Dangers Of Law Clerks With Checklists
Law Grads Without Legal Skills
For example, it seems rather a regular occurrence to request a list of all of the beneficiaries/beneficial interests of a discretionary trust. It must be that this question has appeared on some checklist, ostensibly for the purpose of ‘Knowing your customer”. I am utterly at a loss as to what the correct answer might be. For those who are faced with this question from the All High Law Clerks With A Checklist, who seemingly sit above the High Court on matters of trust law, the following are apparently not the correct answer:
- There is no list of beneficiaries required for a discretionary trust since McPhail v Doulton  UKHL 1.
- There are no beneficiaries of a discretionary trust, merely “potential beneficiaries”.
- Potential beneficiaries do not have a beneficial interest in the trust property.
- There is no requirement for both a legal interest and a beneficial interest. That is to say, the beneficial interest is held by no-one.
Notwithstanding that these are all correct answers, there is functionally a “program” that exists that requires a certain input in order to proceed.
The only acceptable input is one that is wrong in fact and law, and the client is required to sign a statement attesting to the correctness of that incorrect fact. And of course the responsibility is on the client to provide the correct answers to the questions and liability immures on them if they answer incorrectly or inaccurately.
More Checklist Failures
- there being no property in the trust at its establishment. The trust therefore fails one of the 3 certainties required for validity: certainty of subject matter. Therefore, the trust is not in existence; and
- a valid trust comes into being after the acquisition of the subject matter of the trust. This of course leads to a separate dutiable transaction (i.e. double stamp duty) as per Farrar v Commissioner of Stamp Duties (1975) 5 ATR 364.
There is of course a relatively simple method of avoiding both of these problems and that is to pay the (future) trustee a nominal sum so to bind their conscience to hold the subject property on trust from the moment they receive it. The trust therefore springs into existence with only the subject property, and because the trustee never obtains the beneficial interest in the property there is no second dutiable transaction.
Dead Hand Signing The Deed
Unfortunately, the fact that those persons were long dead did not matter to the All High Law Clerks With A Checklist.
Nor did it matter that the controllers of the trust (who all had substantial assets) who were actually the primary default beneficiaries were guaranteeing the loan. The signatures of the dead were required.
In an unusual effort at humanity the All High Law Clerks With A Checklist suggested that I could change the beneficiaries of the trust – remove the listed primary beneficiary and replace that name with their children’s name. That this would totally change the class of potential beneficiaries under the trust and cause a resettlement (and Capital Gains Tax and Stamp Duty) fell upon deaf ears. However, given that the programming of the All High Law Clerks With A Checklist required only the removal of the name of the person, I varied the trust deed so that the name of the deceased no longer appeared, but the trust and the class of beneficiaries was actually exactly the same. This version (which had no substantive change) ticked the requisite box on the checklist and the dead were no longer required to sign.
Systems Are Automation
I am reminded of Lord Denning’s description of humans and machines in Thornton v Shoe Lane Parking  EWCA Civ 2:
“None of these cases has any application to a ticket which is issued by an automated machine. The customer pays his money and gets a ticket. He cannot refuse it. He cannot get his money back. He may protest to the machine, even swear at it. But it will remain unmoved.”