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

Facts

• The case concerned the responsibilities of trustees managing a discretionary trust, specifically their obligations when making distribution decisions.
• Trustees were required to review the situations of potential beneficiaries before authorising distributions from the trust.
• The trust at issue involved a potentially large and complex group of beneficiaries, affecting how thorough the consideration could be for each individual.
• The Court of Appeal provided guidance on the required approach trustees must adopt in such discretionary trusts.

Issues

1. Whether trustees of a discretionary trust are required to consider all eligible beneficiaries before making distributions.
2. Whether trustee decisions regarding distributions must be supported by logical reasoning and clear recorded justifications.
3. The extent to which trustees must review the specific situations of each beneficiary, especially in large or complex trusts.
4. How the ruling shifted or refined the standards set in previous decisions regarding trustees’ duties in discretionary trusts.

Decision

• The Court of Appeal held that trustees of a discretionary trust must assess all potential beneficiaries prior to approving distributions.
• Trustees are not required to conduct detailed investigations into the circumstances of every potential beneficiary but must understand the scope and nature of the beneficiary class.
• Distribution decisions must be supported by logical reasoning, and trustees must record the factors they considered to show accountability and honesty.
• The depth of the review may be adapted based on the trust’s size, available resources, and the number of beneficiaries.
• The judgment provided more specific guidance than earlier rulings, moving from broad principles to clear, actionable steps for trustees.

Legal Principles

• Trustees in discretionary trusts are obligated to consider all eligible beneficiaries to prevent unfair omission.
• The necessity for logical reasoning: trustee decisions must be rational, well-documented, and based on balanced consideration.
• The scale of review required depends on the complexity and size of the trust.
• The case refined previous approaches by providing concrete steps trustees should follow, building on earlier precedents such as McPhail v Doulton [1971] AC 424.

Conclusion

Re Hay’s Settlement Trusts clarified and structured trustees’ duties in discretionary trusts, requiring consideration of all beneficiaries and logical, well-documented decisions tailored to the trust’s context. The principles established remain authoritative in guiding trustees and inform contemporary trust law practice.