The decision of Mcphail v Doulton, difference between discretionary trust and powers
of appointment
Critically evaluate the differences and similarities between discretionary trusts and powers of
appointment in the light of the above statement. How effective is the “given postulant test” in
determining certainty of objects?
POINTS TO NOTE AND MANUAL:
- What is a DT?
o [Discretionary trusts are] cases where someone, usually but not necessarily
the trustee, is under a duty to select from among a class of beneficiaries
those who are to receive, and the proportions in which they are to receive,
income or capital of the trust property. (per Warner J in Mettoy Pension
Trustees Ltd v Evans [1990] 1 WLR 1587)
- What is PA?
o A power of appointment is an authority to deal with property in some way. The
person who is given the power does not have to exercise the power.
- Contrasting characteristics of powers of appointment (PA) and discretionary trusts
(DT)
- The donee of a power is not obliged to distribute the property. The objects cannot
complain to the courts if the donee does not exercise the power. In contrast,
trustees of a discretionary trust are under a duty to distribute property in favour of
members of the class of objects (but they have a discretion as to which members
to choose).
- Both allow (PA) or require (DT) the legal owners to distribute trust property to
stated objects in such share and on what terms as they decide. Both enable the
decision as to beneficial ownership to be delayed from the creation of the power
or trust.
- The trustees of a DT have a duty to distribute to one or more of the objects, and
the court will intervene if they do not do so.
- Objects of either type do not have an equitable interest in the trust property. What
they do have is an interest in the PA or DT being administered properly, and can
apply to court to enforce this: Schmidt v Rosewood
● Narrowness of the distinction
- Factors determining which is which - judges disagreed on whether a particular
disposition (as in McPhail) was a PA or DT.
- What are the respective duties of trustees of each? Lord Wilberforce indicated
trustees of PA had a duty to decide whether to exercise power, trustees of DT
must exercise their trust, but each would have to undertake a survey of possible
objects – the difference is one of degree.
- Lay person would have difficulty in distinguishing between the two.
- Discretionary trusts and powers of appointment are very similar. Lord Wilberforce
commented: ‘It is striking how narrow and in a sense artificial is the distinction
(between discretionary trusts and powers of appointment), in cases such as the
present.’ He indicated that ‘a layman would find it hard to understand what
difference there is’. He pointed to the fact that even the lower courts and the
Court of Appeal had reached different conclusions on whether Mr Baden had
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