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Certainty of Object Matter and Discretionary Trust
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One of the core conditions of a valid express trust is certainty of object matter. "It isimportant to comply because the party must know if any obligation has been
imposed and, if he is aware of that, he must also know what property is to be given
and the specified recipients" held by Lord Langdale MR in Knight v Knight.The
trustees of a discretionary trust have power to choose which beneficiaries will
benefit from the trust and in what proportion. For example, trust could established
for "such of wife and children and in such portions as my trustees shall decide in his
discretion." So, when trustees make financial distribution, they have authority to
choose which children will receive money and how much they would receive. They
differ from fixed trusts, in which trust instrument defines the percentage share that
each beneficiary would receive (the 'list' principle).
Discretionary trusts are more essential than fixed trusts today for three reasons.
Begin , it is flexible. If we use discretionary trust scenario above, it's possible that
wife is old and unable to work, while children will be financially self-sufficient. Thus ,
it make sense for trustees to provide wife a bigger share of trust's capital. Second,
when beneficiary went insolvency, these trusts offer advantages. Because any
money beneficiaries may receive from trust is solely at discretion of trustees, they
have no ascertainable interest that their creditors can claim in order to recover their
debts. The third, most benefit today is tax planning. Assume Jack writes his will in
2020, but government changes tax regulations in 2021, resulting a higher tax liability
under his will. Jack could write a new will, but let's assume he doesn't want to or is
impossible to reach. The trustees, on the other hand, can use the trust's
discretionary nature to ensure that any capital transfers are tax effective.
Therefore, there are 2 reasons that show why degree of certainty of object matter is
required as shown below:
A. )The trustees cannot distribute the trust property unless they know who the
beneficiaries are.
B. )The court must able to control the trust so it may give directions to trustees
about who the beneficiaries are if they come to the court asking for them. 'There can
be no trust over the exercise that court will not adopt control, for an uncontrollable
disposition power would be ownership, not trust', declared Sir William Grant in
Morice v Bishop of Durham. This principle is also known as beneficiary principle and
it is used in conjunction with the related but distinct principle that trust must
have beneficiary who can enforce it.
In McPhail v Doulton, Lord Wilberforce in House of Lords decided that test for
certainty of objects in discretionary trusts was laid out. 'Can it be said with certainty
that certain individual is or is not belongs to the class?' (The individual
ascertainability test). In McPhail v Doulton, trustees were ordered to use the fund's
net revenue to make award to following beneficiaries at their sole discretion: a
company's officers and workers or ex-officers or ex-employees, or their families or
dependants. The trust would have failed under the list principle because, while a list
of the company's officials and employees could almost certainly be compiled, it
would be impossible to do so in relatives and dependents cases. Should the trust
failed as a result of this? The case was remanded to the Chancery Division following
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