Trust Validity and Beneficiary Entitlement

Question 1 There are two issues in this situation. First issue relates to the validity of the disposition of £10,000 to the Lauren’s Foundation for the purpose of encouraging females from a BAME background to participate in e-Sports'. The second issue relates to the question of who is entitled to the £10,000.

The first question is whether the dissolving of the Lauren Foundation before the death of Alexander has an effect of invalidating the gift. Lauren Foundation is an unincorporated association. The courts distinguish between incorporated and unincorporated associations, as noted in Re Fingers Will Trust [1972] Ch 286, where the gifts were left to both incorporated and unincorporated associations which had ceased to exist at the time when the donor passed away; the court held that while the gift to the corporate body would fail, the gift to the unincorporated body would be valid as a charitable purpose trust. The reasoning of the court was that as the unincorporated body does not have a legal identity, it is a gift to a purpose not to an institution and would remain valid even if the association ceased to exist before the death of the donor. In this case the Lauren’s Foundation dissolved on 15th April 2021 while Alexander Hamilton died on the 17th April 2021. However, applying the principle laid down in Re Fingers Will Trust case, the gift will remain valid.

The next question is whether the gift is valid as a trust. As a gift to an unincorporated association, the trust can be valid (Leahy v AG for NSW (1959). In order to assess the validity of the trust, the question of whether the trust was properly constituted becomes relevant. There are two conditions required to assess constitution of a trust: declaration of trust; and actual constitution of the trust. The three certainties principle is required for declaration of trust: intention, subject matter and object. Certainty of intention relates expression of the trust and there must be a clear intention of forming a trust relationship. In this case, this is expressed by Alexander writing in the will that he leaves “£10,000 to the Lauren’s Foundation for the purpose of encouraging females from a BAME background to participate in e-Sports.” The next is subject matter or the property and this should be clearly identifiable and can include shares, real estates, and cash (Palmer v Simmond (1854). In this case, the property is clearly identified as “£10,000. The last is object of the trust and this refers to the identification of the beneficiary of the trust. The settlor must indicate who would be the beneficiary of the trust (McPhail v Doulton (1970)). This last point needs to be explained in more detail because the gift is being made to an unincorporated association for the purpose of encouraging females from a BAME background. The ‘beneficiary principle’ is essential aspect of the trust formation and the law requires that the beneficiary must be ascertained or ascertainable. To be ascertained means that the identity of the beneficiary must be indicated and to be ascertainable means that identity of the beneficiary must be open to ascertainment. In the event that the purpose of the trust is identified, but the beneficiaries are not ascertainable, the trust would be invalid (Re Astor’s Settlement Trusts (1952)). In Re Astor’s Settlement Trusts, the trust was made for ‘preservation of independence and integrity of newspapers’, without identifying the legal or natural person beneficiary and was accordingly declared to be void by the court. The principle is laid down in Bowman v Secular Society Ltd (1917) where the court held that either the trust should be for the benefit of individuals or for the benefit of the public in context of charity. Further clarity can be found in Re Denley Trust Deed (1966), where the settlor left a plot of land for establishment of a sports ground for the benefit of the employees of the company and any other persons identified by the trustees. Although the question of beneficiaries was left to the trustees to decide, the trust also specified a purpose and beneficiaries in the form of employees due to which it was upheld as being valid. Applying the principles of these cases to the present issue, it can be said that the gift is valid because it identifies the purpose as well as makes the identity of the beneficiaries ascertainable (females from a BAME background who want to participate in e-Sports). For these reasons, the gift is valid.

With regard to the second issue, which is, who is entitled to the £10,000 as the Foundation has been wound up, there are authorities on distribution of funds of the unincorporated foundation that can be considered here. In Re Horley Town FC (2006), the question of distribution of surplus funds of the unincorporated association came to be considered by the court and it was held that in the absence of the written rules related to distribution of property, the surplus funds of the association should be divided amongst the members of the association. In Re West Sussex Constabulary's Benevolent Fund Trust (1971), a question arose as to what could be done with the proceeds of the trust that cannot be performed or its surplus property. The court held that when the trust cannot be performed and there are surplus funds with the association, then the property is held in resulting trust for identifiable persons who contributed to the unincorporated association. Where the gift is made for the purpose of trust, a resulting trust can be ascertained as per the decision of the court in Hancock v. Watson [1902].

