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Certainty Of Object Notes

Law Notes > Trusts Notes

This is an extract of our Certainty Of Object document, which we sell as part of our Trusts Notes collection written by the top tier of Monash University students.

The following is a more accessble plain text extract of the PDF sample above, taken from our Trusts Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

Certainty of objectCertainty of object is necessary so that it is clear who has standing to seek performance of a trust, and the trustee knows who to account to

1. Trust structure
?????Fixed interest trust o This is a trust in which the beneficiaries and their shares in the trust property are specified at the time of creation of the trust
? E.g Paul v Constance - C held for himself and Mrs Paul in equal shares. Hunter v Moss - Moss held 5% for Hunter o Trustee must exhaust trust property o No discretion as to beneficiary o Where shares are not specified, presume the beneficiaries are entitled to equal shares
?????Power of appointment o The discretion in a discretionary trust is called a power of appointment
? Mechanism that allows us to create a discretionary trust. The donee of the power has power to 'appoint' the property
? This power can be given to a trustee, or someone else
?????Exhaustive discretionary trust (trust power) - imperative o Trustee must exhaust trust property o The holder is under an obligation to appoint the property, but has a power to select who to appoint it to among the beneficiaries o Example
? S transfers to T on trust to appoint it within 5 years to such of S's children as T sees fit
? Compare to bare PoA:
? S gives T land on trust to hold for such of T's children as T sees fit, and in default of appointment for the Red Cross
? T has a PoA to such children/child as T sees fit
? T is under no obligation to appoint to one of T's children so the power is bare power
?????Non-exhaustive discretionary trust (bare power) - permissive o The trustee has the power to appoint, but is still under no obligation to exercise the power. The power is permissive, not mandatory
? Nevertheless the trustees responsibilities concerning the power are somewhat greater than the responsibilities faced by a non-trustee. o Where there is a taker in default specified, this renders the first part of the clause a mere power o The mere power (if invalid) can be struck out so long as it does not affect the taker in default provision
? Use of modern trusts o Unit trusts for investment o Superannuation trusts o Discretionary trusts for income splitting/tax minimisation

2. Choosing whether it is a trust power or bare power
? It is a question of construction, is there an obligation to exhaust the fund?
o Gift over in default of appointment indicates a bare power
? The fact that the donor of the power expressly allowed for its non-use shows that no obligation to exercise the power was imposed

"The rest in residue" (residuary clause) is NOT a gift over in default of appointment a. Does not automatically convert the mere power into a trust power
? But absence of gift doesn't automatically indicate trust power o Language used
? Find in the words a sense that an obligation is being imposed for requiring the power to be exercised
? Best way to do this - stronger the language used, more likely it is a trust
? Weaker the language - more likely mere power
? Nevertheless it is not determinative
? It is permissible to contrast language used in other provisions of the trust deed or will to construe the meaning
? NB the word "shall" is ambiguous, unsure if it denotes a mere or trust power. Discussion required. o Time limit
? If it has to be done within 2 years, it has to be done
? That is not conclusive
? Not conclusive if followed by a gift over in default of appointment (which IS conclusive)3. Exhaustive/Non-exhaustive: Classifying powers of appointment Examples
? We can classify PoA according to the class of object described o General: discretion to choose anyone in the world
? Trust power: invalid, fails for administrative workability Re Hays per Megarry J and also because self-appointment would be in breach of the profits and conflicts rule
? Bare power: valid, unless capricious o Special: discretion to choose amongst a specific class of objects
? Trust power: valid if the class meets criterion certainty McPhail
? Bare power: valid, unless capricious o Hybrid: discretion to choose anyone in the world, except a specific class
? Trust power: invalid, fails for administrative workability Re Hays per Megarry J
? Bare power: valid, unless capricious Re Manisty's
? UK approach: hybrid mere powers always valid Re Hays
? Some states: hybrid mere powers only valid if intervivos
? You apply the certainty test to the excluded group

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