T&E II Certainty of Objects, the Beneficiary Principle and Rules Against Perpetuity Flashcards
Distinguish fixed trust and discretionary trust
Trustees in a fixed trust have no discretion as to how the trust property is distributed among beneficiaries.
Trustees in a discretionary trust is under a duty to select beneficiaries from a class and decide how much they are to receive (Mettoy Pension Trustees Ltd v Evans).
Define 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
Certainty of objects test for fixed trusts
Complete list test:
a comprehensive list of each and every beneficiary (IRC v Broadway Cottages Trust)
There must be conceptual (can the group be defined) and evidential certainty (can the people be ascertained)
Certainty of object test for discretionary trusts
Given postulant (candidate) test: valid if it can be said with certainty whether any given postulant is or is not a member of the class of the objects
Considerations for the test (Re Baden’s Deed Trust (No.2).
Conceptual certainty is essential, e.g. relative’s conceptually certain. Evidential certainty is unnecessary a potential beneficiaries who cannot prove they are within a class will have no right to be considered by the trustees.
The trustees may be unable to identify every potential beneficiary but if the description is clear enough to assess the range of potential beneficiaries, trustees can enforce the trust.
Two conditions where discretionary trusts fail in relation to ascertaining the objects (apart from lack of conceptual certainty)
Administratively unworkable: if the numbers are too large or the class is too wide to form a class. (West Yorkshire Metopolitan CC); or
Capriciousness: if the class is too wide that the trustees can not form a prudent judgement on exercising their discretionary power (Negativing a sensible consideration by the trustees.
Review Beneficiary principle
For a trust to be enforced you need identifiable human beneficiaries who can enforce a trust (Marice v Bishop of Durham)
Meaning of rule against inalienability
A trust for non-charitable purposes will be void from the outset if the trust capital is not
freely alienable within the relevant perpetuity period
In order to satisfy the rule, non-charitable purpose trusts (for animals, tombs or in the Denley mould) must either:
(a) be limited in duration to 21 years; or
(b) allow the trustees to spend all the trust capital on the purpose and thereby end the trust at any time
Explain whether the trusts set out below are valid. Y
how would you change the wording in order to make it valid?
On trust to maintain my pet snake, Archie
On trust to buy sports equipment for Freshco’s sports and social club.
(Freshco is a supermarket. Its employees have their own sports and
social club.
Trusts for the maintenance of specific animals are an exception to the beneficiary principle but this particular trust is invalid because it offends the rule against inalienability. The duration of the trust is not confined to 21 years. The trustees could not spend all of the trust capital and thereby end the trust at any time because this would breach their duty to maintain
Archie in future years.
The following amendment would make the trust valid:
‘On trust to maintain my pet snake, Archie, for 21 years or the rest of his life, if shorter, and then for Peter absolutely.
This trust is expressed to be for the purpose of buying equipment, but the employee members of the club have a sufficiently direct benefit from the purpose to be able to take court action to enforce it. Consequently, the trust satisfies the beneficiary principle (Re Denley).
The trust complies with the rule against inalienability because, although not limited to 21 years, it is clear that the trustees are able to spend all the trust capital on buying the equipment, whereupon the trust will end.
The only permitted forms of trusts that do not satisfy the three certainties
Honorary trusts:
care/maintenance of specific animals (Re Dean) of graves/monuments (Re Hopper)
Purpose trusts:
Denley trusts: despite lack of ascertainable beneficiaries to enforce the trusts and a charitable purpose, held that the trust is still enforceable by trustees and court. The benefit must be sufficiently tangible to allow court to enforce for ascertainable beneficiary and the rule against inalienability still has be satisfied
Charitable exception
Unincorporated association
Requirements for a charitable trusts
(5))
PEPSI
Must have a charitable Purpose (within s.3(1) Charities Act 2011)
Exclusively charitable: cannot be political (McGovern v A-G (Amnesty case))
s.4(2): no Presumption of benefit - where not obvious there is a burden of proof. any benefit must outweigh detriment
Sufficient public benefit
if the non-charitable purpose is merely incidental to the central charitable purpose of trust, this is acceptable (McGovern)
Exception for a charitable trusts
Beneficiary principle: charitable trusts are enforced the attorney general
Rule against perpetuities: A charitable trust may last forever
Meaning of public benefit
s.4(30 Charities Act 2011: Any reference to the public benefit is a reference to the public benefit as that term is understood for the purposes of the law in E&W
IRC v Baddeley
and
Re Scarisbrick
for a charitable trust, the beneficiary class cannot be too narrow in terms of number (negligible number) or a class within a class (IRC v Baddeley)
but for relief of poverty small group is permissible (Re Scarisbrick)
Rules on school claiming charity status
School whose whole object was the education of children whose families could not afford to pay the fees would not be charitable (Indep Sch Council v Charity commission for E&W) most be more than a token provision. Poor in this context can mean modest means.
Rule of charitable trust cannot be for a personal benefit
objects cannot be connected by a personal nexus (family or employee). Exception for relief of poverty.
