Problem Question - Dispositions to a Will

Tom, who died earlier this year, made the following dispositions in his will:

(i) “£7,500 to further the purposes of the Glarryford Glee Club* and to secure its future”;

(ii) “£250,000 to Fergus and Gillian on trust for such of the employees and former employees of my company, Irish Sea Transport Limited, and their kin, and in such shares, as the trustees shall in their discretion decide”;

(iii) “the residue of my estate I leave to my daughter Christine absolutely, knowing that she will use it to benefit my three grandchildren at her death. I trust her completely in this.”

Advise the executors as to the validity of these dispositions. *Assume for the purposes of your answer that the choral group using the title ‘Glarryford Glee Club’ is not established for charitable purposes.

(i) The first disposition that must be considered is that of “£7,500 to further the purposes of Glarryford Glee Club and to secure its future”. Tom’s gift of the £7,500 is worded not as a direct gift to the Glarryford Glee Club, but is worded so as to further the purposes of it. The problem that is immediately encountered with this is that an express trust cannot be created for purposes unless it is a gift for purposes of a charitable organisation. However as it is outlined the Glarryford Glee Club is not ‘established for charitable purposes’ the only way in which it can be interpreted is as an unincorporated association.

The problematic aspect of unincorporated associations is that in law they are not legal persons and subsequently cannot hold property. Unincorporated associations conflict with the beneficiary principle which holds that a trust is only valid if at least one person is a beneficiary. In Morice v Bishop of Durham (1804) [1] it was held that that ‘every trust must have a definitive object’. The ‘definitive object’ referred to is a beneficiary, so for a trust to be valid there must be someone who will benefit from the trust. Therefore Morice was void as ‘benevolence and liberality’ was not considered as a sufficient beneficiary object. Turning to our question, it must then be examined whether the Glarryford Glee Club is “somebody in whose favour the court can decree performance” [2] . The beneficiary principle must be complied with in order for Tom’s disposition to create a valid trust as if it is not the courts will strike it down as a non-charitable purpose trust [3] .

At this point it is necessary to attend to the ways in which the beneficiary principle can be circumvented, in particular what are known as anomalous exceptions. These are cases which were upheld even though they clearly support a private purpose trust and consist of trusts for the maintenance of graves [4] or for the promotion of foxhunting [5] . Gary Watt expresses the courts judicial reluctance to extend these exceptions as many difficulties can arise [6] . Watt outlines the problematic aspects that can be attached to anomalous cases such as being prone to offend the rule against perpetuities [7] or encountering problems if the trust needed to be enforced in court [8] . Harman L.J begrudges such exception in Re Endacott as, “troublesome, anomalous and aberrant cases” [9] . As Tom’s disposition cannot be construed in this manner, we must look to the approaches to validating an express trust by avoiding the beneficiary problem in relation to unincorporated association.

First we will consider the unique method applied in Re Denley’s Trust Deed (1969) [10] and Re Lipinski’s Will Trusts [1976] [11] in which a trust for purposes was construed as a trust for the benefit of individuals. In the former the facts of the case concerned a trust to provide a recreational ground for the benefit of employees of a company. This was held as a valid trust because the employees’ were viewed as a class of beneficiaries with sufficient standing to enforce the trust, in other words ‘somebody in whose favour the court can decree performance’ and so it could not be looked upon as a pure purpose trust. The latter case, Re Lipinski’s Will Trusts, also highlighted the effectiveness of interpreting a trust for the benefit of individuals as members of a ‘Hull Judeans (Maccabi) Association’ was construed as an ascertainable group of beneficiaries.

However as Re Denley and Re Lipinski are exceptional cases, they would not be applicable in relation to Tom’s disposition as it would be inconsistent with his intention to ‘further the purposes of the Glarryford Glee Club and to secure its future’. To read this in a manner which would be for the benefit of individuals would be incorrect and subsequently this solution can not be entertained.

Another way in which we could attempt to provide a solution to Tom’s gift of £7,500 would be to construe it as a trust for present and future members. Although this potential solution would satisfy the beneficiary principle, there is the possibility that it would conflict with the rule against perpetuities. The capital may exist for a period exceeding the perpetuity period and therefore would not be allowed. Here the cases of Leahy v Attorney General for New South Wales [12] and Re Macaulay’s Estate [13] must be addressed.

