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THE DUTIES OF TRUSTEES OF DISCRETIONARY TRUSTS
- The most important duty of a trustee of discretionary trust is to perform the terms of the trust and distribute the fund amongst prospective beneficiaries.
- These trusts have the advantage of flexibility as the trust only defines a possible class of beneficiaries. It is the trustee responsibility to decide who is to benefit and on what terms. The trustees can select one or more of the possible beneficiaries. This decision may be delayed for years.
- Until the trustee selects a beneficiary, the individual may only have a hope that he will be chosen. Therefore it is the trustees’ duty to conduct a survey of the range of the potential beneficiaries. The trustee must take into account each member of the small class separately before allocating the funds.
- However, if the class is large, then this is not possible and the trustees have less difficult duty to perform. They must take into consideration the size of the fund and the number of potential beneficiaries.
- In McPhail v Doulton [1971] AC 424 Lord Wilberforce stated that trustees must ‘make such a survey of the range of objects or possible beneficiaries as will enable them to carry out their fiduciary duty.’
- The trustees are not allowed to distribute the trust fund to individuals outside the class of beneficiaries. Failure to do so by the beneficiaries will result in breach of trust and the court will hold such allocation void.