Fixed and Discretionary Trusts Test

Fixed and Discretionary Trusts TestConsider whether the contrastive auditions for certainty of objects relevant to unbending pulls and arbitrary commits argon steal.The proves for certainty of objects differ depending on whether on that point is a fixed pull or a discretionary deposit. This shew exit calculate whether the different interrogations applicable to fixed institutionalises and discretionary gives are capture.Initially, the consummate(a) list test applied to both types of trusts. According to this test, the trust is deflower unless it is possible, at the time it is created, to great deal up a complete list of the class.In a fixed trust, the beneficiaries and their shares are identified in the trust instrument. The trustees have a duty to distribute the trust proportion jibe to the precise allocation nock by the settlor. It is t here(predicate)fore necessary, for the trustees to deplume up a list of all the members of the class, sooner division of the trust property occurs. If they are unable to establish all member of the class, the trust entrust be void.It smoke be argued that the complete list test applicable to fixed trusts is appropriate and the courts are justified in victorious a strict and demanding approach. The strictness and necessity of the test best ensures obligingness with the settlors intention.One may argue that the is or is non test should cod to fixed trusts. However, this test would non be unavoidable in fixed trusts where the beneficiaries have already been identified in the trust instrument. Hence, there is no choose for the trustees to exercise their discretion in determining whether or not whatsoeverone is a member of the class. Furtherto a greater extent, the number of beneficiaries is more apt(predicate) to be limited with fixed trusts, compared with discretionary trusts.The complete list test was to a fault previously applicable to discretionary tests. However, this is no longer the case since McPhail v Doulton. In McPhail, the trustees were habituated an absolute discretion to befool the income for the arrive at of employees and ex-employees of the company, and their relatives and dependants. This was estimated at a very large number and so it about insurmountable to satisfy the complete list test. Hence, it would have been void as a discretionary trust. In order to avoid this, it was held to be a strength of appointment, and so valid to a lower place the is or is not test. The Ho routine of Lords rear that a discretionary trust had been created. However, they changed the test for discretionary trusts to the is or is not test. The test is whether it can be said with certainty that any latent claimant is or is not a member of the class.There were two different views expressed in the House of Lords regarding the appropriate test for discretionary trusts. On the one hand, it was argued that the complete list test was the appropriate test because the trustees would take in to consider every possible member of a class before exercising their discretion. If the trustees are in default, the court would have to distribute the trust property equally surrounded by the members of the class. In order to do so, they would need to draw up a complete list of the class.However, the majority judgement, given by Lord Wilberforce, argued that it is not sensible or realistic to opine a settlor to ask the trustees to consider every single member. If the settlor had intended the trustees to consider every member of the class, and, for each member to receive an equal come in, he would have stated it in the trust instrument. The fact that he did not state this, and allowed the trustees to exercise their discretion, suggests that he did not intend equal scattering of income. This reflects the aim of discretionary trusts, which is to allow trustees to use their discretion in decision making who should benefit under the trust, and in what proportions. Therefore, all the settlor expects, is that the trustees lend out an appropriate survey of the class, so there is no need to be draw a complete list. Furthermore, where the court has to distribute the property, it is not necessary to set apart the cash equally, because each person would get a small amount, which is not what the settlor intended.Hence, we can see that the complete list test might be appropriate in cases involving discretionary trusts concerning small family trusts. In such cases, it go forth be feasible for the trustees to draw up a list of the members of the class, as there lead be a small number of beneficiaries involved. Therefore, it will be necessary for the trustees to consider all the members of the class before exercising their discretion.On the other hand, the complete test is too strict and inflexible in cases involving large discretionary trusts. The test would make such trusts void for lack of certainty due to the number of beneficiaries involved which would make it almost impossible to draw up a complete list. Furthermore, there will be costs in drawing up the class. The final amount each member of the class will receive would be so small as to not be of any use to a