The dividing line between discritionary trusts and powers is not always sharp.

With
reference to relevant literature (books, articles, case law), analyse the distinctions
between discretionary trusts and powers. In your answer, clarify and explain the aspects
of:

i) The duty of trustee vis-a-vis the duty of donee.

ii) The position of beneficiaries vis-a-vis the position of objects; and
iii) The construction of documents to differentiate between power and
discretionary trust.

Discretionary trusts and powers in English law are elements of the English law of trusts,
specifically of express trusts. In contrast to resulting trusts and constructive trusts, an express
trust comes into being on account of an express declaration by the settlor. The discretionary
trust can be contrasted with the fixed trust; both of which are types of express trusts. Under a
fixed trust, the beneficial interests are fixed. That is to say that the share of the trust property
that the beneficiary is to receive is established, or fixed', in the trust instrument.

Under a discretionary trust, however, the trustee, in whom legal ownership vests, has a
dispositive discretion. The trustee's dispositive duties under a trust require the trustee to dispose
of the trust property in accordance with the terms of the trust. Under a discretionary trust, the
trustee may have a discretion as to the precise value of the beneficiaries' entitlement, or as to
whether certain beneficiaries receive anything at all. An example of a trust term that would
grant this dispositive discretion to the trustee is where a trust is established for a group of
beneficiaries in such portions as the trustee shall in their absolute discretion see fit.

A power, on the other hand, is where not only does the holder have discretion over his
actions, he has discretion over whether to act in the first place.

We can see as if that discretionary trusts and powers are the same, as both may achieve
the same purpose. However, there is a dividing line to distinguish the two. The basic difference
between them is that a trustee under discretionary trust has an obligation to distribute the trust.
On the other hand, a power is just considered as an enabling provision. This situation results
some differences in the duties of trustee of a discretionary trust and donee of a power.
I) THE DUTY OF TRUSTEE VIS-A-VIS THE DUTY OF DONEE.

The duty of trustee of a discretionary trust

Under a discretionary trust, the beneficiaries have no entitlement to either income or

capital. The trustees have complete discretion as to whether or not to make payments of income
or capital and to which beneficiaries. The settlor of the trust may have left a letter of wishes
outlining the purpose of the trust and how they envisage the trust fund being dealt with. Such a
letter is not legally binding on the trustees, but they would generally try to take such wishes
into account, circumstances permitting.

Trustees of a discretionary trust should consider the needs of the beneficiaries on a

regular basis and keep records of their decisions. Although they must be impartial, they can still
decide to give more to one beneficiary than another. Under discretionary trust, it is the duty of
a trustee to perform the trust. As the trust is discretionary, the trustees are obliged to consider
and exercise their discretion. The court can order them to exercise their discretion if they fail to
do so. They must make an appointment, even though the decision as to the recipient and the
size of the distribution is at the trustees' discretion, if the trust is exhaustive. In the event where
the trustees fail to act, the court will intervene and make the appointment. If no appointment is
made the property will normally be divided equally between the beneficiaries, as in the case of
Burrough v Philcox1.

In the case of Burrough v Philcox, the test for certainty is the so-called complete list
test', which demands that a complete list of the objects be drawn up. Under such a trust, if the
trustee fails to appoint the trust property, each individual object will take an equal share. This
can be said to represent, then, an identifiable beneficial interest in the trust property to
counterbalance the legal interest vested in the trustee. It is, to some extent, however, as this
equal share will only apply in the case of default by the trustee. A power in the nature of a trust
arises where an instrument is drafted to give a person a power of selection among a class, but
if the power is not exercised or fails to deal with all the property, there must be an equal division
amongst the class.

1
(1840) 5 My & Cr 72
The duty of donee of a power

First of all, we must distinct between fiduciary powers and bare powers. A fiduciary
power is a power of appointment granted to a trustee or to a person in a fiduciary position.
Because such persons are in a fiduciary position, they cannot simply ignore the power. In Re
Hay's Settlement Trusts2, it was held that the donee of a fiduciary power must consider the
exercise of the power and survey the potential beneficiaries from time to time. The court may
intervene if the trustee exercises the power improperly.

However, in Re Gestetner's Settlement3, even where there is a fiduciary power the

donee is not required to exercise it. A power given to trustees to distribute amongst a huge
and fluctuating class consisting of employees of a number of companies, was considered
valid, even though it was impossible to consider all the potential objects. This was held to be
the appropriate test for discretionary trusts in McPhail v Doulton4. The test is that it must be
possible to say with certainty whether any given individual is or is not a member of the class.
In that case, Lord Wilberforce stated:

"As a matter of reason, to hold that a principle of equal division applies to trusts
such as the present is certainly paradoxical. Equal division is surely the last thing the
settlor ever intended: equal division among all may, probably would, produce a result
beneficial to none. Why suppose that the court would lend itself to whimsical execution?
And as regards authority I do not find that the nature of the trust, and the courts powers
over trusts calls for any such rigid rules. Equal division may be sensible and has been
decreed in family trusts, for limited class; hence there is life in the maxim "equality is
equity", but the cases provide numerous examples where this has not been so, and a
different kind of execution has been ordered, appropriate to the circumstances"

On the other hand, if it is a bare power, the donee will not hold any fiduciary duties. It
is fully based on the donee of a bare power to exercise the power at will. The court cannot
compel the donee to exercise it in the event when the power is not exercised. If the donee
predeceases the testator, then the power lapses. If no appointment is made under any power
(whether fiduciary or not) the property will pass to the person entitled in default of its exercise,

2
[1982] 1 WLR 202
3
[1953] Ch 672
4
[1971] AC 424
so that, if the donor of the power has not specified who is to take over in this event, the property
may go back to the settlor or to the testator's estate under a resulting trust.

Reference:

Book:

Equity and Trust in Malaysia, Mohsin Hingun, Wan Azlan Ahmad

Web:

Trusts Property And The Trustee

https://www.lawteacher.net/free-law-essays/property-trusts/trust-property-trustee.php

Cases:

Burrough v Philcox5.

Hay's Settlement Trusts6,

Re Gestetner's Settlement7,

McPhail v Doulton8.

5
(1840) 5 My & Cr 72
6
[1982] 1 WLR 202
7
[1953] Ch 672
8
[1971] AC 424