In must be highlighted that in Leahy, ‘Williams and Webb JJ’ were of the view that the words ‘given to them for the benefit of the community’ was not construed as an ‘attempt to create perpetual endowment’ [14] . So taking into account the exact wording of Tom’s disposition, namely the implementation of the words ‘purposes’ and ‘to secure its future’ is where difficulty is encountered. The trust would potentially fail here either for failure to satisfy the beneficiary principle or on the grounds that the rule against perpetuities would be at risk of being violated. The authority for this is Re Macaulay’s Estate and is demonstrated by Lord Buckmaster’s words, “If the gift is to be for the endowment of the society to be held as an endowment and the society is according to its form perpetual, the gift is bad: but, if the gift is an immediate beneficial legacy, it is good” [15] . Tom’s disposition could not therefore be taken as an immediate gift as it intended to secure the society’s future and would consequently fail.

As it seems that Tom’s gift of £7,500 cannot be taken as a trust by any of the means examined above, we must then turn to the alternative measure of accepting it as a gift to members of an unincorporated association. To approach it in this manner, two possible solutions must be identified. The first would be to construe it as a gift to present members who are entitled as co-owners to a particular share and the second would be to construe the gift as a gift to members subject to contractual terms, also known as the ‘contract holding theory’. Regarding interpreting the £7,500 as a gift to present members of the association [16] , the beneficiary principle would be satisfied but the main disadvantage is portrayed by the fact that members may seek their share of the assets. This in turn may not be suitable for Tom’s gift of £7,500 as his intentions are clearly for the benefit of the club, not for the individual members.

Subsequently the contract holding [17] theory must be examined in order to determine if it would be a valid means of dealing with Tom’s disposition. In Re Recher’s Will Trusts [18] it states, “the rights and liabilities of the members of the association will inevitably depend on some form of contract inter se, usually evidenced by a set of rules”. If this approach is applied in accordance with Tom’s disposition there is a possibility of achieving a valid gift to the Glarryford Glee Club as an unincorporated association. By taking this route, not only is the problematic aspect of the beneficiary principle circumvented but Tom’s intentions would most importantly be carried out as the contractual rights that the members would adhere to would be that of Glarryford Glee Club’s rules. Therefore this could be viewed as a valid interpretation by reading Tom’s disposition by disregarding the words ‘for the purposes of the Glarryford Glee Club’ and ‘treating the gift as an absolute gift to individuals’ subject to those rules and regulations of the club. By reading the gift in this light the validity will be sustained, an approach highlighted in the case Re Grant’s Will Trusts. [19]

When considering any disposition it is paramount to interpret it in such way that most effectively fulfils the testator’s intention and to ensure that the true intention is not exposed to any injustices that could alter the original meaning. Paul Matthews states that there can be problems by interpreting a gift subject to contractual rights. The ‘difference is a matter of construction of the rules themselves and has nothing to do with the donor’s intention [20] ’. Matthews underlines the fact that if the rules of the unincorporated association catch the gift, it will fall under the contract holding theory but if they do not they will fall under a gift to the current members of the association. What is apparent here is the inconsistent nature of using this approach and that ultimately the gift is dependant on the rules of the association and not the intention of the testator. Therefore by applying this solution to Tom’s disposition there is a possibility of it becoming vulnerable to such dangers and as a result not reflecting his original intentions. Although this is a possibility, interpreting Tom’s gift as a gift to members subject to contractual terms would still appear to be the most appropriate way in which to interpret the gift.

(ii) It is now necessary to provide advice on Tom’s second disposition which states “£250,000 to Fergus and Gillian on trust for such of the employees and former employees of my company, Irish Sea Transport Limited, and their kin, and in such shares, as the trustees in their discretion shall decide.”

