680:
discretionary trusts allow both types of discretion, either can be allowed on its own. It is permissible in most legal systems for a trust to have a fixed number of beneficiaries and for the trustees to have discretion as to how much each beneficiary receives, or to have a class of beneficiaries from whom they could select members, but provide that the amount to be provided is fixed. Most well-drafted trust instruments also provide for a power to add or exclude beneficiaries from the class; this allows the trustees greater flexibility to deal with changes in circumstances (and, in particular, changes in the revenue laws of the applicable jurisdiction).
51:
759:, where to be valid the trustees had to be able to draw up a "complete list" of beneficiaries. That notwithstanding, leading commentators have suggested that provided all of the beneficiaries could be ascertained, they should still retain the right to terminate the trust under the rule, so long as it is an exhaustive discretionary trust.
778:
and that they should exercise it in respect of the dormant years now as they should have done at the time. The court reaffirmed that if trustees refuse to distribute income, or refuse to exercise their discretion, although the court could not compel it be exercised in a particular manner, it could order that the trustees be replaced.
836:
Because under a discretionary trust, no one beneficiary could be said to have title to any trust assets prior to a distribution, this made discretionary trusts a powerful weapon for tax planners. Inevitably, the surge in popularity has led to a legislative response in most jurisdictions, thus in many
767:
The ordinary correlation between beneficiaries' rights and trustees' duties which arises in fixed trusts is absent in discretionary trusts. Although there are clearly duties, it is less clear whether there are any correlating rights. However, it seems clear that the trustees' duty is limited to (a)
777:
1 WLR 1323 the trustees of a discretionary trust did not make any distributions for a number of years based upon the expressed wishes of the settlor. The trust then fell dormant, and after several more years, the trustees sought directions. The court held that their discretionary powers continued,
679:
Discretionary trusts can be discretionary in two respects. First, the trustees usually have the power to determine which beneficiaries (from within the class) will receive payments from the trust. Second, trustees can select the amount of trust property that the beneficiary receives. Although most
828:
restated the test for certainty of objects in connection with discretionary trusts. Previously, it had been understood that for the trust to be valid, the trustees had to be able to draw up a "complete list" of all the possible beneficiaries, and if they could not do so, the trust was
768:
determining whether to exercise their discretion, and (b) exercising their discretion lawfully under the terms of the trust. Whilst the beneficiaries will have standing to sue the trustees for failing to fulfill their duties, it is not clear that they would gain by such action.
721:
rejected this argument. Even where there is a sole member of the class remaining, so long as there is a possibility that another member of the class could come into existence, that member is not considered a sole beneficiary for purposes of taxation liability.
709:
In a fixed trust the beneficiary has a specific proprietary right in relation to the trust fund. Each beneficiary of a discretionary trust, in contrast, is dependent upon the trustees to exercise their power of selection favourably. In
789:
Discretionary trusts still serve a useful function to their beneficiaries, despite their original source of popularity (tax savings) having diminished in most countries. They still continue to be used for these reasons, among others:
794:
to protect the assets of irresponsible beneficiaries against creditors – as the beneficiary has no claim to any specific part of the trust fund, none of the trust fund is vulnerable to attachment by the trustee in bankruptcy of any
745:
The rights of individual beneficiaries under a discretionary trust being uncertain, it was open to question to what extent the beneficiaries of a discretionary trust (if all of adult age and sound mind) could utilise the
683:
Characteristically, discretionary trusts provide for a discretionary distribution of income only, but in some cases the trustees also have a power of appointment with respect to the capital in the trust, i.e. the corpus.
716:
AC 553 the Inland
Revenue argued that as each beneficiary might be entitled to income from the trust fund, each should be charged as if he were entitled to the whole of the fund. Perhaps unsurprisingly, the
781:
The position with a duty to consider exercising discretion in non-exhaustive discretionary trusts is more complicated, as the duty to exercise discretion can be satisfied by deciding to accumulate.
