Tests of Certainty of Objects - Essay Example

Certainty of objects Affiliation Certainty of objects Introduction There are three certainties in trust law that aid in theformation of express trust in that to be binding the trust instrument must demonstrate certainty of subject matter, object and intention. This paper will focus on certainty of object, which must state clearly, who the recipient or objects are in the trust1. The objects of a trust are people who profit from the trust also referred to as beneficiaries. Additionally, the certainty of objects also refers to the resolutions for which the dependence has been affirmed. The benefactors of a trust must be known as the objects and they must be certain. The assessment of certainty of objects is complex because the test varies between mere powers, fixed trusts and discretionary trusts. The reason for identifying the objects of trust is to ensure that there is a person who can enforce trust against the trustee. Additionally, there must be someone who can bring an action in court in case the responsibilities of the trustee are not achieved. The trust must also have the ability of being executed in that when there is no human persons to benefit from the trust then the concept of trust becomes pointless2. Therefore, when a beneficiary is explicitly named in the trust deed there is no confusion when it comes to the certainty of objects. In cases where a person is not explicitly named in the trust deed, but the trust document provides a description of an individual that should profit from the trust property. Additionally, in case the description is clear and precise that it is a particular person then this prerequisite is satisfied. In a certainty of objects where the trust is made for a set of people for example, ‘my children’ this clause will succeed where it has been established that there is adequate certainty to identify each member of the group/class of people3. When a group of people are not clearly described, defined, or stated in vague terms their meaning can be interpreted using the conceptual uncertainty. Tests of certainty of objects Two tests that have been created to establish whether all persons within the group can be clearly recognized. They include the class ascertainability test, which comes into play where trustees make a complete list of each individual that comes within the class of people to benefit from trust. Although the courts do not need to know the entire class in order to decide whether the trustees are selecting within the group, in case the trustees do not do so then it must be said that the trustees are not exercising their duties in case they have not ascertained the whole class. Because the trustees may in effect be considering a different class4. The other argument that has been established is that in case the trustees fail to act then they give the court the discretion to execute the trust. The courts achieve this execution by ensuring that there is equal division requiring that the whole group be ascertained. However, the two contentions were rejected and dealt with by the majority judges in the McPhail case5. McPhail V Doulton6 in this case settlor executed a trust for the benefit of any officers and ex-officers or employees of Matthew Hall and Company or to any relatives or dependants of any person in such amounts and on conditions that the trustees deemed fit. After the settlors death the next of kin challenged the validity of the trust. The court held that first, the instrument formed a trust power and not a bare power and secondly, the test of certainty for trust powers in this case was the criterion certainty test. The court further held that the trust power would have not applied if the list certainty were needed since it was impossible to compile a list of prospective beneficiaries. This is because large employment welfare trusts such as the one in the case are only upheld if they are not the issue to list of certainty. Secondly, there is the individual ascertainability test, which arises where it is likely for the trustees to indicate that the named persons are or are not among the group of beneficiaries. Additionally, the test requires that any person representing himself or herself must be within the class and this must be shown in the trust document7. This is because when it comes to the execution of the trust by the courts equal distribution in this case should not be observed because the courts should give some effect to the trust based on the test. The test that is applied is subject to whether the trust is discretionary or fixed trust. The tests that applies to establish whether a trust is fixed trusts is known as the ascertainability test. Fixed trust involves a situation where the individual who makes the trust splits the property into equivalent shares for the entire group. A fixed trust are for specific and named list of individuals. The test of fixed trust was established in the case of IRC v Broadway Cottages8 where the trustees have to give a whole list of beneficiaries. Therefore, in case there are potential beneficiaries who are not included in the trust and the trustees is not certain of some of them then the trust becomes void for uncertainty. Moreover, class ascertainability in this case would require that during the time of making the dispositive document the class defining word must be in a way that it allows the whole class to be ascertained, when it comes to the time of distribution. This is because it is assumed that at the time of distribution all members of the group must be identified, which becomes a matter of evidence. Additionally, two matters were acknowledged in the Broadways Cottages case9, and they include that the recommendations for inclusion in the group of beneficiaries prescribed by the schedule are sufficiently precise in order to make it possible for the court to determine with certainty whether any particular