In order to create a private trust expressly there are a number of requirements which need to be satisfied. Lord Langdale MR in Knight v Knight illustrated the ‘three certainties’ which must be satisfied. These are ‘certainty of intention’, ‘certainty of subject matter’ and ‘certainty of objects’. The House of Lords decision in McPhail v Doulton is an important landmark as it redefined the ‘certainty of objects’ test for discretionary trusts.
Prior to the House of Lords decision in McPhail v Doulton the ‘certainty of objects’ test for discretionary trusts mirrored that of fixed trusts, in that it had to be possible to make a ‘complete list’ of all the beneficiaries from the moment at which the trust came into operation: IRC v Broadway Cottages. If it was not possible, the trust would be void from the start.
The case of McPhail v Doulton involved a discretionary trust in favour of Mr Baden’s employees, ex-employees, their relatives and dependants. In this case Lord Wilberforce stated, “The rule in IRC v Broadway Cottages ought to be discarded, and that the test for the validity of discretionary trusts ought to be similar to that accepted in Re Gulbenkian’s Settlements for powers”.
The pragmatic ‘any given postulant’ test set out in Re Gulbenkian’s Settlements was adopted for discretionary trusts in McPhail v Doulton . This requires the trustees to state whether any given postulant ‘is or is not’ within the class of beneficiaries. Lord Wilberforce argued that there is a narrow and in a sense artificial distinction between trusts and powers and that it therefore seemed irrational that a trust or power should fail on such delicate shading. However, Lord Hodson is of the opinion that the ‘any given postulant’ test is far too flexible. I believe that this more liberal approach is needed in order to prevent many trusts from failing.
Following the decision of the House of Lords in McPhail v Doulton the case was remitted to the Chancery division in Re...