Beneficiary Principle

Introduction

The beneficiary principle says that a private (non-charitable) trust must have identifiable beneficiaries who can enforce it. If no one has standing to hold the trustees to account, the courts will not uphold the arrangement. In that event, the property will usually return to the settlor on resulting trust.

Charitable trusts are different: they can be for purposes, not people, and are policed by the Attorney General and the Charity Commission. For private trusts, however, the court needs a definite person or class with a real right to performance. The beneficiaries must be named or described with enough clarity to be identified. A label such as “my children” will normally work; “my friends” is usually too vague.

This guide sets out the key tests, the leading cases, and practical ways to draft and administer trusts so they can be enforced.

What You'll Learn

• What the beneficiary principle requires and why enforceability matters
• How to frame a class of beneficiaries: fixed vs discretionary trusts
• The “is-or-is-not” test from McPhail v Doulton and Re Baden (No 2)
• Why most non-charitable purpose trusts fail, and where courts accept narrow workarounds
• How Re Denley-type arrangements and Quistclose trusts fit into the picture
• What beneficiaries can (and cannot) demand from trustees, including access to information
• Drafting and governance tips to avoid invalidity and administrative problems

Core Concepts

Enforceability and standing: who can hold trustees to account

• A private trust needs someone with a correlative right. Trustees owe duties; beneficiaries hold the matching rights to performance (e.g. to proper investment, to distributions as directed, to an honest exercise of discretion).
• If there is no human beneficiary with standing, the trust fails. The property is then held on resulting trust for the settlor (or the settlor’s estate).
• Charitable trusts are a recognised exception: they are enforced by public authorities rather than by named beneficiaries.
• It follows that a valid class description must allow the court to say, of any given person, whether they are in or out. Vague labels are risky. For example, “friends” was treated as too uncertain for trust purposes in Re Barlow’s Will Trusts (although it worked there as a conditional gift mechanism).

Certainty of objects: fixed and discretionary trusts

• Fixed trusts require a complete list. The trustees must be able to draw up a full list of all beneficiaries in order to distribute according to fixed shares or clear instructions.
• Discretionary trusts require the McPhail v Doulton test: can it be said with certainty that any given individual is or is not a member of the class? This “is-or-is-not” test focuses on conceptual clarity rather than a full list.
• Re Baden (No 2) applied McPhail and showed that evidence can help resolve borderline cases even where the class is conceptually clear.
• Administrative workability is a practical limit. A class may be conceptually clear yet so wide that administering the trust is unrealistic. Courts have warned against classes that impose impossible surveying duties on trustees. If the class is too large, consider a fiduciary power instead of a trust obligation.
• Being an object of a discretionary trust does not give a proprietary slice of the fund. In Gartside v IRC, the House of Lords explained that objects may lack a fixed share yet still have rights to proper consideration by the trustees and honest, rational decision-making.

Purpose trusts, narrow workarounds, and related structures

• Pure private purpose trusts (non-charitable) usually fail for want of beneficiaries. Re Astor confirms that broad purposes—such as “good understanding between nations”—are not enforceable in a private trust setting.
• A small group of anomalous “imperfect obligation” cases (e.g. maintenance of specific graves or animals) exists, but in Re Endacott the Court of Appeal refused to extend these beyond past authority.
• Re Denley provides a workable route where a purpose directly or indirectly benefits identifiable people, who can enforce the trust (e.g. a sports ground for employees). Here, the arrangement survives because there are ascertainable individuals with standing, despite the purpose wording.
• Quistclose-type arrangements sit close to purpose trusts. Where money is advanced for a specific purpose (e.g. to pay a dividend), courts often treat it as held on trust for that purpose, with a fallback resulting trust for the lender if the purpose fails. Competing analyses exist, but the commercial point remains: funds are ring-fenced and, if the stated use cannot occur, they revert.

Key Examples or Case Studies

Morice v Bishop of Durham (1805)

• Facts: A trust for “objects of benevolence and liberality”.
• Key point: The class was too uncertain. A private trust needs definite objects so the court can supervise performance.
• Use in practice: Avoid wide terms; identify individuals or a clear class.

Re Astor’s Settlement Trusts [1952] Ch 534

• Facts: Purposes included “maintenance of good understanding” and “preservation of the independence of newspapers”.
• Key point: Non-charitable purpose trusts fail without beneficiaries who can enforce.
• Use in practice: Frame private trusts around people, not abstract aims.

Re Endacott [1960] Ch 232

• Facts: Gift for a “useful memorial” failed as a private purpose trust.
• Key point: The court confirmed there are only narrow, historic exceptions; no new categories.
• Use in practice: Do not rely on expanding the exceptions; reframe as charitable or as a trust benefiting people.

Re Denley’s Trust Deed [1969] 1 Ch 373

• Facts: Trust of land to be used as a sports ground for employees of a company.
• Key point: Valid, because the arrangement conferred a direct benefit on identifiable individuals who could enforce.
• Use in practice: If drafting a purpose-flavoured trust, tie it to a defined group with standing.

