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An “open letter” to the Supreme Court

Leave to appeal aspects of the Court of Appeal decision in Clayton v Clayton was granted on 19 June 2015.  Now that the initial excitement has passed this writer’s mind has turned to what the Supreme Court might decide.  With that in mind I have started to prepare a wee wish list as to the questions that I hope might be answered.

In no particular order:

  1. Is it correct that a power to add and remove discretionary beneficiaries where Final Beneficiaries are defined as members of the class of discretionary beneficiaries and outside the class of discretionary beneficiaries; means that the holder of the power could appoint himself (or herself etc as relevant) the sole beneficiary of the trust? See [36] in the Court of Appeal (CA) decision.  Also see [88].  While it is correct that Mr Clayton has the power to remove Final Beneficiaries from the class of Discretionary Beneficiaries – is it correct that this also permits the removal of the definition of Final Beneficiaries so that for the purposes of the Distribution on the Vesting Day there are no Final Beneficiaries?  See [25] of the CA decision for the full clauses.  Editor’s Note: following the Supreme Court decision in Clayton a power of appointment by itself is not property – but powers collectively can be – so no clear cut answer – definitely a case by case matter.  Although my view is that the Supreme Court is correct that Clayton can largely be limited to its facts – a caution for drafters of trust deeds though.
  2. Is a power of appointment of beneficiaries only relationship property where the holder of the power is also the sole trustee of the trust?  Editor’s Note: following the Supreme Court decision in Clayton a power of appointment by itself is not property – but powers collectively can be – so no clear cut answer – definitely a case by case matter.  Although my view is that the Supreme Court is correct that Clayton can largely be limited to its facts – a caution for drafters of trust deeds though.
  3. Would the answer to 2 change if the holder of the power is not the sole trustee but holds the power to add and remove trustees? Editor’s Note: following the Supreme Court decision in Clayton a power of appointment by itself is not property – but powers collectively can be – so no clear cut answer – definitely a case by case matter.  Although my view is that the Supreme Court is correct that Clayton can largely be limited to its facts – a caution for drafters of trust deeds though.
  4. Is a power of appointment of beneficiaries relationship property (if the trust was settled after the appointor commenced a qualifying relationship) if the source of the trust property was not the appointor? Editor’s Note: following the Supreme Court decision in Clayton a power of appointment by itself is not property – but powers collectively can be – so no clear cut answer – definitely a case by case matter.  Although my view is that the Supreme Court is correct that Clayton can largely be limited to its facts – a caution for drafters of trust deeds though.
  5. Where a power of appointment is property for the purposes of the Property (Relationships) Act 1976 is it correct that the value of that power is the “net value of the assets of the trust”?  [114] of the CA decision. Editor’s Note: following the Supreme Court decision in Clayton apparently less.  Still a bit difficult to assess.  The submission that “that is what someone would pay for the assets” is perhaps a bit simplistic.  The vendor would be buying a fight and there should surely be a discount for that.  It is accepted that all of the assets could be appointed  – but if they had not been is that a good enough answer?  Could the reasoning here not have been a little more elegant?
  6. Will the answer to 5 change if the appointor was in fact the sole discretionary beneficiary? Editor’s Note: following the Supreme Court decision in Clayton it would seem not.
  7. Would answer to 5 stand if the appointor is not the Final Beneficiary? Editor’s Note: following the Supreme Court decision in Clayton it would seem so.
  8. Can a valid trust be found where there is a power to change the Final Beneficiary?  This is not really a Clayton question, I would just really like to know as in the case of a discretionary trust, if there is a power to change the discretionary beneficiaries and the Final Beneficiaries – is there really certainty as to the existence of any beneficiary who can enforce the core obligations owed by trustees.  See [76] CA decision.  Also see [51] where the CA notes that “There were trust objects able to be ascertained, namely the discretionary beneficiaries”.  Given that discretionary beneficiaries only have a mere expectancy (ignoring for this thought the situation where all of the beneficiaries are of age and consent – the rules in Saunders v Vautier) are the ascertainable objects more properly to be considered the final beneficiaries? Editor’s Note: if a tree falls and no-one hears – apparently it just lies there regardless.
  9. Is it correct that Andrew Butler’s texts referred to at fn 39 and 41 do confirm that a person may be both settlor and trustee; and a trustee and beneficiary?  See [46] of the CA decision  Editor’s Note: see above
  10. Is the reasoning in [48] of the CA decision correct when it states “were Mr Clayton to exercise his power of appointment under cl 7.1 of the VRPT and he were to become the sole beneficiary of the trust, there would be no trust” given the questions raised above regarding the ability of not to remove / revoke the definition of Final Beneficiary outside the definition of Discretionary Beneficiaries? Editor’s Note: a tricky one.  The comments from the Supreme Court regarding illusory trusts require some more thought here.  As the matter was not determined it is not clear.  I suggest the answer here is probably not.

References:

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