Trustees' powers and the beneficiary principle

This week joins two themes which are often taught separately but are examined together: the powers conferred on trustees, and the beneficiary principle which makes those powers legally intelligible. English trusts law gives trustees formidable authority over property which is not beneficially theirs. They may invest, sell, lease, delegate, insure, advance capital, apply income, appoint property among objects, and, in appropriate cases, participate in the variation or reorganisation of the trust. Yet those powers are not private liberties. They are fiduciary powers held for the purposes of the trust and, ultimately, under the supervision of the court.

The beneficiary principle states, in its classical form, that a non-charitable trust must have ascertainable beneficiaries in whose favour the court can decree performance. Its most familiar authority is Morice v Bishop of Durham. The principle is not merely a rule about drafting. It expresses the institutional structure of the trust: trustees hold title; beneficiaries have standing; the court enforces. Charitable trusts are exceptional because the Attorney General enforces them on behalf of the public. The anomalous group of non-charitable purpose trusts, considered in Week 9, survives only at the margins.

The principal Cambridge difficulty is to avoid treating trustees’ powers as a miscellaneous list. Powers must be classified. Some are dispositive, such as powers of appointment, advancement, and maintenance. Some are administrative, such as powers of investment and sale. Some are fiduciary powers, held in an office and reviewable for proper exercise. Some may be personal powers, though this is uncommon in modern trust instruments. A trust power, as in a discretionary trust, imposes a duty to distribute or to consider distribution; a mere power permits but does not oblige appointment, though a fiduciary donee of a mere power must still consider periodically whether to exercise it.

The beneficiary principle then performs three functions. First, it supplies enforceability: a trust without a claimant or public enforcer is no trust. Secondly, it disciplines uncertainty: the court must know enough about the objects to control the trustees. Thirdly, it explains why beneficiaries, if all absolutely entitled and sui juris, may terminate the trust under Saunders v Vautier. Trustees’ powers exist within, not above, beneficial ownership. The best exam answers show how powers, duties, discretions, disclosure, variation, and termination are different manifestations of this single architecture of accountability.

The beneficiary principle grew out of Chancery’s supervisory jurisdiction over uses and trusts. The common law recognised legal title; Chancery compelled the conscience of the legal owner to act for another. That jurisdiction presupposed a person capable of calling the legal owner to account. It was therefore natural that private trusts were conceived as obligations owed to beneficiaries rather than as free-standing purposes attached to property. The trust was not simply a fund devoted to an object; it was a relationship of accountable stewardship.

In the early nineteenth century, Morice v Bishop of Durham articulated the point with unusual clarity. A bequest to be applied to such objects of benevolence and liberality as the Bishop of Durham should approve failed, not because benevolence was an unattractive motive, but because the objects were too indefinite and no non-charitable beneficiary could compel due administration. The language of that case remains central. The court must be able to control the trustees; control requires someone in whose favour performance can be decreed, unless the trust is charitable.

During the same period, trust instruments became increasingly elaborate. Family settlements separated legal management from enjoyment across generations. Trustees needed powers to sell, invest, renew leases, insure, maintain infants, and advance capital. At first many powers depended on express drafting. Statute gradually supplied default powers, most notably in the Trustee Act 1925 and, for investment, the Trustee Act 2000. The modern trustee is not a passive custodian but a manager of wealth, expected to exercise judgement in changing economic conditions.

This expansion of powers created a doctrinal pressure. If trustees have broad discretions, how can beneficiaries enforce the trust? Equity’s answer was to distinguish discretion from immunity. A trustee may be given a wide discretion, even an absolute or uncontrolled discretion, but the discretion remains fiduciary unless the instrument plainly provides otherwise. The court will not substitute its own view for that of trustees acting within power, for proper purposes, and after adequate consideration; but it will intervene where trustees act dishonestly, capriciously, for an improper purpose, under a misconception, without considering relevant matters, or in breach of fiduciary duty.

The twentieth century added two further developments. The first was the rise of discretionary trusts. These displaced fixed family settlements in many contexts because they allowed fiscal and family flexibility. McPhail v Doulton assimilated the test for certainty of objects in discretionary trusts to that for fiduciary powers: it is enough that it can be said of any given person whether he is or is not within the class. The second was the modern law of disclosure and supervision. In Schmidt v Rosewood Trust Ltd the Privy Council rejected a rigid proprietary entitlement to documents and located disclosure in the court’s inherent jurisdiction to supervise trusts. That approach fits the historical structure: beneficiaries matter not only because they own equitable interests, but because they are the persons through whom the court controls the office of trustee.

