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WS2- beneficiaries - Coggle Diagram
WS2- beneficiaries
beneficial entitlement
Trusts have both proprietary and obligation component, this means beneficiaries have equitable proprietary rights and personal rights to enforce the trust against the trustee.
Benenficiary principle- there must be a beneficiary (other than purpose trusts) as otherwise no one can enforce trustee’s obligations and the trustee would have full ownership. Certainty of objects- objects are beneficiaries and trustees must know to whom their obligation is to. Obligations themselves must be clear also
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Discretionary trust- trust under which trustees have discretion to distribute between objects of the trust
Objects of a discretionary trust do not have proprietary rights, although some are akin to proprietary rights. Until discretion is exercised all the objects have is a hope the discretion will be exercised in their favour. They cannot assert their right against third parties but do have sufficient interest in trust property to compel it’s return to the trust fund
personal rights
Fixed trust- beneficiaries have right to compel proper administration of the trust by the trustees- can direct trustee to take action like suing a third party on behalf of the trust. Beneficiaires can sue for breach of trust if they act outside their powers or breach duties (compensation would be paid back to the trust fund. They also have a right to be informed of their entitlement under the trust once their interest has vested.
Discretionary trust- limited because they do not have proprietary interest in the trust fund. Can enforce the trist by asking court to ensure discretion is exercised but have no right to request it to b eexercised in a particular way. Once discretion is exercised in favour of a particular individual they have the right to be informed of their entitlement. They can also sue for breach of trust and require trustee to personally compensate the trust fund for any loss like in fixed trusts.
certainty of objects
Greater degree of certainty needed for fixed trust and if there is uncertainty the trust will fail. Power afforded to trustee in discretionary trust allows courts to apply less stringent test on certainty because they are not required to divide between all objects and they therefore do not need to identify them all. Power of appointment cases done of power is not required to exercise the power, therefore do not need to be able to identify all potential objects of the power
fixed trust
Where trustees are required to distribute property equally between members of a class of objects, trustees must be able to identify all beneficiaries of that class before they can begin distributing the trust fund
Complete list test- must be possible to draw up a list of all beneficiaries in this instance- IRC v Broadway Cottages Trust
This test requires both conceptual (precision of language, must be clearly defined) and evidential (extent evidence enables the trustees to identify the objects of the trust) certainty
power of appointment
objects have no right to require donee to exercise their power, but can constrain improper use of it
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is/is not test requires trustee to be able to say with certainty whether any given individual is or is not a member of the class. Do not need to identify every member of the class but just the individual making the claim/any individual whose the favour the power is exercised in
discretionary trust
McPhail v Doulton- no need for trustees of a discretionary trust to draw up complete list of objects. They do however need to satisfy ‘is/is not test’
Conceptual certainty is still a requirement, objects must be defined so they can apply the is/is not test. They need to be able to say who is or is not within the class
if there is not conceptual certainty, Trustees will not be able to properly survey the class and not know the scope of their powers/duties, Potential claimants will not be able to determine whether they have a right to compel proper administration of the trust, If there is an allegation the trustees have made a distribution to someone outside the class, court will not be able to say whether trustees have acted inside or outside their powers
examples of classes: employees (has legal meaning but a good trust should specify if current or past/future employees included), children (has a legal meaning but should check this meaning has intended effect i.e. adoptive children count and step children do not count for step parents), friends is not conceptually certain, relatives was decided to be certain in Re baden's deed trusts No 2, but there was no unanimous definition- two thought it meant descendant's from a common ancestor
evidential certainty
Re Baden's case- did not reach agreement but in practice, Sachs LJ judgement was used- it is for claimant to prove to the trustees’ satisfaction that they are within the class. If they cannot prove, they are outside it. Again this is building on the is/is not test and what it means for overall certainty of objects
where trusts can fail
Class of objects too wide- McPhail- ‘so hopelessly wide as not to form anything like a class, so that the trust is administratively unworkable’ e.g. inhabitants of greater London
Size of class however does not invalidate power of appointment because the donee has no obligation to exercise and thus no obligation to survey the class- Re Beatty- power of appt upheld to appoint property to ‘anyone in the world’
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