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W301 UNIT 22: Discretionary and protective trusts

By johirst

Open University Law W301

Added: September 04, 2011 19:18:33

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W301 UNIT 22: Discretionary and protective trusts

W301 UNIT 22: Discretionary and protective trusts
1 Discretionary
1.1 Definition
1.1.1 Someone is under a duty to select from among a class of beneficiaries those who are to receive, and proportions in which they are to receive, trust property
1.1.1.1 Mettoy Pensions Trustees Ltd v Evans [1990]
1.1.1.2 Unless selected, no equitable interest
1.1.1.2.1 merely a 'spes' (hope)
1.1.1.2.2 But if all objects know, collectively own trust property
1.1.1.2.2.1 Re Smith [1928]
1.1.1.2.3 Individuals, or class as a whole, do not have equitable interest in non-exhaustive discretionary trust
1.1.1.2.3.1 Gartside v IRC [1968]
1.2 Terms
1.2.1 Trust period
1.2.1.1 Perpetuities and Accumulation Act 2009
1.2.1.1.1 Post April 2010 trusts
1.2.1.1.1.1 125 years
1.2.1.1.2 previously 80 years
1.2.1.1.2.1 and 21 years accumulation period
1.2.2 Appointment
1.2.2.1 Distribution to a beneficiary
1.2.3 Exhaustive trust
1.2.3.1 Income must be distributed as arises
1.2.4 Default trusts
1.2.4.1 Named person or charity who will receive money not distributed at end of trust period
1.2.5 Trusts
1.2.5.1 Duty to deal with property in a certain way
1.2.5.1.1 'Settlor/trustee'
1.2.6 Powers
1.2.6.1 i.e. power of appointment
1.2.6.1.1 if given to trustee
1.2.6.1.1.1 fiduciary power
1.2.6.1.1.1.1 must consider whether to exercise
1.2.6.1.1.1.2 must survey range of objects
1.2.6.1.2 if given to non-trustee
1.2.6.1.2.1 mere or bare power
1.2.6.2 Authority to deal with property in a certain way
1.2.6.2.1 'Donor/donee'
1.2.6.3 Gift over in default suggests is a power
1.2.7 'Trust powers'
1.2.7.1 If no distribution made
1.2.7.1.1 Trusts
1.2.7.1.1.1 Must be distributed amongst beneficiaries
1.2.7.1.2 Powers
1.2.7.1.2.1 Will revert to settlor's estate
1.2.7.1.2.2 Unless there is a gift over in default
1.2.7.1.3 Trust powers
1.2.7.1.3.1 Trust in default of appointment
1.2.7.1.3.2 Distributed amongst beneficiaries
1.2.7.1.3.3 Courts infer a trust to implement settlor's intention where there is no gift over in default
1.3 Certainty of Objects
1.3.1 Previous confusion
1.3.1.1 Trust
1.3.1.1.1 Complete list test
1.3.1.1.1.1 Inappropriate for some trusts
1.3.1.1.1.2 Especially pension trusts
1.3.1.2 Power
1.3.1.2.1 Given postulant test
1.3.1.2.1.1 Must be clear that any given individual is or is not in the class of objects
1.3.1.2.1.2 More relaxed test
1.3.2 McPhail v Doulton [1971]
1.3.2.1 Would have failed complete list test
1.3.2.2 Should not depend on 'delicate shading'
1.3.2.3 Should use 'given postulant test' for discretionary trusts
1.3.2.4 Interpretation of test remains uncertain
1.3.3 Application of given postulant test
1.3.3.1 Conceptual uncertainty
1.3.3.1.1 Phrase has no meaning
1.3.3.1.2 i.e. good friends
1.3.3.1.3 Will fail certainty test
1.3.3.2 Evidential uncertainty
1.3.3.2.1 i.e. lack of records
1.3.3.3 Ascertainability
1.3.3.3.1 May not know whereabouts
1.3.3.4 Administrative unworkability
1.3.3.4.1 i.e. 'everyone in the world'
1.3.3.4.2 Void
1.4 Mettoy Pensions Trustees Ltd v Evans [1990]
1.4.1 Further blurring of distinction between trust and power
1.4.1.1 Court could intervene in same way as discretionary trust
2 Protective
2.1 Purpose
2.1.1 To protect beneficiary from self, eg bankruptcy
2.2 Definition
2.2.1 Determinable life interest
2.2.1.1 Right to income until some event (such as bankruptcy) occurs
2.2.2 Discretionary trust
2.2.2.1 Beneficiary is one of the objects
2.3 Terms
2.3.1 Created expressly or by will
2.3.2 Shorthand method
2.3.2.1 s33 Trustee Act 1925
2.3.2.1.1 use of term 'protective trust'
2.3.2.1.2 First trust
2.3.2.1.2.1 income goes to principal beneficiary
2.3.2.1.2.2 during life or lesser period
2.3.2.1.3 Determining event
2.3.2.1.3.1 forfeiture
2.3.2.1.3.2 until for whatever reason is deprived of right to income or part of it
2.3.2.1.3.2.1 bankruptcy
2.3.2.1.3.2.2 sale or charge of interest
2.3.2.1.3.2.3 court order on divorce did not trigger forfeiture
2.3.2.1.3.2.3.1 General Accident
2.3.2.1.3.2.4 or at discretion of trustees
2.3.2.1.4 Second trust
2.3.2.1.4.1 exhaustive discretionary trust
2.3.2.1.4.1.1 for principal beneficiary and family
2.3.2.1.4.1.2 if bankrupt
2.3.2.1.4.1.2.1 trustee in bankruptcy may claim income above reasonable domestic needs (£25k)
2.3.2.1.4.1.2.2 will probably pay to other family members