How Flexible Can Beneficiaries Be in a Discretionary Trust?

Question

In a discretionary trust, how much can the group of beneficiaries change while still passing the "Is or Is Not" test? For example, if a settlor creates a trust for a tree he owns and says the beneficiaries are "tired passersby who want to rest in its shade," would this trust be valid? Or would it fail because the beneficiaries are not clearly identified? I searched online but couldn't find a clear answer.

Answer 1

For example, if a settlor creates a trust for a tree he owns and says the beneficiaries are "tired passersby who want to rest in its shade," would this trust be valid?

This would probably be interpreted as a charitable trust, rather than as a private trust with identified beneficiaries. Trusts may be created for a reasonably well-articulated charitable purpose, and this language would probably be sufficient to do so, even if the trust would not necessarily qualify for a charitable tax deduction.

This trust would not really be a discretionary trust, which is a trust that gives the trustee discretion to provide benefit to a class of identified beneficiaries, usually described by a list of names or a kind of relationship to the settlor of the trust, or some combination of the two. The trust language in the example really doesn't vest any meaningful discretion regarding who receives the benefits in the trustee, so it isn't really a discretionary trust.

In a discretionary trust, how much can the group of beneficiaries change while still passing the "Is or Is Not" test?

This portion of the question is too unfocused to answer. There are an infinite number of possibilities and there is no easy way to cover all of them.

The "Is or Is Not" test, established in English law in the case of McPhail v Doulton [1970] UKHL 1, also known as Re Baden's Deed Trusts (No 1), means that the trust language has to be clear enough to determine if someone is or is not a beneficiary, which is pretty self-explanatory.

But it is hard to image every possible situation in which this could come up. Like most legal tests, its application to a specific case depends upon all of the relevant facts and circumstances.