Types of Trusts

Introduction

Trusts are not a one-size-fits-all concept. They come in a range of forms, each with its own features and purposes. This chapter introduces the **two principal categories of express private trust** examined in SQE1 FLK1: the **fixed (interest) trust** and the **discretionary trust**. In a **fixed trust** the beneficiaries' interests are determined by the settlor and fixed in the trust instrument — the trustee has **no discretion** over who benefits or by how much. In a **discretionary trust** the trustees are given a **discretion** to decide which members of a class of objects benefit, when, and to what extent. The distinction matters because the two attract **different certainty of objects tests**, give beneficiaries **different proprietary rights**, and serve different practical purposes.

Assessment focus

For SQE1 FLK1 you must be able to **classify a trust** from a client scenario and apply the correct **certainty of objects test**. A **fixed trust** requires the **complete list (class ascertainability) test** — the trustees must be able to draw up a complete list of every beneficiary (**IRC v Broadway Cottages Trust [1955]**). A **discretionary trust** requires only the **'is or is not' (given postulant) test** — it must be possible to say with certainty whether any given individual is or is not a member of the class (**McPhail v Doulton [1971]**). Questions are single best answer questions (SBAQs) set in **realistic client-based scenarios**; you will be expected to **apply** these tests and to advise on the **trustees' duties** (to survey the class, act impartially, avoid conflicts) rather than merely recall definitions. This is a closed-book assessment.

Study tips

1) Do **not** treat 'fixed trust' and 'express trust' as synonyms — a fixed trust is one **type** of express trust; a discretionary trust is also an express trust. 2) Match the **test to the trust**: **complete list test** for fixed trusts (Broadway Cottages); **'is or is not' test** for discretionary trusts (McPhail v Doulton). 3) Remember that in a **fixed trust** each beneficiary has a **fixed equitable proprietary interest** and (if of full age, sound mind and absolutely entitled) Saunders v Vautier rights; in a **discretionary trust** an object has only a **right to be considered** until an appointment is made. 4) A trust can be **partly fixed and partly discretionary** — a fixed gift plus a discretionary 'top-up' makes the whole arrangement discretionary as to that part. 5) Learn the **trustees' core duties** in a discretionary trust: survey the range of objects, exercise the discretion (or actively decide not to), act impartially, avoid conflicts, and apply the **standard investment criteria** (Trustee Act 2000).