Administrative unworkability

s Sometimes the trust is certain but ‘the definition of beneficiaries is so hopelessly wide as not to form “anything like a class” so that the trust is

“administratively unworkable” ’ – per Lord Wilberforce in McPhail v Doulton who gave as an example a trust for the ‘residents of Greater London’.

The local authority created a trust for any or all of the inhabitants of West Yorkshire. There were approximately 2,500,000 inhabitants of West Yorkshire at the relevant time.

Held

The trust was void for administrative unworkability; the class was too large. Trustees have fiduciary obligations and it would be impossible to exercise such for this considerable number of people.

s Can administrative unworkability also apply to powers of appointment?

s This was rejected obiter in Re Manisty’s Settlement Trusts (1974) and in Re Hay’s Settlement Trusts (1982); hence mere powers of appoint-ment are not invalidated by administrative unworkability.

s This is probably because donees of a mere power do not have fiduciary obligations.

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3.11 CAPRICIOUSNESS

3.11 Capriciousness

s The donor has no rational reason for making the gift to that class; and the trustees have no rational basis on which to make the allocation.

s There is no clear authority stating that capriciousness invalidates a trust.

s Trustees have fiduciary obligations towards the potential beneficiar-ies; there must be therefore a rational basis as to how the funds are allocated.

s It was stated obiter in Re Manisty’s Settlement (1974) that capricious-ness will invalidate a trust. The court gave an example of a trust in favour of the ‘residents of Greater London’ where the donor has no connection with London whatsoever (see also Section 3.10 on administrative unworkability).

s Capriciousness would not have been a valid ground of challenge in R v District Auditor ex parte West Yorkshire as the donor had a clear connection with West Yorkshire.

Item on checklist: Done!

I understand what is meant by certainty of objects.

I understand the test for a gift to an individual or series of individuals.

I am able to explain the complete list test and the need for conceptual and evidential certainty.

I am able to explain the any given postulant test for discretionary trusts and powers of appointment.

I can explain the decisions of the three judges, Sachs, Megaw and Stamp from Re Baden’s Trust Deeds (No. 2) and apply them to a given scenario.

I understand how administrative unworkability and capriciousness can affect a trust.

Checkpoint – certainty of object

50 fixed trust the test is the complete list test

There must be conceptual and evidential certainty

Sachs – only conceptual certainty required Megaw – conceptual and some evidential certainty to the extent that the evidential certainty must represent a ‘substantial number’ within the class

Stamp – conceptual and evidential certainty appears to be required Administrative unworkability and

probably capriciousness will invalidate a trust though probably

not a power of appointment

There must be identifiable human beneficiaries

Potential exam questions

1) You are to advise on the validity of the gifts in the validly executed will of Enid who has died:

i) £1,000 to my husband in the belief that he will look after the children during his lifetime and on his death the fund shall be distributed among the children.

ii) £10,000 to my trustees on trust on behalf of any or all of my colleagues at work and their loved ones.

iii) Three of my favourite cars to my nieces Susan and Karen with Susan to choose first and Karen to have the other two [note that Susan is in a persistent vegetative state due to a car accident].

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3.11 CAPRICIOUSNESS

iv) £10,000 to David for the benefit of any of my sons. If no appointment is made the fund is to go to my brother Allen.

v) Any one of my ten antique vases to any person who can satisfy the trustees that they are a friend of mine.

2) Critically evaluate the test for certainty of objects with regard to discretionary trusts.

3) ‘It is essential to bear in mind the difference between concep-tual uncertainty and evidential difficulties’ – per Lord Justice Sachs in Re Baden’s Trust Deeds (No. 2). Critically evaluate this statement.

4.1 Introduction

As well as the three certainties the trust must also be fully constituted.

The property must be transferred either as an outright gift or, if on trust, into the names of the trustees. If not, there is no valid trust.

Proper constitution depends on the necessary formalities being properly implemented for transferring the property.

Cases:

Milroy v Lord (1862)

Shares were covenanted to be transferred by the donor to the donee; however, the donor died before the transaction took effect.

Held

There was no valid gift as the proper formalities had not been followed.

Turner LJ:

‘[T]he settler must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property. . . . He may of course do this by actually transferring the property to the persons for whom he intends to provide, and the provision will then be effectual, and it will be equally effectual if he transfers the property to a trustee for the purposes of the settlement, or declares that he himself holds it in trust for those purposes.’

Jones v Lock (1865)

A man returning from a business trip was scolded by his wife for not bringing a gift for their baby. He wrote a cheque stating ‘this is for baby’; however, he did not indorse the cheque. He then put it into a safety deposit box. He died a short while later and the question was whether the cheque was valid either by an outright gift or whether the father made a valid declaration of trust.

Chapter 4