McPhail v Doulton [1971] AC 424 and Re Baden’s Deed Trusts (No 2) [1973] Ch 9

• Facts: Discretionary trust with a broad class.
• Key point: Replaced the “complete list” requirement for discretionary trusts with the “is-or-is-not” test. Re Baden (No 2) applied that test and showed how evidence can resolve borderline cases.
• Use in practice: For discretionary classes, focus on conceptual clarity and manageability.

Re Hay’s Settlement Trusts [1982] 1 WLR 202

• Facts: Issues around the breadth of classes and duties in the context of powers.
• Key point: Where classes are very wide, practical administration can be unrealistic; a fiduciary power may be workable where a trust obligation would not be.
• Use in practice: If breadth is needed, consider a power rather than a trust.

Gartside v IRC [1968] AC 553

• Facts: Tax treatment of discretionary objects.
• Key point: Objects of a discretionary trust do not have a fixed share, but they have rights to be considered and to challenge capricious or improper decisions.
• Use in practice: Keep records showing that trustees have considered the right matters and exercised judgment in good faith.

Schmidt v Rosewood Trust Ltd [2003] UKPC 26

• Facts: Beneficiary sought disclosure of trust documents.
• Key point: Access to information rests on the court’s supervisory jurisdiction, not a proprietary right. Disclosure is case-specific and can be limited for confidentiality.
• Use in practice: Adopt a structured approach to requests; consider redaction or summaries.

Barclays Bank v Quistclose Investments Ltd [1970] AC 567 (and later discussion in Twinsectra v Yardley [2002] 2 AC 164)

• Facts: Money advanced for a specific purpose; the borrower became insolvent before applying the funds.
• Key point: Funds earmarked for a defined purpose can be treated as held on trust. If the purpose fails, money reverts to the lender (resulting trust).
• Use in practice: When lending for a single purpose, document it clearly, segregate the funds, and state what happens if the purpose cannot be carried out.

Re Barlow’s Will Trusts [1979] 1 WLR 278

• Facts: Gifts to “friends” under a will.
• Key point: “Friends” worked as a condition for gifts but is too vague for a private trust class.
• Use in practice: Do not use vague labels for beneficiary classes in trusts.

Paul Davies Pty Ltd v Davies [1983] 1 NSWLR 440 (comparative)

• Facts: A company, as beneficiary, recovered profits from a wrongdoing trustee.
• Key point: The case shows why an identifiable beneficiary matters: someone must have standing to claim relief.
• Use in practice: Corporate beneficiaries are fine, provided the class is clear and enforcement is possible.

Practical Applications

• Identify beneficiaries clearly:
  • Prefer named individuals or a tightly defined class (e.g. “the employees of X Ltd at the date of distribution”).
  • Avoid vague expressions such as “friends”, “neighbours”, or “acquaintances”.
• Choose the right structure:
  • Fixed trust if you need set shares and a complete list is realistic.
  • Discretionary trust if flexibility is needed, but make the class conceptually clear.
  • If the class is very wide, consider a fiduciary power instead of a trust.
• Add a fallback:
  • Include a gift over if the class fails or comes to an end.
  • State what happens if a purpose-flavoured clause cannot be carried out.
• For Re Denley-style clauses:
  • Identify the benefiting group precisely (e.g. employees, members of a named club).
  • State who can enforce and how they will be notified.
• For purpose-based lending (Quistclose):
  • Document the purpose in the loan agreement.
  • Segregate the funds in a labelled account.
  • Say expressly that unused funds return to the lender if the purpose cannot be fulfilled.
• Trustee decision-making:
  • Keep minutes showing consideration of relevant factors and exclusion of irrelevant factors.
  • For discretionary trusts, show a proper process for selection without arbitrariness.
• Information requests:
  • Apply Schmidt v Rosewood: consider the requester’s status, confidentiality, and possible safeguards (redaction, staged disclosure).
• Tax and regulatory checks:
  • If the aim looks public-spirited, consider a charitable trust instead and comply with charity law.
  • For employee benefit trusts, consider PAYE and other employment tax issues.
• Common pitfalls:
  • Administrative unworkability due to an enormous class.
  • Certainty problems through vague descriptions.
  • Forgetting a default provision, leading to an avoidable resulting trust.

Summary Checklist

• State beneficiaries by name or by a clear, workable class.
• For fixed trusts, confirm a complete list is feasible.
• For discretionary trusts, apply the McPhail “is-or-is-not” test and check workability.
• Avoid private purpose trusts unless framed as Re Denley-style benefits to people.
• Do not rely on expanding the historic “imperfect obligation” anomalies.
• If using purpose-linked funds, set out Quistclose terms and segregate the money.
• Record trustee decisions to evidence proper consideration and good faith.
• Handle information requests using the Schmidt approach and protect confidentiality.
• Include a gift over or other fallback to avoid unnecessary resulting trusts.

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