member. Thus, the complete list test would not best give encumbrance to the intentions of the settlor. Hence, it would be more practical and appropriate to use the is or is not test in such cases.However, this test is easier to state than to apply. This is illustrated by the fact that McPhail was sent back to the High Court in order to furbish up whether the ground relatives and dependants made the trust void for conceptual uncertainty. Although the trust was upheld, the judge gave very different views.Stamp L.J. took the literal approach that the is or is not test could tho be satisfied if it could be said of every potential claimant that they were or, were not, within the class. On the other hand, Sachs L.J. decided that the class test is only concerned w ith conceptual certainty and not evidential certainty. He too thought that the burden of proof was on the person claiming to be within the class. This might be disadvantageous to individuals who cannot prove their entitlement. Megaw L.J. adopted a middle position. He held that conceptual certainty alone is insufficient and that some degree of evidential certainty is required.Thus, Re Bayden illustrates the difficulty in applying the is or is not test to discretionary trusts. However, the fact that this matter has not arisen in any later cases suggests that it has not been a practical problem.It can be argued that the is or is not test is inappropriate to use as a test for discretionary trusts. This is because the same test is also utilise in powers of appointment, and since powers and trusts are different from each other, their tests should not be the same. This may be justified on the basis that the is or is not test is more flexible and appropriate, than the complete list test, in cases involving large discretionary trusts. employ the complete list test would invalidate large discretionary trusts on the basis that a complete list cannot be provided. This would clearly not provide a satisfactory result.Therefore, it is suggested that the complete list test is appropriate in fixed trusts since it best ensures compliance with the settlors intentions. Similarly, whilst the is or is not test is probably not the ideal test to apply in discretionary trusts, it is more appropriate than the complete list test used in fixed trusts.Question 2In his will, Colin leaves 100,000 to the Hillingbridge Tennis Club, an unincorporated connective, to alter it to build an extension to its existing pavilion. The specie is paid to Morris, the financial officer of the association, who puts it into a specially capable bank account, which he calls the Extension Account. Soon afterwards, the club is displease up.DiscussColin left(p) 100,000 to Hillingbridge Tennis Club to b e used for the structure of an extension to the pavilion. However, this purport can no longer be carried out since the club is wound up. There will be a dispute as to who gets the 100,000. In order to solve this dispute, it will be necessary to work out how the cash was held by the club.An unincorporated association has no good personality and so it is not a legal entity that can hold currency. This means that the club cannot be a beneficiary. Hence, a gift to it cannot take achievement as a gift on trust for the associations draw a bead ons as it offends the beneficiary principle. Furthermore, it is un apt(predicate) that the sports club is a charitable association, and so the funds cannot take effect as a purpose trust since, such trusts are usually void.The money was paid to the treasurer of the club, Morris, who holds legal title of it. However there is much controversy as to what the basis on which the money is held. The courts have struggled for ways to determine this .Colin left the money to the club for a particular purpose. Therefore, one approach is that the money is held under a Re Denley purpose trust. beneath the Re Denley principle, the monetary value of the trust are stipulated by the donor and the unincorporated association has to use the money in accordance with those terms. In Re Denley, it was held that where a trust is expressed in the form of a purpose, it may still be deemed valid if it can be said to be for the direct or indirect benefit of one or more ascertainable individuals. Thus, if it is held to be a Re Denley purpose trust, although the members of the club are not beneficiaries, they will have sufficient locus standi to overcome the beneficiary principle, and to enforce the trust.This is only possible in inward looking associations where the performance of the purpose of the trust will benefit the members, who are identifiable persons. It can be argued that the grammatical construction of the extension to the pavilion w ill benefit the members since they will need to collapse less money towards the construction of the extension. The mental synthesis of an extension will also improve the facilities in the club and the members of the club will financially benefit from this.In Re Denley it was not possible to uphold the gift on the basis of the bowdlerize attribute conjecture because the gift was not made to an association. However, in our case, the club is as