Equity and trust Essay Example | Topics and Well Written Essays - 2750 words

Equity and trust - Essay Example A discretionary trust is a kind of trust, and it can prevail only if a trustee has the core Trust obligation1. For instance , if a settlor creates a trust for the benefit of John Smith with a trust fund of say ? 10,00,000 by appointing Abraham Lincoln as its trustee and to pay any unspent money in that trust to John Smith after 20 years . He also stipulates that within the 20 year, Abraham Lincoln can spend all or any of the trust fund and its income to all or any of the Settlor’s kids or grand kids. The above fall under discretionary trust as John Smith has the authority to decide how to distribute the trust funds for the advantage of the Settlor’s kids or to Abraham Lincoln himself. A fixed trust is one where the trustee may not have any power to select how to divide the trust funds other than the specified beneficiaries2. ... of beneficiaries for whom the trust is meant for and is also known as â€Å" given postulant â€Å" check.4 In IRC v Broadway Cottage Trust5, it was held that so as to fulfil the test of certainty of objects, a whole record of the donees should be recognised failing which the trust would be declared as void or the test is continued to be applicable, particularly for a fixed trust6. In McPhail v Doulton7 , Bertram Baden, as a settlor vested some assets to trustees to divide the income in their complete authority, to employees both present and past of Mathew Hall & Co Ltd or their dependants or relatives. The main issue was whether trust fulfilled the litmus test for certainty of objects and whether it is just a power or a trust8. McPhail case is relating to a discretionary trust where trustees have a crucial obligation to use their discretion to offer benefits to beneficiaries which has been assigned by the settlor to the trustees, and it is not â€Å"just power† given to the trustees by a settlor. Further, the main objective of the discretionary trust is to safeguard both the income and the capital of the fund and as a result, the beneficiaries derive benefits from the outcome of the Settlor’s profligacy. Moreover, discretionary trust is being mainly planned as a tax-avoidance method by making the rights of the beneficiaries under the discretionary trust as vague as those rights are designed more arduous to tax9. In Re Gestetner Settlement10 case, a trust was established for the members of a â€Å"specific class â€Å"as the trustees may choose the beneficiaries as they deem fit from that specified class. IRS argued that the trust was void due to uncertainty, and it was held that under discretionary trust, the trustees have such authority to decide or identify the