TOPIC 2 TRUST AND POWER INTRODUCTION DISTINCTION BETWEEN A POWER AND A TRUST; Power: A power is an authorisation to do certain things which affect property to which the appointor is not solely entitled and in which he may have no beneficial interest at all. A person may hold a power in a personal or an official capacity and the distinction of such lies whether he has fiduciary obligations. Trustees have by statute power of investment , sale and so on. They may also be given other powers by the terms of the trust instrument, such as power of appointment which enables those holding the power to effect the disposal of the settlor’s property by ‘appointing’ it to other people. Power may be granted by express grant or by a statute. Types of power; 1) Bare power (personal power) 2) Fiduciary power “A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence.” — Bristol & West Building Society v Mothew [1998] Ch 1 at 18 per Millet LJ Trust: A trust is imperative and a power is discretionary. The diving line is not clear all the times. The importance of the distinction between trust and power lies in the extent of the obligations imposed on a trustee as compared with the donee of a power. Take note of the words of Lord Upjohn in Re Gulbenkian’s Settlement Trusts [1970] AC 508 • Facts: Calouste Gulbenkian, a wealthy Armenian oil businessman, made a settlement in 1929 that said the trustees should “in their absolute discretion” give trust property to: “Nubar Sarkis Gulbenkian (his son) and any wife and his children or remoter issue for the time being in existence whether minors or adults and any person or persons in whose house or apartments or in whose company or under whose care or control or by or with whom the said Nubar Sarkis Gulbenkian may from time to time be employed or residing“. • Issue: whether this settlement was too uncertain to be enforced as a declaration of trust? • Held: COA formed the in or out test, as long as they fall within the criteria of the settlor, it is up to the discretion of trustee to provide them the benefit which they may or may not be entitled for. House of Lords; - Affirmed that power of trustee is not void even though the list of beneficiary is not made out as it is possible to determine the beneficiary by way of the in or out test. - Lord Upjohn: the duty of the court by the exercise of its judicial knowledge and experience in the relevant matter, innate common sense and desire to make sense of the settlor’s or parties’ expressed intentions, however obscure and ambiguous the language that may have been used, to give a reasonable meaning to that language if it can do so without doing complete violence to it. The fact that the court has to see whether the clause is ‘certain’ for a particular purpose does not disentitle the court from doing otherwise than, in the first place, try to make sense of it. DIFFERENCE BETWEEN POWER AND TRUST POWER TRUST - Discretionary in nature - Imperative/obligatory in nature - Not required to exercise that power, or even to consider - Trustee must exercise duties i. Fixed: distribute to beneficiaries ii. Discretionary: consider how to exercise discretion - Legal - Equitable - May or may not be under a fiduciary duty - Under fiduciary duty - May release the power - May not be release his trust CHARACTERISTICS OF POWERS OF APPOINTMENTS • Powers of appointment are given in trusts or settlements to enable the trustees to provide funds for the beneficiaries in circumstances unforseeable when the trusts were set up. • The donor is the original owner of the property. If a trust is involved, the donor is the settlor or the testator. The person who receives the power of appointment is the donee. • The donor remains the owner of the property until the donee exercise his power of appointment and names a new owner of the property. • A power of appointment is the right to designate the new owner of property. I. The testator can leave property as a gift outright to a person II. The testator can leave a property to a person to hold in trust for another person III. The testator can leave property to a person and give the person the authority to select the new owner of the property. That authority is called a ‘power of appointment’. POWER OF APPOINTMENT General Power of Appointment He does not place any restricts or conditions on the donee’s exercise of power. Donee can appoint to power to anyone, including himself. A general power may be regarded as tantamount to absolute ownership. Example: ‘I leave my house to Paul to give to any one that he chooses’ Special Powers of Appointment Specifies certain individuals or groups as the objects of the power or conditions to exercise of the power on certain factors. The power is special even though the appointor is himself a member of the restricted group. Example: ‘I leave my property to Ben to appoint to anyone of my sister that he chooses’ Both general and special power can be exercised testamentary or inter vivos. Hybrid Power of Appointment These are powers under which the donee may appoint to anyone except a certain class or certain description of person. Example: ‘$50,000 to X to whomsoever he shall appoint except my brothers and sisters and their decendants’ Hybrid power is restricted by exclusion. When a power of appointment is given to a trustee under the terms of a trust instrument two issues may arises: 1. Whether what appears to be a power also involves a trust, ie a power in the nature of a trust. 2. What criteria the trustee should apply in deciding who are the objects of the power in whose favour it may be exercised, ie certainity of objects. Duties of Donee of Power – Rights of objects Re Hay’s S.T. [1982] 1 W.L.R. 202 This must be contrasted with fiduciary power held by a trustee by virtue of his office, which in turn must be distinguished from the obligation of a trustee of a discretionary trust. Exercise of Powers of Appointment No technical words are required for the exercise of a power. Intention on the part of the donee that the funds shall pass to some one who is an object of the power. Excessive Execution The donee has only the power which is given to him by the instrument. Thus he may not exercise it in favour of non-objects. Re Hay’s S.T. [1982] 1 W.L.R. 202 Defective Execution Failure to comply the instrument will usually render the exercise void but equity and statute may validate certain cases of defective execution. In equity, will act upon the conscience of those entitled in default to compel them to make good the defect in the execution. By statute, if appointment by will, comply with the formalities under the Wills Acts. Contract to Exercise A valid contract to exercise a general power, if capable of specific performance, operates as a valid exercise of the power in equity. There can never be specific performance of a contract to exercise a testamentary power. Re Parkin [1892] 3 Ch. 510 Release of Powers Person may effect a release of a power, in appropriate circumstances, by executing a deed of release, or by a contract not to exercise the power. Re Mills [1930] 1 Ch 654 TRUST POWER A combination of a duty (a trust) and a power. A discretionary trust is often called a trust power since it combines a duty to distribute with a power of selection. The term trust power can also be used to mean a fiduciary power, since this too combines a power and a trust obligation ie a power to distribute and a duty to consider exercising it. McPhail v Doulton [1971] AC424 Facts: • In 1941, Bertram Baden executed a deed settling a non-charitable trust for the benefit of the staff of Matthew Hall & Co Ltd and their relatives and dependents. • The objects clause of the deed provided that: • “The trustees shall apply the net income of the fund in making at their absolute discretion grants to or for the benefit of any of the officers and employees or ex-officers or ex-employees of the company or to any relatives or dependants of any such persons in such amounts at such times and on such conditions (if any) as they think fit.“ • Baden died in 1961. Issue: The validity of the trust was challenged on the basis that the objects of the trust were insufficiently certain. Held: • The settlor had left his property on trust, with instructions to distribute according to the trustees’ choices. • This meant that the trust property was not to be distributed equally among the beneficiaries. • HOL restated the law, abandoning the “complete list” test in favour of an “is or is not” test. • Lord Wilberforce phrased the new test of certainty for beneficiaries as: “Can it be said with certainty that any given individual is or is not a member of the class.”