unincorporated association and so the money may have been held in accordance with the shrink safekeeping possibleness. This is the stock approach to the problem of property belongings in unincorporated associations.Under the contract holding theory, the money will be considered as a gift to the members issue to their contractual rights and liabilities towards one another. Hence, the trust cannot be subject to the terms stipulated by Colin. It will be subject to the terms of the contract among the members who, collectively, can decide what to do with it. They may use the money according to the purpose for which it was given but are not required to do so.Thus, in Re Lipinski, money left by the testator was, prima facie, subject to the stipulated terms. However, it was held that the gift could be upheld under the contract holding theory provided that the stipulated purpose was an expression of the motive of the gift rather than a binding purpose. This could be the approach adopted here so that the purpose stipulated by Colin is considered to be only a motive.The club did give effect to Colins stipulation as Morris had put the money into a specially opened bank account, which he calls the Extension Account. It may be assumed from its look up that the money in the account was to be used in building the extension. However, it is unlikely that the money was used to build the extension since the club wound up soon afterwards. Therefore, in Re Reechers, it was held that a gift to an unincorporated association would hav e taken effect under the contract holding theory, if it had remained in existence. The gift would have been valid as an accretion under the contract holding theory.Therefore, when an unincorporated association give funds, for ordinary everyday use, there is an assumption that the money is held on contract holding theory and, the gift is an accretion to those funds. This may be applied to the case here if the money in the special account is held to be the ordinary funds of an association. This is unlikely to be the case since it may also be argued that the building of an extension is an ordinary use of funds. Alternatively, it may be argued that this is trivial since, according to the contract holding theory, the money belongs to the members, who may do whatever they ask with it.The contract holding theory overcomes the beneficiary principle because although none of the members own a share, collectively, they own the club. Therefore, together, the members can change the terms of t he contract, or make any other changes to it, and this is sufficient to satisfy the beneficiary principle. The contract holding theory also overcomes the objection based on perpetuity because the members can collectively access the property and dispose of it, in accordance with the terms of the contract between them.What happens to the money upon dissolution of the club depends on whether the money is held on a Re Denley purpose trust or the contract holding theory. If the money is held on a Re Denley purpose trust, hence on the dissolution of the club, the trust will fail and the money will be put on a resulting trust for Colins estate. Colin left the money in his will to the club and the fact that it has been given to Morris implies that Colin is dead. In Re West Sussex, the court assumed that the money was held on trust to carry out the purposes of the association and when it failed, the property was held on a resulting trust to the people who contributed in proportion to their contribution. However, the trust in Re West Essex was not described as a Re Denley trust.On the other hand, in Re Bucks practice of law Fund, the court reached a different conclusion although the facts were analogous to Re West Sussex. It was held that on the dissolution of the Friendly Society the money was to go the members. The decision in Re Bucks reflects the approach adopted today.Therefore, it is likely that the gift will be upheld under the contract holding theory and so the money will go to the members who own it collectively. The club has of all time been in the ownership of the members, and so it is the contract between them, which determines what happens to the money. Providing that the contract between the members does not prohibit it, the members can divide the money equally between themselves. As the matter concerns the contract between members, there can be no resulting trust since, such trusts only occur in equity.It is likely that the members of the unincorporat ed association are alive. Hence, the doctrine of bona vacantia will not apply here.BibliographyBurrough v Philcox (1840) 5 My Cr 72IRC v Broadway Cottages Trust 1955 Ch 20Neville Estates v Madden 1963 Ch 832McPhail v Doulton 1971 AC 424Re West Sussex Constabulary Fund 1971 Ch 1Re Reechers WT 1972 Ch 526Re Badens DT (No 2) 1973 Ch 9Re Lipinskis WT 1976 Ch 235Re Bucks Constabulary Fund 1978 2 All ER 571 OT Computers v first off National Tricity Finance 2003 EWHC 1010Haley McMurty, Equity Trusts, (Sweet Maxwell, 2006) at p.52, p.142Watt, Trusts,(Oxford University Press, 2006) at p. 82Kevin Boone, The K-Zonehttp//www.kevinboone.com/lawglos_CertaintyOfObjects.html