Furthermore, in Air Jamaica Ltd v Charlton [1999], it was held that prima facie the surplus is held on a resulting trust for those who provided it. Therefore, where contributions are made for the performance of a trust, and the trust is not longer to be performed, a resulting trust may be ascertained. This is seen more clearly from the facts of Re Abbott Fund Trusts (1900), where a trust fund was created for the benefit of a pair of deaf and dumb sisters. The sisters died before the trust fund could be fully utilised and the court held that the surplus was held in a resulting trust for the settlor. Similarly, in Re Gillingham Bus Disaster Fund (1958), a trust was created to benefit the victims of a bus crash but when the purpose was not longer to be fulfilled, the court held that the surplus was distributable amongst the original subscribers under a resulting trust. However, under the decision of the court in Re Bucks Constabulary Benevolent Fund (1978), the more relevant view is that when dissolving a society, the distribution of its property becomes a matter of contract and not trust law. Thus, where there is a contract between the members of the association, the terms of that contract would be the basis on which property is to be distributed, and resulting trusts will not be applicable for the purpose of distribution of the property. In this situation, the Lauren’s Foundation’s Constitution is a contract between the members of the association and this includes a term of contract for the distribution of the surplus funds, in the following words: “In the event of dissolution, assets of the association should be split equally between current Lauren’s Foundation members ONLY.” Based on this term of contract, the distribution of the £10,000 is to be done equally between the members of the association.

To conclude, the gift of £10,000 is valid as it is to an unincorporated association so that the fact that the association was dissolved before the death of the settlor, Alexander will not impact the validity of the trust. The three certainties are also satisfied in this situation so that the gift is a valid gift. With regard to the distribution of the £10,000 funds, this is to be done as per the constitution of the association, which is in the nature of the contract and not under a resulting trust as per the decision of the court in Re Bucks Constabulary Benevolent Fund (1978).

Question 4 The issue in this case is whether the disposition ‘£3,000 to Angelica to distribute in such shares as she thinks fit to any of my relatives, especially those that she determines to be working class and in need’ is valid and whether Samuel may be entitled to any of the £3,000. The issue requires reference to the law related to discretionary trust, which leaves the determination of the beneficiaries and their entitlement to the trust fund to the trustees to be determined as per the criteria set out by the settlor.

The trust that is set out by Alexander in this situation is a discretionary trust. In such a discretionary trust, the trustees have the discretion to appoint the shares to the beneficiaries. The test for determining the validity of the discretionary trust is not the same as the test for determining the validity of the fixed trust. For ascertaining the validity of the fixed trust, the ‘complete list’ test is applicable so that the question before the court is whether the complete list of all the beneficiaries can be drawn or exhaustively enumerated. Thus, the court will allow the trust if it is possible to draw a list of all beneficiaries of the trust. Earlier, the test was applied to beneficiary trust as well (Inland Revenue Commissioners v Broadway Cottages Trust (1955)). This is the historical test for certainty of objects which is based on whether the trustee is able to draw up a complete list of the objects. However, in McPhail v Doulton (1971), the House of Lords changed the test for validity of discretionary trust from ‘complete list’ test to the ‘is or is not’ test. The ‘is or is not’ test provides that for the trust to be valid, we should be able to say with certainty that a given individual is or is not a member of the class. In McPhail, the question was whether the use of the terms ‘relatives’ and ‘dependants in the trust allowed the object of the trust to be ascertained. The court applied the maxim certum est quod certum reddi potest, which means that if something is capable of being made certain it should be treated as certain. Thus, the requirement for the establishment of the validity of the discretionary trust is whether the beneficiaries of the trust are ascertained or are capable of being ascertained, which is the position taken in Re Leahy [1959].

