Trusts
1. Trust:
a. Definition: Where trust property vested in someone (T), who is under legal
obligations to handle it in a certain way. These obligations may arise by the
conscious creation of the previous owner of the property (S) (Gardner,
Introduction)
b. Penner:
i. Property on hold
ii. By the legal owner (T = proprietary right)
iii. For B (T = personal obligation)
c. When legal and equitable ownership is separate
i. Jaffey: Bs being an equitable owner is what gives them power to
sue/hold T accountable
d. Westdeutsche Landesbank v Islington LBC, Lord Browne-Wilkinson:
i. Equity operates on the conscience of the owner of the legal interest
ii. T must know why his conscience has been burdened
iii. Identifiable trust property
iv. B has, in equity, a proprietary interest in the trust property
1. Enforceable against T and third parties
e. Classifying Trusts:
i. Traditional
1. Express = FT, DT and ChT
2. Implied = RT and CT
ii. Response to an event
1. Birks:
a. Traditional view does not explain how a trust arises
b. Reference to particular events may show when a trust
arises
c. 4 events:
i. Consent
ii. Wrongdoing
iii. Unjust enrichment
iv. Other
d. Pros: links with other areas of law, e.g. tort,
wrongdoing
2. Chambers: …
iii. Species of obligation
iv. Context:
1. Family
2. Charity
3. Commercial
f. Types:
i. Fixed Trust:
1. S stipulates the objects of the trust and their entitlements,
either concretely or by laying down an arithmetical formula for
arriving at a concrete result (Gardner, Introduction)
1
, 2. Bs have an automatic/immediate right and can combine
together to collapse the trust/bring it to an end Saunders v
Vautier
ii. Discretionary Trust:
1. S defines a class of people and stipulates that the available
property has to be distributed to members of this class, but
leaves it to T to decide what each individual in the class will
receive (Gardner, Introduction)
2. Ts are under a duty to select Bs and distribute trust property
according to the terms, i.e. have an enforceable mandatory
obligation
3. Ts must act:
a. Fairly
b. Reasonably
c. Bona fide
4. No distribution = breach of trust
5. Effect: court will intervene to –
a. Directing Ts to fulfil their duties
b. Appointing replacement Ts
c. Ordering a scheme of distribution by prepared by
potential objects (i.e. advice as to how the property
should be used)
d. Exercising distributive duty itself
6. Duty to act within a reasonable time but if not, still duty to act
Re Locker’s Settlement; Breadner v Granville-Grossman
7. Rule enables Bs, where they are all ascertained and between
them absolutely entailed, to demand to have trust property
transferred to them and so terminate the trust Saunders v
Vautier
a. Aim is to ascertain all Bs in order to obtain unanimous
agreement
b. Rationale: the collective absolute owner can do what a
sole owner can do (Gardner, Introduction)
8. Classification:
a. Exhaustive: requires T to distribute the entire trust
income arising in one year (or another period)
b. Non-exhaustive: Ts are authorised not to distribute all
income arising and can accumulate some or all of the
income for a certain period
i. Only possible if Ts are expressly given the
power to retain and accumulate the income
ii. e.g. McPhail v Doulton (Re Baden (No 1))
c. Burrough-type: unexecuted DT where the class of
potential Bs is limited, often family trusts; ‘equity is
equity’ holds as the court mind to order equal division
of trust fund among all members of the class
2
, i. ‘Power to dispose of the property amongst [S’s]
nephews and nieces or their children, either all
to one of them, or to as many of them as [the]
surviving child shall think proper’ Burrough v
Philcox
d. Baden-type: unexecuted DT where the class of
potential Bs is very large, often benefit trusts/funds;
equal division is wholly inappropriate and unlikely to
align with S’s intentions, so court mind to order an
unequal division
i. Rationale: “equal division among all may,
probably would, produce a result beneficial to
none” McPhail v Doulton (Re Baden (No 1)),
Lord Wilberforce
ii. “for the benefit of any of the officers and
employees or ex-officers or ex-employees of the
company or to any relatives or dependents of
any such persons” McPhail v Doulton (Re Baden
(No 1))
9. The distinction between a fiduciary power and a non-
exhaustive DT is hard to distinguish; focus will be on what S’s
intentions were McPhail v Doulton (Re Baden (No 1)), Lord
Wilberforce
a. Lord Wilberforce: “A layman and, I suspect, also a
logician would find it hard to understand what
difference there is”
b. Greater incidence of trust/power combinations have
led to the distinction becoming less significant
c. Both Baden-type DT and powers are regulated under
the ‘is or is not’ test and both Ts have similar duties
during the operational period of the trust
d. Gravells:
i. The strengthening of the position of the objects
of a fiduciary power and the reiteration of the
position of potential Bs under a Baden-type DT
is likely to lead to closer continuing scrutiny of
Ts throughout the operational period of the
trust or power
ii. This may lead to a reduction in the number of
disputes, which is, in fact, arguably, the main
basis for why such a strict distinction between a
trust and a power even exists in the first place
e. In neither case is the allocator obliged to distribute the
funds or its income to the class of potential objects or
Bs
f. Distinction between the nature of the duties owed by
the allocator:
