This is a sample of our (approximately) 8 page long Certainty Of Object notes, which we sell as part of the Trusts Notes collection, a 87% HD package written at Monash University in 2014 that contains (approximately) 51 pages of notes across 13 different documents.
Certainty Of Object Revision
The following is a plain text extract of the PDF sample above, taken from our Trusts Notes. This text version has had its formatting removed so pay attention to its contents alone rather than its presentation. The version you download will have its original formatting intact and so will be much prettier to look at.
Certainty of object
Certainty of object is necessary so that it is clear who has standing to seek performance of a trust, and the trustee knows who to account to
1. Trust structure
Fixed interest trust o This is a trust in which the beneficiaries and their shares in the trust property are specified at the time of creation of the trust
E.g Paul v Constance - C held for himself and Mrs Paul in equal shares. Hunter v Moss - Moss held 5% for Hunter o Trustee must exhaust trust property o No discretion as to beneficiary o Where shares are not specified, presume the beneficiaries are entitled to equal shares
Power of appointment o The discretion in a discretionary trust is called a power of appointment
Mechanism that allows us to create a discretionary trust. The donee of the power has power to 'appoint' the property
This power can be given to a trustee, or someone else
Exhaustive discretionary trust (trust power) - imperative o Trustee must exhaust trust property o The holder is under an obligation to appoint the property, but has a power to select who to appoint it to among the beneficiaries o Example
S transfers to T on trust to appoint it within 5 years to such of S's children as T sees fit
Compare to bare PoA:
S gives T land on trust to hold for such of T's children as T sees fit, and in default of appointment for the Red Cross
T has a PoA to such children/child as T sees fit
T is under no obligation to appoint to one of T's children so the power is bare power
Non-exhaustive discretionary trust (bare power) - permissive o The trustee has the power to appoint, but is still under no obligation to exercise the power. The power is permissive, not mandatory
Nevertheless the trustees responsibilities concerning the power are somewhat greater than the responsibilities faced by a non-trustee. o Where there is a taker in default specified, this renders the first part of the clause a mere power o The mere power (if invalid) can be struck out so long as it does not affect the taker in default provision
Use of modern trusts o Unit trusts for investment o Superannuation trusts o Discretionary trusts for income splitting/tax minimisation
2. Choosing whether it is a trust power or bare power
It is a question of construction, is there an obligation to exhaust the fund?
o Gift over in default of appointment indicates a bare power
The fact that the donor of the power expressly allowed for its non-use shows that no obligation to exercise the power was imposed
"The rest in residue" (residuary clause) is NOT a gift over in default of appointment a. Does not automatically convert the mere power into a trust power
But absence of gift doesn't automatically indicate trust power o Language used
Find in the words a sense that an obligation is being imposed for requiring the power to be exercised
Best way to do this - stronger the language used, more likely it is a trust
Weaker the language - more likely mere power
Nevertheless it is not determinative
It is permissible to contrast language used in other provisions of the trust deed or will to construe the meaning
NB the word "shall" is ambiguous, unsure if it denotes a mere or trust power. Discussion required. o Time limit
If it has to be done within 2 years, it has to be done
That is not conclusive
Not conclusive if followed by a gift over in default of appointment (which IS conclusive)
3. Exhaustive/Non-exhaustive: Classifying powers of appointment Examples
We can classify PoA according to the class of object described o General: discretion to choose anyone in the world
Trust power: invalid, fails for administrative workability Re Hays per Megarry J and also because self-appointment would be in breach of the profits and conflicts rule
Bare power: valid, unless capricious o Special: discretion to choose amongst a specific class of objects
Trust power: valid if the class meets criterion certainty McPhail
Bare power: valid, unless capricious o Hybrid: discretion to choose anyone in the world, except a specific class
Trust power: invalid, fails for administrative workability Re Hays per Megarry J
Bare power: valid, unless capricious Re Manisty's
UK approach: hybrid mere powers always valid Re Hays
Some states: hybrid mere powers only valid if intervivos
You apply the certainty test to the excluded group
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Buy the full version of these notes or essay plans and more in our Trusts Notes.
- Three certainties, constitution and formalities
- Terms of the trust and powers of the trustees: think carefully about what the terms of the trust are and what the trust actually entails, think about the different ways in which it could be understood. ALso think about what the trustees' powers are, if relevant.
- Breach: has there been a breach? To answer this you need to carefully consider the duties of the trustees and think about what they have breached any of those duties.
- Personal remedy against the trustees: Which trustees might be personally liable and why? What is the quantum
- Personal remedy against third partes: Might knowing receipt or an action for money had and received be available?
- Proprietary remedies: Is a proprietary remedy available? If so, are there any advantages to a proprietary remedy?
Of course, you need to use your discretion. In most equity questions, many of the above points won't be an issue; questions will generally be focused on certainties/formalities/constitution; terms, powers and breach; or remedies. But its a useful checklist to run through, there are often important points that people miss so do think about everything.
There will be additional issues where a resulting, constructive or Quistclose trust is involved, though even then I think you can break things down into the three fundamental questions of 1) where there is a trust, 2) what the trustees can do and what they can't, 3) remedies.