The test for certainty of objects differs in the case of fixed trusts, in which the ‘complete list’ test is applied and discretionary trusts, in which the ‘is or is not’ test is applied after the decision in McPhail v Doulton. The statement that the test for certainty of objects is too diverse and that they should be the same for powers and all types of trusts is not entirely correct because there are some important distinctions between powers and fixed trusts, even though the distinction between powers and discretionary trusts may not be as marked. This essay will argue that the test for certainty of objects has to be diverse because of the distinction between discretionary and fixed trusts. One cannot however go so far as to say that because a power can be created in favour of the entire world, there is no reason why you should not have a trust for the entire world because trusts require conceptual certainty.
The principle certum est quod certum reddi potest is generally applied for the test of certainty of objects in trusts; the premise of the principle is that something that is capable of being made certain should be treated as certain. An exception to this principle has been recently drawn in McPhail, which has meant that there is some diversity in the test for certainty of objects in trusts. The general principle of certum est quod certum reddi potest has been applied for the purpose of validating a trust in which the court can ascertain the beneficiaries because the settlor has ascertained them or because they are capable of being ascertained. This test has been useful even in cases where the object of the trusts was a class of beneficiaries, but it was possible to ascertain the names of the beneficiaries and therefore treat the trust as a valid trust.
It may however not be possible to always give effect to a trust or the intentions of the settlor based on this test, for which reason some flexibility may be called for. At this point it may be noted that in ascertaining the validity of the trusts on the basis of object, there are diverse tests that can be applied in cases of different types of trusts and powers, which may be related to ascertaining the conceptual certainty, evidential certainty, ascertaining location of object, size of the class, and the sensibility of the settlor’s intent. As such, it is clear that the courts have applied diverse tests to deal with the diverse kinds of trusts and powers. The question is whether there should be only one kind of test for all trusts and powers is the one that may be dealt with.
It was in McPhail v Doulton, that Lord Wilberforce noted that it is inappropriate to have such as wide distinction that is drawn between the test for powers and trust powers is inappropriate. Lord Wilberforce’s observation may be seen in the backdrop of the decision in Inland Revenue Commissioners v. Broadway Cottages Trust, which will be discussed presently in this essay. Lord Wilberforce noted that the principle laid down in Inland Revenue Commissioners ought to be discarded as it was based on creating a distinction between powers and discretionary trusts; instead Lord Wilberforce noted that the test laid down in Inland Revenue Commissioners was to be replaced with the test that was applicable for the validity of powers. The test for validity of powers was laid down in Re Gulbenkian's Settlements as follows: “for powers, namely, that the trust is valid if it can be said with certainty that any given individual is or is not a member of the class.” As per the decision in McPhail, the same test was to be applied to the discretionary trusts as well. This would close
the distinction between discretionary trusts and powers of appointment and bring the same test to be applied to trusts as was applied to powers.
However, it is not advisable or appropriate to have a uniform test for all kinds of trusts and powers because there are important differences between some trusts and powers, the most important of these being the differences between fixed trusts on one hand and discretionary trusts and powers of appointment on the other hand. These are discussed next in this essay to create an argument for why the courts cannot apply the same tests to all kinds of trusts and powers.
An important distinction between fixed trust and a discretionary trust is that while the former places a duty (and gives no discretion) on the trustee for appointment of the trust property to the beneficiaries, the latter allows the trustee the discretion to choose the objects of the trust. Therefore, there is an important distinction in the fact that there is no room for trustee’s discretion in fixed trusts and there is discretion for the trustee in discretionary trusts. A fixed trust and discretionary trust can also be distinguished from each other on the basis of the point of equitable proprietary interest in the trust property, wherein the fixed trust allows the creation of the equitable proprietary interest in the trust property for the beneficiaries, while the discretionary trust allow no such no creation of proprietary interest for the objects. Therefore, there is an important distinction between fixed trusts and discretionary trusts in this respect also because in the fixed trust, trust fund is subject to proprietary interest. Due to this distinction between fixed and discretionary trusts, it is not possible for the courts to apply the same test for validity of certainty of objects for both fixed and discretionary trusts.
