Certainty of objects for a discretionary trust: the 'is or is not' test
By a trust deed made in England in 2023, Rosalind Achebe transferred £900,000 to trustees directing that they 'shall each year distribute the income among such of the employees and former employees of Brightwater Logistics Ltd, and their spouses and dependants, as the trustees in their absolute discretion select'. The class is likely to exceed 4,000 people. The company's records of former employees are incomplete, so it is impossible to draw up a complete list of everyone in the class. The words used in the deed are clear in meaning. Rosalind has died and her executors argue that the trust is void.
Which of the following best describes the validity of the trust?
Choose one answer to see the reasoning.
Worked answer
Correct answer A: It is valid, because it can be said with certainty whether any given individual is or is not a member of the class.
THE RULE TO REMEMBER
A discretionary trust is valid if it can be said with certainty whether any given individual is or is not a member of the class of objects (McPhail v Doulton).
Certainty of objects for a discretionary trust: the 'is or is not' test
The clause uses mandatory language ('shall distribute'), so it creates a discretionary trust rather than a mere power. In McPhail v Doulton the House of Lords discarded the earlier rule that a discretionary trust is valid only if a complete list of objects can be compiled. Lord Wilberforce held that the test is the same as for powers: the trust is valid if it can be said with certainty that any given individual is or is not a member of the class. Difficulty in tracing members of a class is an evidential problem the court can deal with by directions, not a ground of invalidity. Here the description 'employees and former employees ... and their spouses and dependants' is conceptually clear, so for any person it can be determined whether they fall within it. The incomplete records do not matter. The class, though large, is a coherent class connected with one company, unlike the hopelessly wide example of 'all the residents of Greater London'.
Why B is wrong: The complete list test from IRC v Broadway Cottages Trust was discarded for discretionary trusts in McPhail v Doulton.
Why C is wrong: The mandatory 'shall distribute' creates a trust, and the same certainty test now applies to trusts and powers anyway.
Why D is wrong: Lord Wilberforce said the court may execute a discretionary trust in the way best calculated to give effect to the settlor's intention, not only by equal division.
Why E is wrong: Size alone does not make a trust unworkable; an employee class of a single company is nothing like 'all the residents of Greater London'.
A little more practice done.
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