Not such massively discretionary trusts: Proper purposes doctrine and protectors as means of control

• Main Authors: YIP, Man, TANG, Hang Wu
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2024
• Subjects: Estates and Trusts; International Law
• Online Access: https://ink.library.smu.edu.sg/sol_research/4500; https://ink.library.smu.edu.sg/context/sol_research/article/6458/viewcontent/Not_such_massively_discretionary_trusts_Proper_purposes_doctrine_and_protectors_as_means_of_control.pdf
• Institution: Singapore Management University

Innovation in drafting trust deeds has been central to international trust practice resulting in the discretionary trusts being the norm in modern wealth management. In a seminal article, Lionel Smith observes that these trust drafting practices have ‘led to an increase in the dispositive discretions held by trustees’. His analysis deprecates this development where the ‘trustees’ dispositive discretions effectively govern the whole trust structure’—which he labels ‘massively discretionary trusts’. Smith goes on to detail the various legal risks entailed in massively discretionary trusts which generally arise from the fact that the explicitly identified residuary or default beneficiaries are usually not the persons who will actually benefit under the trust. Specifically, he asserts that the wide dispositive discretions (which includes the discretion to add objects to the class) given to the trustees effectively confer upon them the power to give the trust assets to whomever they wish, but with scant guidance on how that power is to be exercised and for what purpose. Although ‘massively discretionary trust’ is not a term of art, the label, which has a marked pejorative undertone, has caught on in academic literature with some leading academics expressing similar concerns as to their validity and legitimacy. For instance, proceeding from the normative foundation that trusts are ‘founded on [their] autonomy-enhancing service’, Dagan and Samet argue that what is ‘inherently scandalous’ about ‘massively discretionary trusts’ is that they are abuses of the trust because they undermine instead of enhancing the trust’s autonomy-enhancing function. Further, they surmise that the appointment of a protector is one of the means by which a settlor ‘[pressurises] the trustee to submit the absolute discretion given on paper to the wishes of the settlor’.