person is or is not a member of the group. Secondly, that the individuals who constitute the beneficiaries for the reasons of the settlement comprise an aggregate of objects that are incapable of ascertainability. Where it would be difficult at any given moment to accomplish a comprehensive and exhaustive list of all individuals who are eligible for inclusion in the group. A mere power is defined as one where the donee has a discretion both as to whether to appoint amongst a class, as well as, how much of the property to allocate to each of its members. It has been established that although there is a possibility of conferring a mere power on a non-trustee, the decided cases mostly concern mere powers given to trustees. Mere powers have more tests that are complex for instance, where somebody is granted the control or the ability to implement a trust-like power, but also minus any responsibility to do so. In the case of Re Hay’s 10, ST Megarry VC stated” A mere power is very difficult from an ordinary trust obligation. This is because in most cases, the trustee is not bound to exercise it and the court cannot compel a person to do it. However, this does not mean that he can simply fold his hands and ignore the trust obligation. Because trustee must from time to time consider whether or not to exercise the power and the court may direct the trustee to do so. For that reason, the bearer of a mere power is permitted to do what he needs with the assets that he or she holds. However, if he fails to contemplate his application of the power the law courts may for them to consider the powers. The any given postulant test is the leading test that is used for mere test powers as laid down in the case of Re Gulbenkian11. It was held that the trustees must state with certainty when a probable recipient comes before them indicating whether he is either a beneficiary or not. Discretionary trusts requires that the trustee use their powers; this also applies in a fixed trust, but permits some choice in how to go about things same as what is provided to mere powers. In discretionary trusts the test used is any given postulant test that was established in the case of McPhail v Doulton. In this case, the courts held that the equal distribution of the assets is not the intent of the settlor, but the provision of benefits in a most tax proficient manner or to the people who meet the specific criteria. In the case of Re Baden’s Deed Trust (no 212) the courts attempted to moderate any postulant test. The three judges in the Court of Appeal had separate new reasons and tests. First, Stamp LJ had a methodology based on facts, with no greater effect on certainty of objects. Secondly, Sachs LJ indicated that the burden of prove was on the claimants to establish that they were beneficiaries and not on the trustees to demonstrate the validity of the trust. Thirdly, Megan LJ stated that a trust is binding even with indeterminate beneficiaries in case there is a central number of recipients that is certain. Considering the tests conducted on certainty of objects, it is clear that the primary test of certainty is in the definition of objects as it reflects on a concern that the trustees properly consider all eligible persons. Additionally, only eligible persons obtain a benefit, where other deliberations may impose further restrictions on the permissible range of objects. The Wills Act 1837 (UK) imposes more time-consuming substantive requirements when powers and trusts are created by will. The certainty of objects has a third concept, which is the power of appointment. A power of appointment is given to an individual who may or may not be a trustee in order to distribute the property among such persons that is within a named class as the person exercising the power. In this case, the test of certainty of objects is the same as that of discretionary trust despite the fact that one is voluntary and the other is mandatory. Therefore, in certainty of objects, it is significant first to identify what the settlor has created and then apply to the relevant test that is required for the certainty of objects. Impacts of certainty of objects in the last half decade McPhail v Doulton has been the foundation of the Certainty of objects and the case perspective has been considered as a tidying-up process because it has removed the artificial and narrow definition between mere powers and discretionary trusts. On the other hand, the case has been held to be the result of a process of legal change that has been initiated by the special powers as established in the case of Re Gestetner13. The reversal established in this case has had great implications that are far-reaching in trust law where ensuing developments have proven that the progression of change has not been exhausted. First, there has been the omission of the artificial and narrow distinction of discretionary trust and mere powers in the commercial framework of pension fund trust. For example, in the case of Mettoy Pension Trustees Ltd v Evans14 Warner, J acknowledged that powers of appointment can exist, which are fiduciary in the full sense. Additionally, the duties owed by the trustees to the objects of the given power are no different from those owned by the beneficiaries of discretionary trust. In this case, it is clear that the judge broke new ground in the sense that, he indicated that all remedies identified15. are available to the court to control and enforce the administration of a discretionary trust. The powers should be equally accessible in the case of completely fiduciary powers of appointment. Administrative unworkability has also become an issue in the past half century, where in the case of Mettoy16 the judge established that if it were necessary he would decide the proper means of distribution. Where the objects of trust may become administratively unworkable in case the beneficiaries do not constitute