Examination Timing: 00H01M00S
Emily establishes a trust to provide an income for the widows of firefighters killed in the line of duty. The trustees are unable to produce a definitive list of the beneficiaries and ask you for advice on how to apply the trust funds. Which of the following statements best describes the position?
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Your selected option: D
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The correct answer is D. Emily has created a discretionary trust as the trustees have discretion over how to apply the trust funds. While they cannot compile a definitive list of beneficiaries, they should apply the "any given postulant" test to determine whether any specific individual claiming from the trust fits the criteria. The terms of the trust are sufficiently certain to define the class of beneficiaries with enough clarity.
Key Point: A discretionary trust allows trustees to use their judgment in deciding how to distribute trust income or capital among the beneficiaries. The "any given postulant" test is used to determine whether an individual can be considered a potential beneficiary.
Collect Question
is it correct that the discretionary trust does not need to have certianty in subject matter, namely the interest of each beneficiary
Absolutely, I'd be happy to clarify that for you.
In a discretionary trust, while the trustees have discretion over how to distribute the trust income or capital among the beneficiaries, there still must be certainty in the subject matter of the trust. Certainty in subject matter refers to the trust property itself and what constitutes the trust fund. This means that the assets and funds that form the trust must be clearly defined and identifiable to ensure that the trust operates effectively.
The interest of each beneficiary, however, in a discretionary trust does not need the same level of certainty as in a fixed trust. In a discretionary trust, beneficiaries do not have a fixed entitlement to the trust's income or capital. Instead, they have a potential claim that depends on the trustees' discretion. The trustees must be able to identify whether any given individual is a potential beneficiary (using the 'any given postulant' test), but they do not need to assign or determine specific entitlements for each beneficiary in advance.
So, while the trust property must be certain, the exact interest of each beneficiary does not need to be. The key is that the class of beneficiaries is defined with enough clarity, even if each individual's interest is determined later by the trustees' discretion.
I hope this helps clarify your understanding! Keep up the great work, and don't hesitate to ask if you have more questions.