Trusts and Power

Introduction

Distinction Between a Power and a Trust

Power

A power is an authorisation to do certain things which affect property to which the appointor is not
solely entitled and in which he may have no beneficial interest at all.

A person may hold a power in a personal or an official capacity and the distinction of such lies whether
he has fiduciary obligations.

Trustees have by statute power of investment , sale and so on. They may also be given other powers by
the terms of the trust instrument, such as power of appointment which enables those holding the power
to effect the disposal of the settlor’s property by ‘appointing’ it to other people.

Power may be granted by express grant or by a statute.

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Power
• Bare power (personal power)

Fiduciary power

“A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in
circumstances which give rise to a relationship of trust and confidence.” —  Bristol & West Building Society v
Mothew [1998] Ch 1 at 18 per Millet LJ

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Trust

A trust is imperative and a power is discretionary. The diving line is not clear
all the times.
The importance of the distinction between trust and power lies in the extent of
the obligations imposed on a trustee as compared with the donee of a power.
Take note of the words of Lord Upjohn in Re Gulbenkian’s Settlement Trusts
[1970] AC 508

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Difference Between Power and Trust
• Trust = imperative
• Power =discretionary

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Power of Appointment
• General power of appointment
He does not place any restricts or conditions on the donee’s exercise of power.
Donee can appoint to power to anyone, including himself. A general power
may be regarded as tantamount to absolute ownership.
Example: ‘I leave my house to Paul to give to any one that he chooses’

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Power of Appointment
• Special powers of appointment
Specifies certain individuals or groups as the objects of the power or
conditions to exercise of the power on certain factors. The power is special
even though the appointor is himself a member of the restricted group.
Example: ‘I leave my property to Ben to appoint to anyone of my sister that he
chooses’
Both general and special power can be exercised testamentary or inter vivos.

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Power of Appointment
• Hybrid power of appointment
These are powers under which the donee may appoint to anyone except a
certain class or certain description of person.
Example: ‘$50,000 to X to whomsoever he shall appoint except my brothers
and sisters and their decendants’
Hybrid power is restricted by exclusion.

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Power of Appointment
When a power of appointment is given to a trustee under the terms of a trust
instrument two issues may arises:
1. Whether what appears to be a power also involves a trust, ie a power in the
nature of a trust.
2. What criteria the trustee should apply in deciding who are the objects of the
power in whose favour it may be exercised, ie certainity of objects.

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Power of Appointment
• Duties of Donee of Power – Rights of objects
Re Hay’s S.T. [1982] 1 W.L.R. 202
This must be contrasted with fiduciary power held by a trustee by virtue of his
office, which in turn must be distinguished from the obligation of a trustee of
a discretionary trust.

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• Exercise of Powers of appointment
No technical words are required for the exercise of a power. Intention on the
part of the donee that the funds shall pass to some one who is an object of the
power.

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• Excessive execution
The donee has only the power which is given to him by the instrument. Thus
he may not exercise it in favour of non-objects.
Re Hay’s S.T. [1982] 1 W.L.R. 202

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• Defective execution
Failure to comply the instrument will usually render the exercise void but
equity and statute may validate certain cases of defective execution.
In equity, will act upon the conscience of those entitled in default to compel
them to make good the defect in the execution.
By statute, if appointment by will, comply with the formalities under the Wills
Acts.

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• Contract to exercise
A valid contract to exercise a general power, if capable of specific
performance, operates as a valid exercise of the power in equity.
There can never be specific performance of a contract to exercise a
testamentary power. Re Parkin [1892] 3 Ch. 510

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• Release of powers
Person may effect a release of a power, in appropriate circumstances, by
executing a deed of release, or by a contract not to exercise the power.
Re Mills [1930] 1 Ch 654

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Trust power
A combination of a duty (a trust) and a power.
A discretionary trust is often called a trust power since it combines a duty to
distribute with a power of selection.
The term trust power can also be used to mean a fiduciary power, since this
too combines a power and a trust obligation ie a power to distribute and a duty
to consider exercising it.
McPhail v Doulton [1971] AC424

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