a coherent class as established by Wilberforce J in the McPhail V Daulton’s. Case. Secondly, in cases where the beneficiaries are too many to have their claims properly considered then the trust document becomes administratively unworkable as was established in the case of R v District Auditor ex parte West Yorkshire Metropolitan Council17. In relation to administrative unworkability it was established that bare power would not be void due to administrative unworkability reason being trustees have the discretion to exercise their power. However, they are not required to exercise such power by distributing trust money, but only in cases where they are required to do so by the court. This is because in the case of Gardener18 it was held that the assimilation of remedies would result to administrative unworkability in case it was applied to fiduciary powers. Therefore, there has been a problem and doubts on the applicability of the propositions in pension cases when it comes to family trust framework. In that case, administrative unworkability is a representation of the unwanted threat to settlors that wish to confer wide discretions on their trustees. However, the new upshot sprouting of the intermediate powers reflecting on a fiscal cum have been a familiar commercial source of pressure for change casting doubt on the propositions. Recently, it has been proposed that administrative unworkability should be confined to invalidating attempts to create hybrids since such trusts may not sensibly exercise discretion. Additionally, trusts that does not satisfy the test of certainty of objects should not be invalidated based on unworkability in case the trustees consider that they can administer them. Secondly, there has been revolutionary change in the nature of changes as initiated in the McPhail case. In the case of Schmidt v Rosewood Trust Ltd19, the Lordships in the case endorsed Lord Wilberforce perception that distinction between powers and trust are good deals that are less significant than similarities. He further indicated that the workability of a trust is a matter that the courts have ensured that they have considerable power to ensure or deny. In that, a trust should be upheld where there is sufficient practical certainty when it comes to its definition for it to be carried out. However, in case it is necessary the administrative assistance of the court the expressed intention of the settlor is accomplished. The negative impact that have resulted from the test of certainty of objects is that in case there are no beneficiaries named in the trust then the trust is invalid. This is because according to the certainty of objects it is imperative to establish whether there is a named beneficiary in the trust document or not. This has been established as conceptual certainty rather than evidential certainty as it clearly indicates what the actual intention of the settlor was in the trust document. In the recent case of, Re “A” Employee Shares Trust20, the trust was based on the English law formed on 21 March 2000 on the guidance of Baxendale Walker, solicitors in England. His intention was to qualify under UK tax legislation as an employee benefit trust the class of the intended beneficiaries included the current, past and future employees of the limited company. The founder did not have any employees and did not participate in any trade. The court held that although the trust was initially valid it failed based on want of beneficiaries because he founder did not have any employees an in May 2000 he stopped have any subsidiaries with the employees. Conclusion It is clear that trust documents require that there should be all three certainties in order for it to be fulfilled. However, the most crucial certainty is that of objects because it requires that there must be a clearly defined list of beneficiaries to help the executors or the courts to execute the wishes of the settlor. However, the downside of this certainty is that in case there are future beneficiaries named or stated in the trust then the trust becomes invalid, as there is a need for clearly defined benefactors. For that reason, the certainty of objects is complex not only for the courts, but also for the people who execute the trust document, as they have to ensure that is clear and precise in the naming of it beneficiaries or a class of people. References Bray, Judith. 2012. A students guide to equity and trusts. Cambridge, UK: Cambridge University Press. Creighton, Peter. "Certainty of Objects of Trusts and Powers: The Impact of McPhail v Doulton in Australia." SYDNEY LAW REVIEW 20, no. 93 93-118. Accessed November 11, 2014. Davies, Paul S., Graham Virgo, E. H. Burn, Graham Virgo, and Graham Virgo. 2013. Equity & trusts: text, cases, and materials. Gardener (1991) 107 LQR 214 IRC v Broadway Cottages (1955) Ch. 20 Klinck, Dennis R. "McPhail v Doulton: Certainity of Object: A semantic criticism." Ottawa Law Review 20, no. 2 (1988): 377- 403. Accessed November 11, 2014. McDonald, Iain, and Anne Street. 2014. Equity & trusts: law revision and study guide. McPhail V Doulton (1970) WLR 1110 Mettoy Pension Trustees Ltd v Evans (1990) 1 WLR 1587 Moffat, Graham, Gerard M. D. Bean, Rebecca Probert, and Graham Moffat. 2009. Trusts law: text and materials. Cambridge, UK: Cambridge University Press. R v District Auditor ex parte West Yorkshire Metropolitan Council [1986] RVR 24 Re “A” Employee Shares Trust (2010) JRC 013 Re Baden’s Deed Trust (no 2)  (1973) Ch. 9 Re Gestetner [1953] 1 Ch. 672 Re Gulbenkian (1968) Ch. 128 Re Hay’s (1982) 1 WLR 202 Schmidt v Rosewood Trust Ltd (2003) 2 AC 709 Virgo, Graham. 2012. The principles of equity & trusts. Oxford: Oxford University Press. Watt, Gary. 2012. Equity and trusts law directions. Oxford: Oxford University Press. Wilkie, Margaret, Rosalind Malcolm, and Peter Luxton. 2008. Equity & trusts: 2008 and 2009. Oxford: Oxford University Press. Read More