McPhail v Doulton [1971] AC 424

Bertram Baden created a fund for officers and employees, including former members of both groups, as well as their relatives and dependants. Its trustees had absolute discretion over the amounts, timing and conditions of distributions among those classes. After Baden's death, the validity of the trust was challenged because the potential group was very large and terms such as relatives and dependants were said to be uncertain. Under IRC v Broadway Cottages, a discretionary trust was valid only if a complete list of every object could be drawn up. The trustees argued that this test was unnecessarily strict and that the less demanding test used for powers in Re Gulbenkian's Settlements should also apply to a trust requiring discretionary distribution.

Must every beneficiary of a discretionary trust be listed, or is the trust sufficiently certain if any given person can be said to be within or outside the defined class?

By a majority, the House of Lords displaced the requirement that every object of a discretionary trust be listed, then remitted the instrument for reconsideration under the new approach. Lord Wilberforce held that the test used for a fiduciary power should apply: the trust is conceptually certain if it can be said of any given person that they are or are not a member of the class. Trustees under a discretionary trust must consider the range of possible objects and make a responsible selection, but need not identify every member before distributing. A trust may still fail if the description is conceptually unclear or the class is so wide that the trust is administratively unworkable. On remittal in Re Baden (No 2), the Court of Appeal upheld the clause while differing over the treatment of evidential uncertainty.

Objects of a discretionary trust are sufficiently certain where the class is defined so that it can be determined of any given person whether they are or are not within it. A complete list is unnecessary, although conceptual uncertainty or administrative unworkability may still invalidate the trust.

McPhail aligns the object test for discretionary trusts with the approach to fiduciary powers in Re Gulbenkian and greatly increases the practical viability of employee and family trusts. It also requires care over different forms of uncertainty. Conceptual uncertainty concerns the meaning of the class description and is potentially fatal; evidential difficulty concerns proof that an individual satisfies a clear concept. Re Baden (No 2) explored that distinction through three different judgments. Fixed trusts retain the complete-list requirement because trustees must know every beneficiary's entitlement before distributing fixed shares.