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Trusts and Power

Subtitle
Introduction
A through understanding of the distinction between trusts and
powers is essential. The different types of trusts, fixed or
discretionary have different rules determining their validity. Also
take not of the distinction between fiduciary and non-fiduciary
powers.
It is important to be precise in your use of terminology. Confusion
can easily arise because some terms are used by different
judges or writers to mean different things, so be very careful and
try to look into the context in order to determine what the
meaning is.

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Distinction between a power and a
trust
Power

A power is an authorisation to do certain things which affect property to which the


appointor is not solely entitled and in which he may have no beneficial interest at all.

A person may hold a power in a personal or an official capacity and the distinction of
such lies whether he has fiduciary obligations.

Trustees have by statute power of investment , sale and so on. They may also be given
other powers by the terms of the trust instrument, such as power of appointment which
enables those holding the power to effect the disposal of the settlor’s property by
‘appointing’ it to other people.

Power may be granted by express grant or by a statute.

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Power
• Bare power (personal power)

Bare power given to an individual can only be exercised by him as stated in the case of Re
Harding [1923] 1 Ch. 182

Means a non-fiduciary power

• Fiduciary power

A fiduciary is someone who has undertaken to act for and on behalf of another in a particular
matter in circumstances which give rise to a relationship of trust and confidence.

• “A fiduciary is someone who has undertaken to act for and on behalf of another in a particular
matter in circumstances which give rise to a relationship of trust and confidence.” — Bristol &
West Building Society v Mothew [1998] Ch 1 at 18 per Millet LJ

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Trust

A trust is imperative and a power is discretionary. The diving line is


not clear all the times.
The importance of the distinction between trust and power lies in
the extent of the obligations imposed on a trustee as compared
with the donee of a power.
Take note of the words of Lord Upjohn in Re Gulbenkian’s
Settlement Trusts [1970] AC 508

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Difference between power and trust
• A trust is imperative while power is discretionary. If a trust direct
trustees to do something, they are bound to do it. The holder of
a power is under no such obligation.
• A trust is always equitable whereas a power may in some cases
be legal, such as power of attorney to convey land on behalf of
a vendor.
• A trustee is always under a fiduciary duty while the holder of a
power may or may not be under a fiduciary duty.
• A power may be released by the holder but a trustee may not
release his trust.

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Characteristics of powers of
appointments
Powers of appointment are frequently given in trusts or settlements to enable the trustees to provide
funds for the beneficiaries in circumstances unforseeable when the trusts were set up.

The donor is the original owner of the property. If a trust is involved, the donor is the settlor or the
testator. The person who receives the power of appointment is the donee. The donor remains the
owner of the property until the donee exercise his power of appointment and names a new
owner of the property.

A power of appointment is the right to designate the new owner of property.

• The testator can leave property as a gift outright to a person

• The testator can leave a property to a person to hold in trust for another person

• The testator can leave property to a person and give the person the authority to select the new
owner of the property. That authority is called a ‘power of appointment’.

Example: ‘I leave my property to A in order that he may have the right to appoint the new owner’

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Power of appointment
• General power of appointment
He does not place any restricts or conditions on the donee’s
exercise of power. Donee can appoint to power to anyone,
including himself. A general power may be regarded as
tantamount to absolute ownership.
Example: ‘I leave my house to Paul to give to any one that he
chooses’

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Power of appointment
• Special powers of appointment
Specifies certain individuals or groups as the objects of the
power or conditions to exercise of the power on certain factors.
The power is special even though the appointor is himself a
member of the restricted group.
Example: ‘I leave my property to Ben to appoint to anyone of my
sister that he chooses’
Both general and special power can be exercised testamentary or
inter vivos.

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Power of appointment
• Hybrid power of appointment
These are powers under which the donee may appoint to
anyone except a certain class or certain description of person.
Example: ‘$50,000 to X to whomsoever he shall appoint except my
brothers and sisters and their decendants’
Hybrid power is restricted by exclusion.

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Power of appointment
When a power of appointment is given to a trustee under the
terms of a trust instrument two issues may arises:
1. Whether what appears to be a power also involves a trust, ie a
power in the nature of a trust.
2. What criteria the trustee should apply in deciding who are the
objects of the power in whose favour it may be exercised, ie
certainity of objects.

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Power of appointment
• Duties of Donee of Power – Rights of objects
A donee of a power is not under any fiduciary duties. Example:
power given to a wife to determine the shares in which the
children shall receive the property from their father’s estate, the
widow is under no obligation to exercise the power or even to
consider its exercise. If she does exercise it, them she owes a
duty to the default beneficiaries to keep within the terms of the
power. Re Hay’s S.T. [1982] 1 W.L.R. 202
This must be contrasted with fiduciary power held by a trustee by
virtue of his office, which in turn must be distinguished from the
obligation of a trustee of a discretionary trust.

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• Duties of the donee of power – Rights of objects
Discretionary trust is a trust in which the property is held by the
trustee on trust, not for named beneficiaries in fixed proportions,
but on trust for such members of a class of beneficiaries as the
trustees shall in their absolute discretion select.
This is similar with a power of appointment held by the trustee to
appoint among a group of objects.
However, a trust is obligatory, a power is permissive. The duties of
the donee of a fiduciary power were analysed by Megarry V.C.
in the Re Hay’s Settlement Trusts [1982] 1 W.L.R. 202

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• Exercise of Powers of appointment
No technical words are required for the exercise of a power.
Intention on the part of the donee that the funds shall pass to
some one who is an object of the power.

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• Excessive execution
The donee has only the power which is given to him by the
instrument. Thus he may not exercise it in favour of non-objects.
Difficult question arise when an appointment of a sum greater
than that authorised or where some of the appointees are
objects and some or not.
The rule is the court will serve the good from the bad.
Re Hay’s S.T. [1982] 1 W.L.R. 202

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• Defective execution
Failure to comply the instrument will usually render the exercise
void but equity and statute may validate certain cases of
defective execution.
In equity, will act upon the conscience of those entitled in
default to compel them to make good the defect in the
execution.
By statute, if appointment by will, comply with the formalities
under the Wills Acts.

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• Contract to exercise
A valid contract to exercise a general power, if capable of
specific performance, operates as a valid exercise of the power
in equity.
There can never be specific performance of a contract to
exercise a testamentary power. Re Parkin [1892] 3 Ch. 510

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• Release of powers
Person may effect a release of a power, in appropriate
circumstances, by executing a deed of release, or by a contract
not to exercise the power.
Re Mills [1930] 1 Ch 654

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Trust power
The term trust power is a dangerous one to use without any
explanation of its meanings. A trust power is a combination of a
duty (a trust) and a power. A discretionary trust is often called a
trust power since it combines a duty to distribute with a power of
selection.
The term trust power can also be used to mean a fiduciary power,
since this too combines a power and a trust obligation ie a
power to distribute and a duty to consider exercising it.
McPhail v Doulton [1971] AC424

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Tutorial question
But it is difficult in borderline cases to draw a dividing line between
discretionary trusts and powers … The decision turns on the
proper construction of the language of the instrument. The
matter is made more difficult by reason of the fact that a
discretionary trust may be ‘exhaustive’ or ‘non-exhaustive’.
(Hansbury and Martin, Modern Equity, 17th Edn, Sweet & Maxwell,
2005, at p64.)
Discuss.

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