Distinguishing between a trust and a power

I've got a mock exam for Trusts this week. I know the difference between a trust and a power and the different kinds of trusts and powers, I just don't know how to identify a trust. e.g.

"By his home-made will, Mark appointed Lisa as his trustee and executor, and made the following dispositions:

(a) 'The residue to be applied by my trustee for the benefit of the middle classes of Knotty Ash or, in default of that appointment, to the University of Nowhere'.

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I think this is a fiduciary power but I'm not sure!? Grrr I just can't tell the differences. This is so retarded.

What do ppl think?

Reply 1

AdamTJ

12

I think this should be in the academic section, but anyway let's try and look at this logically. I'm by no means well versed in probate law, but I can try and help.

Basically a power is the legal discretion to carry out or not carry out a duty.

A trust is created when one or more people hold the property for the benefactor. If this was a trust- it would be an express trust- the beneficiary has explicitly laid out intructions for the person.

Clearly this is a fiduciary relationship because it concerns the relationship between the trustee and beneficiary- i.e. this is position which involves a measure of trust. She has a fiduciary power, but these dispositions are held on trust, which makes this situation a trust.

I think a big clue is that he's given it to the trustee! He's given it expressly to the person to use it for the benefit of the "middle classes of Knotty Ash etc". So it's an express trust surely?

Reply 2

dragon_1706

My memory of this is a bit hazy, so please don't rely on what I have to say... but I think this is a power. I seem to remember it being to do with the fact that a provision has been made for what happens if the trustee doesn't give the property to the intended beneficiary.

Reply 3

always + forever

1

I think it is a power because it states "in default of that appointment" implying that the first element is not compulsory (i.e. the trustees do not have to carry it out).

With a discretionary trust, the property subject to the trust does have to be distributed amongst a certain class, but the trustees can choose individuals from that class to benefit.

Additionally, look at the given postulant test for the power (Re Gukainbain's (sp?) Settlement Trusts) , as it may not be possible to identify an individual as a member of the middle classes (e.g. what does it mean to be middle class?) as if it is not the power would fail and it would become a gift over in default.

Also, I think the power may also fail for capirousness (can't remember the authority) and or administrative unworkability (ex.p. Yorkshire something council) because (a) the settlor has no link to the middle classes of Knotty Ash and (b) there may be too many individuals who could be considered 'middle class in knotty ash' for the trust to work.

I haven't done this for a while so I am a bit hazy, but good luck in the exams.

Reply 4

AdamTJ

12

Mylla

I think it is a power because it states "in default of that appointment" implying that the first element is not compulsory (i.e. the trustees do not have to carry it out).

With a discretionary trust, the property subject to the trust does have to be distributed amongst a certain class, but the trustees can choose individuals from that class to benefit.

Additionally, look at the given postulant test for the power (Re Gukainbain's (sp?) Settlement Trusts) , as it may not be possible to identify an individual as a member of the middle classes (e.g. what does it mean to be middle class?) as if it is not the power would fail and it would become a gift over in default.

Also, I think the power may also fail for capirousness (can't remember the authority) and or administrative unworkability (ex.p. Yorkshire something council) because (a) the settlor has no link to the middle classes of Knotty Ash and (b) there may be too many individuals who could be considered 'middle class in knotty ash' for the trust to work.

Mylla

It seems like these are all good authorities, and good points, I stand corrected. I think you have to be careful with the final paragraph because we don't know the full facts of the case in hand, particularly with regard to point (b). Suppose we did overcome the case law you have cited in you second paragraph (which is a case-winning argument IMHO) and we did agree on a definition of who was middle class, then it may well be that Knotty Ash is a tiny village with 4 people in the "middle classes". Or it could be a town of 20,000. In the village case it could be argued that the settlor possibly does have a close link, whereas in the other situation this might not be the case.

It's interesting to debate though. I'd appreciate your views because I'd love to pick some equity and trusts up.

Reply 5

Lush Law

OP

15

Thanks for the comments.

It was a fiduciary power..I worked it out in the end. The power could fail for capriciousness, depending on whether the settlor had any real reason for giving the residue of his estate to the middle classes of Knotty Ash. "Residue" is also valid [Re Thompson]. Administrative unworkability is, I think, inapplicable here as the middle classes of Knotty Ash would be unlikely to reach a figure of over 1 million, which is a requirement for establishing that something is administratively unworkable.

Reply 6

KaiserSoze

1

The key point in the question is obviously whether 'i) middle classes of ii) Knotty Ash' is certain or not - see McPhail v. Doulton in the House of Lords (Wilberforce) and its subsequent application by a divided Court of Appeal (Sachs vs. Stamp LJJ).

There is an unworkability point (West Yorkshire), but 1 million is not the test for whether a power is unworkable - there is no direct figure at all, which is why a power of appointment for the world excluding the settlor is perfectly valid.

Incidently a 'trust' is not the opposite of a 'power' or able to be meaningfully contrasted with it - a trust is a legal relationship where one person holds title to property for the benefit of another, while a power (assuming you mean a power of appointment) allows appointment of trust assetts to those within the scope of the power. This particular power is highly unlikely to be fiduciary given its scope is very large (and the burdens fidiciary status would therefore impose), but if it is then it is more likely to be unworkable.

RR

Thanks for the comments.

It was a fiduciary power..I worked it out in the end. The power could fail for capriciousness, depending on whether the settlor had any real reason for giving the residue of his estate to the middle classes of Knotty Ash. "Residue" is also valid [Re Thompson]. Administrative unworkability is, I think, inapplicable here as the middle classes of Knotty Ash would be unlikely to reach a figure of over 1 million, which is a requirement for establishing that something is administratively unworkable.

Reply 7

AdamTJ

12

Thanks for that, I know obviously it's not my thread, but I think that was really concisely put for those of us trying to grapple with the problem.

Purely out of interest- what burdens would a fiduciary status impose?

Reply 8

KaiserSoze

1

AdamTJ

Thanks for that, I know obviously it's not my thread, but I think that was really concisely put for those of us trying to grapple with the problem.

Purely out of interest- what burdens would a fiduciary status impose?

No problem! :smile:

If a power if fiduciary then the trustee (assuming the trustee is the donee of the power) exercising it has to consider whether to exercise the power from time to time, survey the class of potential apointees and assess the suitability of individual appointees (Re Hay). These requirements make a finding of unworkability more likely.

He is also subject to the usual restrictions of fidicuary status, such as the self dealing rule etc. (see Boardman v. Phipps).

A 'mere' or non-fidicuiary power doesn't have these additional restrictions, and can be exercised in favour of anyone within its scope at the free choice of the appointer, including (potentially) himself. It is subject to the 'fraud on the power' doctrine, which prevents any appointments outside its scope from taking effect (but is something of a misnomer - it does not require 'fraud' in the traditional sense)

Distinguishing between a trust and a power

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