Certainty

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  • Topic: McPhail v Doulton, Discretionary trust, Settlor
  • Pages : 9 (3341 words )
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  • Published : May 16, 2013
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F3:2.1: CERTAINTY OF OBJECTS & DISCRETIONARY TRUSTS 1. Introduction: The Purpose of the Certainty of Objects Requirement

- For a Trust to exist, A must: (i) hold a specific claim-right or power; and (ii) be under a duty to B not to use that claim-right or power for A’s own benefit (unless and to the extent that A is also a beneficiary of the Trust). In other words, for a Trust to exist, A must be under the core Trust duty. The certainty requirements for a Trust simply reflect the fact that A must be under a duty to B in relation to a specific right. The certainty of objects requirement ensures that: (i) A owes a duty to a specific person; and (ii) A’s duty is certain enough to be enforced. The certainty of objects requirement can sometimes be seen as an inconvenient obstacle that can trip up a party (A0) trying to set up a Trust. However, it serves a vital purpose: a court cannot enforce a duty unless that duty is adequately defined. This point is not peculiar to Trusts. For example, an agreement between A and B can only impose a contractual duty on A to B if it is satisfies a certainty test: the nature of A’s duty to B must be adequately defined.1 In understanding the certainty of objects requirement, it is important to ask what information the court needs in order to enforce A’s supposed duty to B. If that information is lacking, A’s supposed duty cannot be enforced; so A will be under no duty to B; so there can be no Trust. 2. Discretionary Trusts

- A discretionary Trust is a form of Trust (see p 222-4 of the book): it can exist only if A is under the core Trust duty. Example 1a: A0 transfers £100,000 to A subject to a duty: (i) not to use that money for A’s own benefit; and (ii) to invest the money prudently; and (iii) at the end of 21 years, to pay any unspent part of the £100,000 and its income to Oxfam. A0 also stipulates that, during that 21 years, A can, if he wishes, pay all or any of the £100,000 and its income to all or any of A0’s children or grandchildren. In such a case, there is clearly a Trust: A is under the core Trust duty. And Oxfam is a beneficiary of that Trust: A owes the core Trust duty to Oxfam. A0’s children and grandchildren are not, however, beneficiaries of a Trust: A does not owe them the core Trust duty. Rather, A has a power: A can, if he wishes, give all or any of the money to all or any of A0’s children and grandchildren.

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See eg G Scammell & Nephew Ltd v Ouston [1941] AC 251.

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- A discretionary Trust is a particular form of Trust: it exists where A, in addition to being under the core Trust duty, has a power to choose how to distribute the benefit of the right A holds on Trust. Example 1b: A0 transfers £100,000 to A subject to a duty: (i) not to use that money for A’s own benefit; and (ii) to pay the money, in equal shares, to all of A0’s children and grandchildren. In such a case, there is clearly a Trust: A is under the core Trust duty. There is no discretionary Trust: A does not have a power to choose how to distribute the benefit of the £100,000. Rather, there is a fixed Trust: A is under a duty to distribute the benefit of the right held on Trust in a specific way. Example 1c: A0 transfers £100,000 to A subject to a duty: (i) not to use that money for A’s own benefit; and (ii) to invest the money prudently; and (iii) by the end of 21 years, to have distributed that £100,000 and its income, as A sees fit, amongst all or any of A0’s children or grandchildren. In such a case, there is a discretionary Trust. A does owe the core Trust duty to A0’s children and grandchildren; but A has a power to choose how to distribute the benefit of the £100,000. 3. Discretionary Trusts & Certainty of Objects: The “Any Given Person” Test

Example 2: A0 transfers £100,000 to A subject to a duty: (i) not to use that money for A’s own benefit; and (ii) to invest the money prudently; and (iii) by the end of 21 years, to have distributed that £100,000 and its income, as A sees fit,...
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