833:. But Lord Wilberforce held that provided it could be said of any person whether they were "in or out" of the class, as described by the settlor, the trust would be valid.
587:
931:
Although a discretionary beneficiary clearly does have some species of right under a discretionary trust, he is able to renounce his position as a class member; see
994:
It has been suggested that "the discretionary trust in fact depends on a rule-concept of duty, with no such necessity for correlative rights." (1971) 87 LQR 231
815:
718:
825:
837:
countries there are now considerable tax disadvantages to discretionary trusts, which has predictably hampered their use outside the scope of
580:
410:
866:
281:
983:
656:
to guide them as to the settlor's wishes in the exercise of their discretion. Letters of wishes are not legally binding documents.
214:
573:
200:
933:
504:
426:
288:
83:
42:
753:. It had been held that beneficiaries under a discretionary trust could do so, although that authority was decided pre-
1008:
625:
747:
134:
947:
1034:
912:
476:
207:
773:
374:
732:
849:
imposed a "capital transfer tax" on any property settled on a discretionary trust, which was replaced in the
801:
in certain jurisdictions, a discretionary trust can be used to protect family assets from being lost to any
742:
Ch 712, the courts held that the same analysis was equally applicable to exhaustive discretionary trusts.
483:
403:
362:
76:
889:
Although in many jurisdictions such a trust would be characterized as a fixed trust with a discretionary
871:
149:
890:
738:
609:
452:
417:
330:
188:
918:
726:
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396:
369:
664:
641:
605:
459:
350:
256:
120:
67:
33:
979:
961:
820:
755:
323:
226:
175:
1003:
Although most jurisdictions simply look through trusts for this purpose, for example, in the
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838:
649:
629:
318:
295:
127:
102:
854:
668:
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305:
249:
163:
156:
1004:
842:
561:
389:
357:
221:
95:
50:
1028:
660:
471:
300:
244:
90:
628:
to the trust fund are not fixed, but are determined by the criteria set out in the
556:
549:
519:
142:
509:
464:
235:
37:
694:, where the trustees must distribute all income accruing to the trust fund; and
830:
814:
The popularity of discretionary trusts rose sharply after the decision of the
805:
settlement, although some jurisdictions simply ignore trusts for this purpose.
613:
529:
269:
59:
601:
435:
195:
107:
17:
645:
539:
440:
798:
For trustees to exercise control over young or improvident beneficiaries
802:
653:
633:
445:
27:
Trust in which the beneficiaries and their entitlements are not fixed
168:
700:, where the trustees have an express power to accumulate income.
640:
in
Australia or New Zealand. Where the discretionary trust is a
544:
901:
A common example is a scholarship set up by way of a trust fund
687:
Discretionary trusts are usually sub-divided into two types:
730:
concerned a non-exhaustive discretionary trust; however, in
581:
8:
588:
574:
29:
882:
659:Discretionary trusts can only arise as
527:
496:
425:
234:
66:
32:
7:
867:Taxation of trusts (United Kingdom)
671:to arise as a discretionary trust.