The principle is that if there is conceptual certainty, then the court may depart from the need for evidentiary certainty. The conceptual certainty relates to the possibility to identify the beneficiaries while evidentiary certainty relates to the certainty about proving of the identity of beneficiaries. McPhail principle clearly provides that if conceptual certainty is satisfied, evidential certainty can be departed from. McPhail principle requires the satisfaction of conceptual certainty and allows the trustees to apply their discretion to ascertain any beneficiaries who can fit into the class determined through conceptual certainty. This can be clarified through reference to Lord Denning’s observation in Re Gulbenkian's Settlements [1968], that if a particular person can be identified that he comes within the class to be benefitted, then the validity of the clause can be ascertained. In this situation, the trust clearly explains the conceptual certainty, which is the trust is to benefit any of Alexander’s relatives who are working class and in need. However, it leaves evidentiary certainty to the discretion of the trustee, that is, Angelica, who can identify the beneficiaries as well as distribute in such shares as she thinks fit to them. Therefore, based on the case law discussed so far, it can be said that the trust is valid because even if there is discretion allowed to the trustee to identify the beneficiaries of the trust, the trust provides conceptual certainty or the criteria for identifying the beneficiaries on the basis of this criteria. Samuel is Alexander Hamilton’s second cousin once removed, which means that he comes within the definition of relative. He has a minimum wage job and is paid hourly, which means that he comes within the definition of working class. His boiler has recently stopped working, which means that he comes within the definition of someone who is ‘in need’. These criteria can be established in the case which means that there is conceptual certainty.

The next question is whether Samuel has any claim to the £3,000 or any part of it. Does Samuel have any right to compel the performance of the trust by Angelica? This is the question here.

The beneficiary of the trust does have the right to compel performance of the trust. In Saunders v Vautier (1841), the court held that beneficiaries acting together, when constituted a hundred per cent of the equitable interest in the trust fund can direct the trustee on how to manage the trust fund. It is also important to note that when considering right of beneficiaries, there are two characteristics, first relating to the proprietary right in the trust fund, and second to the personal right of the beneficiary in relation to the management of the trust. Beneficiaries under a discretionary trust generally do not have ‘proprietary interest’ unless the trustees decide on a distribution unlike in a fixed trust, where the beneficiaries do have a proprietary interest (Saunders v Vautier (1841)).

In discretionary trusts, the rights of the beneficiaries are limited. Beneficiaries under a discretionary trust only have personal equity which relates to the right to ask for proper administration of the estate (Livingston v Commissioner of Stamp Duties (1960)). With regard to the compelling of the trustee to perform the trust, the right of beneficiary is merely the right to be considered by the trustee in the exercise of their discretion (Gartside v IRC (1968)). Thus, under a discretionary trust, the beneficiary can only ask for the right to be considered by the trustee when the latter is exercising their discretion. As such, the beneficiary under a discretionary trust can only apply to the court for an order compelling the trustee to exercise the discretion (Global Custodian Ltd v Mesh (1999)). Thus, what the beneficiary can do in this case is to institute proceedings to compel Angelica to perform her duty or to protect Samuel’s beneficial interest (Bartlett v Bartlett (1845)). This can be done in the event that Angelica is refusing to exercise her discretion at all to identify the relatives of Alexander who are working class and in need because the failure of a trustee to administer a trust constitutes a breach of trust (Miller v Cameron (1936)). In Vestey v IRC (No.2) [1979], the court held that the rights of the beneficiaries in a discretionary trust include the right to be considered for distribution, to prevent certain kinds of misconduct by the trustee, and to retain sums paid to him by the trustee. There is no proprietary interest for the objects of the discretionary fund as per the decision in Gartside v IRC [1968].

To conclude, while the trust is valid as a discretionary trust and it is possible to ascertain the concept as well as identify the beneficiaries under the trust, Samuel can only apply to the court to ask Angelica to perform her duty for the right to be considered by her when the latter is exercising their discretion and he does not have proprietary interest in the trust property because such interest does not arise in a discretionary trust. Without such proprietary interest, it is not possible for Samuel to take action for claim in the trust fund until Angelica distributes the funds amongst the beneficiaries identified by her.

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