In order to determine the validity of this disposition we must apply the test for the three certainties. This is applied so as to distinguish if in fact a trust exists, what the terms of the trust are and whether or not the trust can be enforced by the courts. The criteria for which was laid out in Knight v Knight (1840) [21] . First is certainty of intention which is clearly satisfied as the disposition states ‘on trust for’. This is sufficient wording to establish certainty of intention, authority for which is Re Hamilton [22] . Secondly is the certainty of subject matter, which is in this circumstance is the sum of £250,000 and therefore is perfectly straight forward. Having satisfied the first two certainties which are necessary to create a trust we must turn our attention to the third, certainty of objects.

The test for the certainty of objects was outlined in IRC v Broadway Cottages Trust [1955] [23] as the ‘complete list test’ which held that for a trust to be valid every member of the class must be ascertained, applying to both fixed and discretionary trusts. However it appeared that such a test was incapable of providing the flexibility that was needed for discretionary trusts and an alternative approach was laid out in McPhail v Doulton [1971] [24] . The reason that the complete list test was used for determining the validity of all trusts was so that the court could enforce the trust in the event that the trustees failed to do so and this could only be effectively carried out if all beneficiaries could be ascertained. The problem had never actually occurred however and a solution was provided by Lord Wilberforce’s statement in Re Baden’s Deed Trusts (No.2), “a trust should be upheld if there is sufficient practical certainty in its definition…if necessary with the administrative assistance of the court” [25] .

Subsequently the new test for discretionary trusts was known as the class test, the same assessment that was used in determining the certainty of a power of appointment. The difference between powers and trusts is that in a power of appointment trustees are under a fiduciary duty but will most likely not be compelled to carry out that duty. On the other hand a trustee in trust will most certainly be compelled by the courts to carry out their duty [26] . In relation to Tom’s disposition it would appear to be suitable to interpret it as a discretionary trust and consequently apply the class list test which states, ‘a trust is valid if it can be said with certainty that any individual is or is not a member of the class’ [27] . We must then look to the trustees, Fergus and Gillian and the beneficiaries, ‘the employees and former employees of Irish Sea Transport Limited, and their kin’.

When applying this approach, it must be recognised that there was much controversy surrounding the ‘class list’ when establishing the certainty of objects as differing views were held in Re Baden’s Deed Trusts (No.2). The source of this uncertainty rests with the ‘is not’ factor of the class list test as it can be extremely difficult to prove that a person ‘is not’ a member of a class [28] . What must be proved however is the issue of conceptual certainty. This is an essential factor which must be present for a discretionary trust to be held to be valid. So it must be conceptually certain to be able to decide if someone is an employee or a former employee of Irish Sea Transport Limited. On the face of it this task may appear relatively easy as it would seem quite plausible to determine if someone worked for, or had worked for Irish Sea Transport Limited. Therefore to interpret the disposition in light of the fact that someone is or is not an employee or a former employee would therefore not be seem impossible nor unreasonable to do so.

However the use of the words ‘and their kin’, could potentially pose complications. On one hand, the view is taken in Re Baden Deed Trusts (No.2) that ‘the use of the expression ‘relatives’ cannot cause the slightest difficulty’ [29] . Furthermore Megaw L.J. took a similar approach which accepted that in order to ascertain ‘relatives’ as beneficiaries, “the most you could do…would be to find individuals who are clearly members of the class” [30] . However this approach was rejected by Stamp L.J who took much more of a literal stance, resorting back to the complete list test [31] . Similarly in Re Barlow’s Will Trusts the House of Lords also applied a strict interpretation stating “‘relations’ was held to mean everyone related by blood to the testatrix”. Therefore following the reasoning in Re Barlow’s Will Trusts it could be held that by referring to ‘kin’ and not to ‘next of kin’, Tom’s disposition is highlighting that beneficiaries must be employees, former employees or be related to those employees by blood.

Having established that the class of beneficiary persons is conceptually certain it is necessary to take into account the important matter of evidential difficulties. These could arise, for example, if the records of employees of Irish Sea Transport Limited was lost, damaged or destroyed. Although this can constitute problems in determining whether a person is in fact a legal beneficiary, on their own, evidential difficulties are not fatal. In addition, the concept of administrative workability would have to be examined in accordance with Tom’s disposition. The general principle was outlined in R v District Auditor, ex p West Yorkshire Metropolitan County Council where a trust was void because of the fact that the class of potential beneficiaries would have been ‘so wide as to be ascertainable in practical terms’, in this particular case the class was as large as 2.5 million [32] . Assuming that the number of employees or former employees in Irish Sea Transport Limited would not be administratively unworkable, it would be reasonable to say the Tom’s disposition would be valid in terms of practicality.