644:, it is common for the settlor (or
636:. It is sometimes referred to as a
25:
934:Re Gulbenkian's Settlement (No 2)
215:Acts of independent significance
49:
505:Advance directive (Living will)
404:Hague Convention (conflict law)
1:
282:Accumulation and maintenance
84:Joint wills and mutual wills
1009:Matrimonial Causes Act 1973
663:. It is not possible for a
1051:
135:Incorporation by reference
948:Re Trafford's Settlement
411:Application in civil law
208:Satisfaction of legacies
913:Re Manisty's Settlement
1007:see section 25 of the
810:Popularity and decline
774:Re Locker's Settlement
484:Disclaimer of interest
289:Interest in possession
77:Legal history of wills
872:Personal injury trust
620:is a trust where the
427:Estate administration
345:Reversionary interest
150:Testamentary capacity
976:Hanbury & Martin
891:power of appointment
733:Re Weir's Settlement
453:Power of appointment
418:Dishonest assistance
189:Lapse and anti-lapse
183:Property disposition
845:, for example, the
618:discretionary trust
612:, Canada and other
384:Governing doctrines
750:Saunders v Vautier
665:constructive trust
642:testamentary trust
616:jurisdictions, a
460:Simultaneous death
375:Supplemental needs
121:Attestation clause
839:charitable trusts
821:McPhail v Doulton
756:McPhail v Doulton
598:
597:
227:Pretermitted heir
176:No-contest clause
16:(Redirected from
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1035:Wills and trusts
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893:
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851:Finance Act 1988
847:Finance Act 1975
826:Lord Wilberforce
650:letter of wishes
630:trust instrument
590:
583:
576:
397:Cy-près doctrine
363:Asset-protection
128:Residuary clause
103:Holographic will
53:
30:
21:
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884:
880:
863:
855:inheritance tax
812:
787:
765:
739:Sainsbury v IRC
707:
677:
669:resulting trust
594:
515:Forced heirship
489:Inheritance tax
381:
310:
261:
180:
164:Insane delusion
157:Undue influence
139:
112:
40:
28:
23:
22:
15:
12:
11:
5:
1048:
1046:
1038:
1037:
1027:
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1018:
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1005:United Kingdom
996:
987:
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939:
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919:Blausten v IRC
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843:United Kingdom
816:House of Lords
811:
808:
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806:
799:
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786:
783:
764:
761:
727:Gartside v IRC
719:House of Lords
713:Gartside v IRC
706:
703:
702:
701:
698:non-exhaustive
695:
676:
673:
661:express trusts
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497:Related topics
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393:
392:
390:Pour-over will
380:
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347:
346:
342:
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331:Life insurance
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10:
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1021:
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985:
984:0-421-71680-0
981:
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971:
968:
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824:AC 424 where
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736:1 Ch 657 and
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648:) to leave a
647:
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622:beneficiaries
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370:Special needs
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275:Discretionary
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91:Will contract
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35:
31:
19:
999:
990:
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946:
942:
932:
927:
917:
911:
906:
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885:
835:
819:
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749:
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731:
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708:
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691:
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658:
638:family trust
637:
626:entitlements
617:
599:
557:Criminal law
520:Totten trust
383:
382:
351:Testamentary
312:
311:
274:
264:Common types
263:
262:
257:Constructive
182:
181:
141:
140:
114:
113:
58:Part of the
18:Family trust
978:(16th ed.)
795:beneficiary
510:Blind trust
477:Advancement
465:Slayer rule
324:Spendthrift
313:Other types
1017:References
916:Ch 17 and
692:exhaustive
624:and their
614:common law
530:common law
319:Protective
296:Charitable
60:common law
841:. In the
610:Australia
602:trust law
436:Intestacy
335:Remainder
306:Incentive
250:Resulting
201:Abatement
196:Ademption
108:Oral will
1029:Category
962:Re Smith
922:Ch 1 256
861:See also
785:Purposes
748:rule in
705:Analysis
654:trustees
652:for the
646:testator
562:Evidence
550:Property
540:Contract
441:Testator
358:Honorary
115:Sections
853:by the
803:divorce
634:settlor
632:by the
606:England
600:In the
446:Probate
301:Purpose
245:Express
143:Contest
96:Codicil
43:estates
982:
965:Ch 915
937:Ch 408
763:Duties
528:Other
236:Trusts
62:series
38:trusts
951:Ch 32
878:Notes
675:Forms
667:or a
532:areas
169:Fraud
68:Wills
34:Wills
980:ISBN
974:See
910:See
831:void
545:Tort
270:Bare
41:and
818:in
771:In
604:of
1031::
857:.
608:,
36:,
589:e
582:t
575:v
20:)
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