The beneficiary principle is therefore not an antique technicality. It is the reason why trustees’ powers can be broad without becoming autocratic. Cambridge questions commonly exploit this tension: generous powers of appointment, opaque letters of wishes, protector consent clauses, excluded beneficiaries, and non-charitable purposes all test whether the trust remains enforceable by or on behalf of persons.

1. A trust must be enforceable. The orthodox beneficiary principle is that a private express trust must be for ascertainable persons, not merely for abstract purposes. The reason is remedial and institutional: the court must be able to compel proper administration. Charitable trusts are exceptional because enforcement is supplied through the Attorney General and the Charity Commission. Non-charitable purpose trusts generally fail unless they fall within narrow anomalous categories, such as tombs, monuments, or particular animals, and even these are best treated as concessions rather than as a coherent rival principle.

1. Trustees’ powers are conferred for the purposes of the trust. A power may be wide, but it is not a personal entitlement to prefer the trustee’s own wishes. The power must be exercised honestly, in good faith, for proper purposes, upon adequate deliberation, and without conflicts or unauthorised profits. This connects Week 10 to the present topic. Duties of loyalty, care, and investment do not disappear when the instrument says that trustees have an absolute discretion. Such words enlarge the permissible range of judgement; they do not exclude fiduciary accountability.

1. Distinguish powers, duties, and discretions. A fixed trust imposes a duty to distribute to identified beneficiaries in defined shares. A discretionary trust, sometimes called a trust power, imposes a duty to select from among a class: trustees must survey the range of objects and distribute, though the shares and recipients are discretionary. A mere power permits appointment but does not compel it. If the donee of a mere power is a trustee, the power is fiduciary: the trustee must consider from time to time whether to exercise it, must understand its scope, and must not exercise it improperly. Re Hay’s Settlement Trusts is the usual starting point for that distinction.

The cases form a coherent sequence. Morice v Bishop of Durham gives the classical beneficiary principle: a non-charitable private trust must have someone capable of enforcing it. The language is sometimes criticised as circular, but the practical point is compelling. Chancery cannot supervise an obligation unless there is either a beneficiary or a recognised public enforcer.

Re Astor’s Settlement Trusts demonstrates the restrictive effect of that principle. Trusts for broad non-charitable purposes, such as the maintenance of good relations between nations or the preservation of newspaper independence, failed because there was no beneficiary in the relevant sense and no charitable status. The case is a warning against assuming that morally attractive or socially useful purposes are legally valid trusts.

Re Gulbenkian’s Settlements and McPhail v Doulton concern certainty of objects. Re Gulbenkian held that a power is valid if it can be said of any given person whether he is within the class. McPhail extended that test to discretionary trusts. This was a major doctrinal shift. It acknowledged that trustees administering a discretionary trust need not draw up a complete list of all possible objects; they need to understand the field of selection sufficiently to perform the fiduciary task. Re Baden (No 2) then exposed the difficulty of applying the test, with different members of the Court of Appeal adopting different approaches to relatives and dependants.

Saunders v Vautier expresses the counterweight to trustee power. Where all beneficiaries are adult, capacitated, ascertained, and together absolutely entitled, they may call for the property. The trustee’s legal title and administrative powers cannot defeat complete beneficial ownership. That principle is particularly important in problem questions involving postponed vesting, protective drafting, and accumulations.

Re Hay’s Settlement Trusts is indispensable for classification. Megarry V-C distinguished a fiduciary mere power from a trust power. The donee of a fiduciary mere power need not exercise it, but must consider whether to do so and must do so properly if he acts. The decision prevents a false binary between absolute duty and unreviewable liberty.

Schmidt v Rosewood Trust Ltd modernises disclosure. The Privy Council rejected a rigid proprietary entitlement to documents and placed disclosure within the court’s supervisory jurisdiction. The decision is especially important for discretionary trusts, where objects may have no fixed share but still possess a sufficient interest to seek the court’s assistance.

Finally, Pitt v Holt confines judicial intervention in mistaken exercises of trustee powers. The Supreme Court rejected an overbroad version of the rule in Hastings-Bass. A flawed exercise of power is not set aside merely because trustees would have acted differently had they appreciated the tax consequences. There must be a breach of fiduciary duty or, separately, a mistake of sufficient gravity. The decision restores discipline to the law of trustee decision-making: equity polices fiduciary process, not disappointed outcomes as such.

See practice questions section below.

See further reading section below.