It is important to anticipate the outcome of Tom’s disposition if the trust would fail for any number of reasons under lack of certainty objects. It then would be a matter of an automatic resulting trust [33] where the benefit will go back to the person originally trying to set up the trust, in this case, Tom. However as we are told Tom died earlier in the year and it is a will situation, the subject matter goes back into the residue of estate. The person who gets the residue is named in the will and in this particular case the residue of estate will go to Christine as she is named in the third disposition.

However considering that the issues of conceptual certainty and evidential and administrative difficulties appear to be satisfied, along with the class list test and in accordance with the common law, Tom’s disposition should be held as a valid discretionary trust in which Fergus and Gillian would hold the subject matter of £250,000 on trust for those beneficiaries who fall into the class list test.

(iii) Finally Tom’s third disposition must be advised upon, “the residue of my estate I leave to my daughter Christine absolutely, knowing that she will use it to benefit my three grandchildren at her death. I trust her completely in this.”

In order to determine whether Tom intended to create a trust or an outright gift the test for three certainties must be effectively carried out. First concerns the subject matter which is once again relatively straight forward. We are told that the subject matter is the residue of Tom’s estate. The residue of estate is the property left when the appropriate debts are taken away. The person who then receives the residue of the estate is usually named in the will and in this case is Christine. In relation to the test for certainty of objects we must look to the ‘three grandchildren at death’. The test here will be easily satisfied as all the beneficiaries can be ascertained. It must be taken into account that there may be more than three grandchildren and if this is the case the trust could fail for lack of certainty of objects. However as we are not told of any other grandchildren, we can assume for the purpose of the question that certainty of objects is satisfied.

The test is then for certainty of intention which the question is ultimately concerned with. The basic rule for certainty of intention is depicted in Re Hamilton, and highlights that what creates a valid express trust is thorough the construction of the testator’s true intention, “we must not…rely upon the mere use of any particular words, but, considering all the words which are used, we have to see what is their true effect” [34] . Therefore there is no longer emphasis placed on precatory words of the will and was brought about by the case Lambe v Eames (1871) [35] . Here the testator gave his estate ‘to be at her disposal in any way she thinks best for the benefit of herself and her family’. The essential word in this disposition is ‘family’ as it was argued that ‘family’ did not include ‘illegitimate’ children. It was held that the word family did not create a trust and subsequently emphasis would not be placed on the precatory words.

In Tom’s disposition such precatory words would be ‘absolutely’ or ‘I trust her completely in this’. However as these words do not automatically create a trust, we can construe Tom’s intention best by considering Cotton LJ’s words in Re Adams & Kensington Vestry [36] . It is stressed here that focus must be placed ‘upon the true construction…rather than to lay hold of certain words’. Subsequently it can it be said that Tom’s disposition does not create a private express trust intended for the grandchildren but rather places a moral obligation on Christine. As Christine does not have to fulfill this moral obligation, it can therefore be said that the residue of estate would be treated as an outright gift. Christine would be both legally and beneficially entitled to it to the residue of estate.

Bibliography:

E.H. Burn and G. J. Virgo, Maudsley and Burn’s Trusts and Trustees: Cases & Materials (7th ed., 2008), Oxford University Press, ISBN 978-0-19-921904-9 p. 89, 91-101, 361, 381-387, 392-394

G. Watt, Trusts and Equity (3rd ed., OUP, 2008, ISBN 978-0-19-923026-6) p.98, 101-105

Matthews, Paul., ‘A problem in the construction of gifts to unincorporated associations’ [1995] Conveyencer 302

Pawlowski, Mark., and Summers, Jo., ‘Private purpose trusts – a reform proposal’ [2007] Conveyancer and Property Lawyer 440