Where on Earth is Benjamin?

01 May 2013 John Harper

Where on Earth is Benjamin?

John Harper on dealing with beneficiaries - dead or alive.

All STEP students should be able to recite what is meant by the ‘Three Certainties’ in the context of a valid trust as fluently as spelling their own names. The third of these is of course certainty of objects. That means it must be clear who the beneficiaries, or objects, are. The test for determining this differs depending on the type of trust; it can be that all beneficiaries must be individually identified or that the trustees must be able to say with certainty, if a claimant comes before them, whether that claimant is or is not a beneficiary.

In express trusts this is a particularly complex area, because the test used to determine certainty varies between fixed trusts, mere powers and discretionary trusts. Fixed trusts are trusts for a specific, named list of individuals. The test for fixed trusts is that the trustees must be able to give a complete list of the beneficiaries. If there are any potential beneficiaries whom the trustees are not certain of, or the trustees cannot compile a complete list, the trust is void for uncertainty.

By contrast, discretionary trusts require that the trustees exercise their powers in the same way as a fixed trust, but allow some discretion in how to do so, in a similar manner to mere powers. The leading test of certainty of objects applied to discretionary trusts is McPhail v Doulton (1970). It held that so long as any given claimant can clearly be determined to be a beneficiary, or not, a trust is valid.

Where real problems can occur is if the trustees do not know if a particular beneficiary is still alive. I had personal experience of this situation some years ago. A trust needed to be terminated. There were four named beneficiaries, all siblings. However, several years earlier (on 4 June 1989, to be precise), one of the beneficiaries had, evidenced by a holiday postcard mailed home, been in Tiananmen Square in Beijing. He was never seen nor heard from again. Now, if he was locked up in some damp cell in the Chinese capital he was clearly still a beneficiary. Alternatively, if he had died in a hail of bullets, he was not. We tried to obtain information through the Foreign Office in London and the British Embassy in Beijing, but without success. As a last resort we asked the court in the relevant jurisdiction for guidance.

The court handed down what is known as a Benjamin Order. It is so styled after the case of Re Benjamin; Neville v Benjamin (1902). In that case, the administrator of an estate did not know whether a beneficiary under a will had died, and, if he had, whether he had done so before the testator. The judge held that the beneficiary should be presumed to be dead, and, there having been no claim by any executor of the estate of the beneficiary, that the administrator could proceed on the basis that the beneficiary had not survived the testator.

The order we received was that by 4 June 1999 (ten years later), if there was still no more news either way, we, as corporate trustees, could safely distribute as if he were indeed dead. We were protected from being sued if the unfortunate beneficiary ever turned up. As an alternative, we could have sought indemnities from the remaining beneficiaries to reimburse their lost brother should he ever reappear.

However, applying to the court for a Benjamin Order takes time and can be disproportionately expensive, particularly in cases where the value of the trust or estate is relatively small. Seeking indemnities from known beneficiaries is also problematic, given the potential risk of these beneficiaries becoming bankrupt or dying. A more satisfactory solution might be to take out a ‘missing beneficiaries’ insurance policy. Indeed, the courts seem to support this approach. The often-quoted case of Evans v Westcombe (1999) highlights the growing consensus of courts that insurance can be a practical and sensible means for resolving claims from missing beneficiaries.

As a final point, trustees should always seek outside legal advice in such cases. Taking a particular course of action based on a mistake of law can result in the trustees compensating the once-missing beneficiary out of their own pockets. At least then, if the advice they receive from their lawyer turns out to be wrong, the buck passes elsewhere!

Authors

John Harper

CPD Reflective Learning