Certainty of Objects and Beneficiary Principle.
Certainty of Objects and Beneficiary Principle.
The point with the Certainty of Objects is that a trust is only made legal and enforceable if the beneficiaries are clear and obvious.
Beneficiaries are recognised as the equitable owners of a trust property, this is since about 1805, prior to this trust property belonged to the trust and the beneficiary was not recognised as the owner. The case of Morice v Bishop of Durham is central to the development of trust law, it hinged on the fact that the beneficiaries of the trust could not be ascertained, the trust was to be a charitable one and the beneficiaries were to be 'charitable or benevolent'. This was held to be too vague and on appeal in 1805 it was decided that not every benevolent purpose could be considered a charity and therefore there was no ascertainable beneficiary.
Following this decision limits were put on what could be done with a trust, and the identification of all beneficiaries became crucial to the enforcement of the trust. The courts were quite restrained in their ability to administer a trust, if they did act then their decisions had to be justiciable. However for this to happen it was necessary for the Settlor to be very clear on what criteria should be used if it became necessary for the court to execute the trust. Therefore from this rationale it is clear that a court cannot be expected to act where a choice needs to be made between two competing claims. Thus when a court is in a position where it needs to make a decision it takes the 'Equality is equity' principle, this is basically the equal distribution of the trust amongst the beneficiaries.
However this is only possible if all the beneficiaries or objects can be identified, if they cannot then the trust cannot be ratified.
There is a test for the certainty of objects, which basically consists of a requirement that a full list of beneficiaries exist.
The fact that the test for the certainty of Objects relies on all beneficiaries being identified does not mean that the persons need be named. If one looks at the phrase 'my old friends or my friends', there have been different views on the certainty of these people. In the ...
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However this is only possible if all the beneficiaries or objects can be identified, if they cannot then the trust cannot be ratified.
There is a test for the certainty of objects, which basically consists of a requirement that a full list of beneficiaries exist.
The fact that the test for the certainty of Objects relies on all beneficiaries being identified does not mean that the persons need be named. If one looks at the phrase 'my old friends or my friends', there have been different views on the certainty of these people. In the case of Barlow's Will Trusts 1979, judge Wilkinson dissagreed with the idea that the term 'friends' was too vague to have any legal effect, and he put forward criteria which could be used to determine when it could be applied.
They were that firstly the relationship be long-standing,
Secondly that the relationship must be a social one and not a proffessional or business one.
Thirdly that where possible the tesator and the applicant should have met frequently.
However it could also be argued that the term 'old friend' was a clear example of conceptual uncertainty, this view was put forward by Lord Upjohn whilst commenting on the case of Gulbenkian in 1970, he argued that the very concept of friendship had infinite shades of meaning.
An important development in the law on discretionary trusts and the certainty of Objects came following the case of McPhail V Doulton.
The facts in this case were: The chairman and MD of the Matthew Hall and Company Ltd, a chap called Bertram Baden had along with some 1300 employees had by deed established the Matthew Hall Staff Trust Fund.
The trust provided that the income of the fund was to be made available at the discretion of the trustees to all employees, ex-employees and all their dependents. The trustees were not forced to distribute all the money every year, the money could accumulate if not spent. Because the class of objects was so wide the validity of the trust seemed to hinge on whether the trustees were given a discretionary power or a duty of distribution.. In 1962, 2 years after Mr Baden's death, the fund was worth £163,000. The executors challenged the validity of the trust deed, after appeals it was eventually held by the House Of Lords that the disposition was a discretionary trust.
Much of the law of certainty of objects can be stated easily and uncontroversially. Thus, it is clear (from the cases of Gulbenkian and McPhail v Doulton) that the certainty test for powers and discretionary trusts is the individual ascertainability test; as Lord Wilberforce observed in McPhail v Doulton, he said:
" Each disposition is valid if it can be said with certainty whether any given individual is or is not a member of the class and does not fail simply because it is impossible to ascertain every member of the class."
One justification for the tests being the same for powers and discretionary trusts is that, as Lord Wilberforce also observed,
"A layman and, I suspect, also a logician, would find it hard to understand what difference there is"
Often, they are indeed hard to tell apart (it was not until the case reached the House of Lords that it became clear in McPhail itself that the disposition was a discretionary trust).
For fixed trusts, by contrast, the conventional view is that the class ascertainability test continues to apply to fixed trusts. This was the test applied in IRC v Broadway Cottages, where the trust failed because the taxpayers conceded "that it would be impossible at any given time to achieve a complete and exhaustive enumeration of all the persons then qualified for inclusion in the class of beneficiaries ..." Admittedly, the Court of Appeal was wrong (it has subsequently been held) to apply that test to a discretionary trust, but it is still usually assumed that it is the correct test to apply to a fixed trust.
We also know that, even if a power or discretionary trust satisfies the individual ascertainability test, it will fail if it is administratively unworkable. This is not a very precisely defined test. More tentatively, I would advance the view that the rationale for the individual ascertainability test is to enable the court to enforce the trust (or to advise trustees who seek directions), and that the main reason for rejecting Broadway was because of a different view taken by the House of Lords about ultimate enforcement. What seems to be necessary is that it be necessary to ascertain what the settlor meant.
A disposition is administratively unworkable, however, when it cannot be carried out effectively by the trustees (or donees of the power). In order to determine this, it is necessary to consider what information the trustees (or donees of the power) need to carry out their discretions in a fiduciary manner.
I would sugest that it is also clear that as certainty tests are relaxed, a greater burden is placed on the administrative unworkability tests, which may be unfortunate in that they are as yet so ill-defined.
