Legal ownership vested in trustees must be balanced by identifiable equitable ownership. Critically discuss this statement and the difficulties inherent in it in relation to the interests of beneficiaries under discretionary trus

Authors Avatar

Alexandra Mawn        Trusts Assessed Essay        Page  of

“Legal ownership vested in trustees must be balanced by identifiable equitable ownership.” Critically discuss this statement and the difficulties inherent in it in relation to the interests of beneficiaries under discretionary trusts. What is the practical importance of determining where the beneficial interest lies in discretionary trusts?

There are many difficulties in relation to the interest of beneficiaries under a discretionary trust; however for one to fully understand them, one must first understand the meaning of the elements being discussed.

A discretionary Trust is defined as

“a trust where the trustees have a power of appointment, that is typically, to determine who amongst a class of beneficiaries shall receive trust property and in what shares”

This is different to a mere power in that a discretionary trust must be acted on by the trustee, whereas the personal representative for a power has no need to act. The objects of the power also have no claim on the items of the power, whereas the beneficiaries have a claim on the trust property, in such shares as the trustees see right and as a result they can force trustees to exercise their discretion.

It has also been said of discretionary trusts,

“Discretionary trusts and powers of appointment must like all other powers, be exercised in good faith for the purpose for which they are conferred, and not for any collateral purpose. They differ, however, from administrative powers in that there is no duty to exercise them impartially as between beneficiaries with different interests”

This shows that the difference between powers and discretionary trusts, as stated above, is that the trustees do not have to act impartially, but rather act in a way they think best, rather than simply acting within rules as set by the testator.

The beneficiary of a trust is defined as “the owner of the beneficial interest in the trust property”  This means that although the trustee has the discretion as to how the trust property is apportioned, the beneficiaries all have the right to claim an interest in the property and are the equitable owners of the trust property.

Under discretionary trusts, beneficiaries only have a hope or “spes” of acquiring a benefit under the trust. This means that until the trustees, as the legal owners of the trust property, use their discretion in favour of a beneficiary, that beneficiary has no equitable interest in the trust property, and when the trustees exercise their discretion in favour of said beneficiary, the beneficiary only has an equitable interest in the property for as long as the trustees deign to give it to him.

McGarry V.-C said in Cowan v Scargill

Join now!

“…the duty of trustees to exercise their powers in the best interests of the trust, holding the scales impartially between different classes of beneficiaries”.

This shows that the Trustees must treat all beneficiaries equally when distributing the trust property; as a result beneficiaries who suffer from a change of circumstance may be able to obtain the trust property or may lose their beneficial interest in the property if the trustees have decided that their circumstances meant they no longer need the trust property.

Discretionary trusts can be either exhaustive or non exhaustive. An exhaustive discretionary trust is defined as when ...

This is a preview of the whole essay