3
1. Trust:
a. Definition: Where trust property vested in someone (T), who is under legal
obligations to handle it in a certain way. These obligations may arise by the
conscious creation of the previous owner of the property (S) (Gardner,
Introduction)
b. Penner:
i. Property on hold
ii. By the legal owner (T = proprietary right)
iii. For B (T = personal obligation)
c. When legal and equitable ownership is separate
i. Jaffey: Bs being an equitable owner is what gives them power to
sue/hold T accountable
d. Westdeutsche Landesbank v Islington LBC, Lord Browne-Wilkinson:
i. Equity operates on the conscience of the owner of the legal interest
ii. T must know why his conscience has been burdened
iii. Identifiable trust property
iv. B has, in equity, a proprietary interest in the trust property
1. Enforceable against T and third parties
e. Classifying Trusts:
i. Traditional
1. Express = FT, DT and ChT
2. Implied = RT and CT
ii. Response to an event
1. Birks:
a. Traditional view does not explain how a trust arises
b. Reference to particular events may show when a trust
arises
c. 4 events:
i. Consent
ii. Wrongdoing
iii. Unjust enrichment
iv. Other
d. Pros: links with other areas of law, e.g. tort,
wrongdoing
2. Chambers: …
iii. Species of obligation
iv. Context:
1. Family
2. Charity
3. Commercial
f. Types:
i. Fixed Trust:
1. S stipulates the objects of the trust and their entitlements,
either concretely or by laying down an arithmetical formula for
arriving at a concrete result (Gardner, Introduction)
1
, 2. Bs have an automatic/immediate right and can combine
together to collapse the trust/bring it to an end Saunders v
Vautier
ii. Discretionary Trust:
1. S defines a class of people and stipulates that the available
property has to be distributed to members of this class, but
leaves it to T to decide what each individual in the class will
receive (Gardner, Introduction)
2. Ts are under a duty to select Bs and distribute trust property
according to the terms, i.e. have an enforceable mandatory
obligation
3. Ts must act:
a. Fairly
b. Reasonably
c. Bona fide
4. No distribution = breach of trust
5. Effect: court will intervene to –
a. Directing Ts to fulfil their duties
b. Appointing replacement Ts
c. Ordering a scheme of distribution by prepared by
potential objects (i.e. advice as to how the property
should be used)
d. Exercising distributive duty itself
6. Duty to act within a reasonable time but if not, still duty to act
Re Locker’s Settlement; Breadner v Granville-Grossman
7. Rule enables Bs, where they are all ascertained and between
them absolutely entailed, to demand to have trust property
transferred to them and so terminate the trust Saunders v
Vautier
a. Aim is to ascertain all Bs in order to obtain unanimous
agreement
b. Rationale: the collective absolute owner can do what a
sole owner can do (Gardner, Introduction)
8. Classification:
a. Exhaustive: requires T to distribute the entire trust
income arising in one year (or another period)
b. Non-exhaustive: Ts are authorised not to distribute all
income arising and can accumulate some or all of the
income for a certain period
i. Only possible if Ts are expressly given the
power to retain and accumulate the income
ii. e.g. McPhail v Doulton (Re Baden (No 1))
c. Burrough-type: unexecuted DT where the class of
potential Bs is limited, often family trusts; ‘equity is
equity’ holds as the court mind to order equal division
of trust fund among all members of the class
2
, i. ‘Power to dispose of the property amongst [S’s]
nephews and nieces or their children, either all
to one of them, or to as many of them as [the]
surviving child shall think proper’ Burrough v
Philcox
d. Baden-type: unexecuted DT where the class of
potential Bs is very large, often benefit trusts/funds;
equal division is wholly inappropriate and unlikely to
align with S’s intentions, so court mind to order an
unequal division
i. Rationale: “equal division among all may,
probably would, produce a result beneficial to
none” McPhail v Doulton (Re Baden (No 1)),
Lord Wilberforce
ii. “for the benefit of any of the officers and
employees or ex-officers or ex-employees of the
company or to any relatives or dependents of
any such persons” McPhail v Doulton (Re Baden
(No 1))
9. The distinction between a fiduciary power and a non-
exhaustive DT is hard to distinguish; focus will be on what S’s
intentions were McPhail v Doulton (Re Baden (No 1)), Lord
Wilberforce
a. Lord Wilberforce: “A layman and, I suspect, also a
logician would find it hard to understand what
difference there is”
b. Greater incidence of trust/power combinations have
led to the distinction becoming less significant
c. Both Baden-type DT and powers are regulated under
the ‘is or is not’ test and both Ts have similar duties
during the operational period of the trust
d. Gravells:
i. The strengthening of the position of the objects
of a fiduciary power and the reiteration of the
position of potential Bs under a Baden-type DT
is likely to lead to closer continuing scrutiny of
Ts throughout the operational period of the
trust or power
ii. This may lead to a reduction in the number of
disputes, which is, in fact, arguably, the main
basis for why such a strict distinction between a
trust and a power even exists in the first place
e. In neither case is the allocator obliged to distribute the
funds or its income to the class of potential objects or
Bs
f. Distinction between the nature of the duties owed by
the allocator:
3