While discretionary trusts and fixed trusts have these important points that can distinguish them from each other, discretionary trusts and power of appointment have some important points of similarities between each other. Inherently, discretionary trust has components of trust and powers due to the discretion allowed to the trustees. The element of trust comes from the duty of the trustee to appoint trust property and the element of powers comes from the discretion allowed to the trustee. These powers are related to the appointment of the objects as well as the apportionment of the shares of the objects. Therefore, there is a close resemblance between discretionary trusts and powers of appointment, which makes it appropriate for the courts to apply the test laid down in Re Gulbenkian's Settlements, because this allows the courts to give effect to the settlor’s intentions without subjecting discretionary trusts to the more rigid test of fixed trusts which requires both conceptual and evidential certainty related to ascertainment of objects. Admittedly, a discretionary trust does not give as wide powers of discretion to the trustee as are given under powers of appointment, but it is still closer to powers of appointment than to fixed trusts on the point of discretion given to trustees. Another point of distinction between discretionary trusts and powers of appointment is that in the case of trust, the trustees are bound to appoint trust property or the court can enforce the appointment, whereas in the case of powers of appointment, the holder may choose not to appoint the property without having the court intervene.
Despite the above difference, the distinction between discretionary trust and powers of appointment cannot be said to be so wide that the court should not appoint the Re Gulbenkian's Settlements test of ‘is or is not’. It is submitted that it would be inappropriate for the court to apply the ‘complete list’ test that is applied for fixed trusts and which was also noted in the Inland Revenue Commissioners v Broadway Cottages Trust as being applicable to discretionary trusts. The ‘complete list’ test is stricter in that it demands both conceptual as well as evidentiary certainty. This means that even in a discretionary trust, where the trustee has considerably more discretion as compared to fixed trust, the court will not validate the trust unless all the beneficiaries are identifiable. In case this principle is applied to every discretionary trust, it would become difficult to give effectiveness to all discretionary trusts.
Moreover, the rigid application of this test while appropriate for fixed trusts where the trustee is under a duty to identify all beneficiaries and appoint the trust property on the basis of the trust deed, is inappropriate for a discretionary trust, where the trustee has the discretion to choose the objects and apportion shares. It seems manifestly perverse to demand such rigidity in a trust which is more akin to powers of appointment than to fixed trusts, and allows freedom and discretion to trustees. While in such discretionary trusts, conceptual certainty of the objects is appropriately demanded, evidential certainty may be inappropriate. As also pointed out by the court in OT Computers Ltd., if the trustees under a discretionary trust are able to draw up a list of beneficiaries because conceptual certainty is satisfied, then the trust should not be held to be invalid on the basis of evidential certainty. Lord Wilberforce’s reasoned in McPhail that the court should avoid presumption of intention of the settlor to treat all beneficiaries equally when the settlor’s action of creating a discretionary trust indicates that the settlor did not have this intention. The application of the ‘complete list’ test in discretionary trust has the effect of assuming such intention on the part of the settlor. Therefore, it is appropriate that there should be diverse tests for certainty of objects and that the test cannot be the same for powers and all types of trusts. In this context, the test laid down in McPhail is more relevant to the ascertainment of objects.
Conceptual certainty does however require that the trust be created for an identifiable class where it is for a class. While powers can be created in favour of the entire world, a trust (even a discretionary trust) cannot be so created because then the objects of the trust cannot be identified on the basis of conceptual certainty. In Re Manisty’s Settlement, the issue of powers and trusts being made for whole world arose. However, the issue is that even objects of a discretionary trust have rights of enforcement which are not there in case of powers, and allowing wide discretion in discretionary trusts would lead to administrative unworkability which does not impact powers, but does impact workability of discretionary trusts.
To conclude, discretionary trusts and fixed trusts cannot always be subject to uniform tests for ascertainment of objects because there are significant differences between these trusts to require diverse tests to be applied. Therefore, it is appropriate to apply the ‘is or is not’ test
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for discretionary trusts, which is similar to the test applied to powers. At the same time, the similarities between discretionary trusts and powers cannot go so far as to justify the allowing of discretionary trusts to be made for the whole world
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