treated as ‘no’s’

• Stamp LJ - didn’t use the terminology but regarded clear definition & factual info as required for both FT & DT – a class of ‘don’t knows’ wasn’t allowed

• Megaw LJ: test is satisfied if, as regards a substantial number of objects, it can be said w/certainty that they fall within the trust (‘substantial no’ depends on facts), so there can be some evidential uncertainty but there comes a point at which it’s too widespread to uphold the trust.

• Webb: Stamp LJ’s one is most consistent w/Gulbekian&McPhail but which you prefer will ultimately depend on how far you feel court should go to uphold the trust; i.e. whether it should be permitted to quantify & modify settlor’s intent

  1. Administrative Unworkability (Dundee Hospital Board v Walker) - the extent to which it’s practical for trustees to discharge their duties; e.g. the class is so big that trust property becomes indivisible & the expense of finding Bs would defeat the purpose of trust = invalidates DTs but not mere powers (Wilberforce’s all residents of Greater London example in McPhail)

• Meaning

1. Not that settlor must make clear who falls within the class of objects + basis on which trustees/court are to choose b/w them when distributing b/c no such requirement laid down in case law & settlor can leave it up to trustee to formulate own criteria for selection

2. Unlikely to be the size of class of potential Bs – while Ts are under duty to survey the field, it’s unlikely that Wilberforce meant this + in such cases it would be better to have a less extensive survey than invalidate altogether

• but size of class was used in 1 case to invalidate the trust ‘for the benefit of all or some inhabitants of West Yorkshire county’ – 2,5 mln potential Bs

  1. Capriciousness (Re Manisty) – a power (and presumably DT) will fail if it’s capricious; i.e. where terms negative any sensible intention on the part of the settlor such that objects constitute an accidental conglomeration of people w/no discernible link w/settlor or any institution.

• Rationale: the need for courts & Ts to be able to administer the trust – settlor should have a good reason for choosing those objects b/c if the class appears to be arbitrarily defined trustees won’t be able to pick b/w them on any sensible basis for distributionbut this is questionable!

• Where trustee has a duty to distribute, he’ll have a duty to survey the field (Wilberforce in McPhail);

• For a gift, the standard of recipients is ‘one person’ test, if the gift is of an option to purchase property, so that there’s no need to say who actually gets the property (Re Barlow)

• Distinguish:

1. Exhaustive DT– all the income arising in any year must be paid out during that year, although no beneficiary has a right to any specific sum.

2. Non Exhaustive DT - income may be carried forward to subsequent years and no beneficiary need receive anything. Useful when the needs of beneficiaries are likely to change, e.g. when they are children.

• Resolving uncertainty–could outsource of decision to a trusted person can now be used to cure evidential & conceptual uncertainty

• Originally held not to be capable of curing conceptual uncertainty b/c this would effectively oust jurisdiction (ReCoxen) + questionable how position may be resolved by TP if court can’t do it but in Re Tuck conceptual uncertainty cured by Jewish Rabbi clause

• TP can be called upon to resolve uncertainty in 2 ways:

  1. definition of the class – e.g. 100 to my friends or, where there’s uncertainty, matters are to be resolved conclusively by X ‘friends’ isn’t certain so trust is void

  2. TP’s opinion may form part of definition of the class provided by the settlor – e.g. 100 to those who in X’s opinion are my friends uncertainty cured by ref to X

• Issues:

1. Whether any TP can be used a reference point or whether he must have some expertise or knowledge of the class set down by the settlor unclear, perhaps best to ask if feasible for that TP to resolve it

2. Whether all conceptually uncertain terms may be resolved in this way e.g. tall, attractive, intelligent...