Re Baden's Deed Trusts (No 1) [1970]
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Re Baden's Deed Trusts (No 1) [1970] AC 424, also referred to as McPhail v Doulton [1970], is a landmark case that introduced the "is or is not" test, a criterion for conceptual certainty of objects in discretionary trusts. The case addressed key distinctions between various forms of uncertainty related to objects, including conceptual uncertainty, ascertainability, and administrative unworkability.
The settlor established a fund for the benefit of employees of his company, along with their relatives and dependents. The trustees were granted discretion, with the directive to apply the net income of the fund as they saw fit.
The House of Lords determined that the deed constituted a discretionary trust rather than a power. Lord Wilberforce, in delivering the judgment, emphasised the abandonment of the previous IRC v Broadway Cottages [1955] principle. The "is or is not" test was established as the benchmark for the certainty of objects in discretionary trusts.
The decision marked a departure from the principle that a trust could only be valid if it could be executed by the court through equal distribution among beneficiaries. The validity of discretionary trusts is now assessed through the "is or is not" test. The crucial question is whether it can be determined if any individual is inside or outside the class of beneficiaries.
Lord Wilberforce rejected the notion that equal division among beneficiaries is inherently required for trust validity. He emphasised that equal division might not align with the settlor's intentions, especially in cases involving a limited class. While the "is or is not" test is applied to both powers and discretionary trusts, Lord Wilberforce clarified that this does not equate powers with discretionary trusts. The application of the same test does not imply assimilation; each has distinct characteristics.
Three types of uncertainty were identified. Conceptual certainty involves linguistic and semantic clarity; unresolved conceptual uncertainty renders the gift void. Ascertainability pertains to uncertainty regarding the existence or whereabouts of members of the class, which the court can resolve. As for administrative workability, the definition of beneficiaries must not be so wide as to render the trust administratively unworkable or impossible for execution.
Re Baden's Deed Trusts (No 1) stands as a pivotal case in trust law, setting a new standard for the certainty of objects in discretionary trusts. The introduction of the "is or is not" test reflects a shift toward a more flexible and pragmatic approach, aligning with the settlor's intentions and emphasising the court's role in ensuring the enforceability of trusts.
The settlor established a fund for the benefit of employees of his company, along with their relatives and dependents. The trustees were granted discretion, with the directive to apply the net income of the fund as they saw fit.
The House of Lords determined that the deed constituted a discretionary trust rather than a power. Lord Wilberforce, in delivering the judgment, emphasised the abandonment of the previous IRC v Broadway Cottages [1955] principle. The "is or is not" test was established as the benchmark for the certainty of objects in discretionary trusts.
The decision marked a departure from the principle that a trust could only be valid if it could be executed by the court through equal distribution among beneficiaries. The validity of discretionary trusts is now assessed through the "is or is not" test. The crucial question is whether it can be determined if any individual is inside or outside the class of beneficiaries.
Lord Wilberforce rejected the notion that equal division among beneficiaries is inherently required for trust validity. He emphasised that equal division might not align with the settlor's intentions, especially in cases involving a limited class. While the "is or is not" test is applied to both powers and discretionary trusts, Lord Wilberforce clarified that this does not equate powers with discretionary trusts. The application of the same test does not imply assimilation; each has distinct characteristics.
Three types of uncertainty were identified. Conceptual certainty involves linguistic and semantic clarity; unresolved conceptual uncertainty renders the gift void. Ascertainability pertains to uncertainty regarding the existence or whereabouts of members of the class, which the court can resolve. As for administrative workability, the definition of beneficiaries must not be so wide as to render the trust administratively unworkable or impossible for execution.
Re Baden's Deed Trusts (No 1) stands as a pivotal case in trust law, setting a new standard for the certainty of objects in discretionary trusts. The introduction of the "is or is not" test reflects a shift toward a more flexible and pragmatic approach, aligning with the settlor's intentions and emphasising the court's role in ensuring the enforceability of trusts.
