Define: Trust Of Imperfect Obligation

A trust of imperfect obligation, also known as a discretionary trust, is a type of trust arrangement where the trustee has the discretion to determine how the trust assets will be distributed among the beneficiaries. Unlike trusts with fixed or specific obligations, where the beneficiaries have a legally enforceable right to the trust assets, a trust of imperfect obligation grants the trustee flexibility in determining when and how distributions will be made. This discretion allows trustees to consider various factors, such as the needs, circumstances, and welfare of the beneficiaries, when making distribution decisions. Trusts of imperfect obligation are commonly used to provide for beneficiaries whose needs or circumstances may change over time, allowing trustees to adapt to evolving circumstances and ensure that the trust assets are used most effectively for the benefit of the beneficiaries.

A trust deemed valid but whose obligations the courts would not compel the trustees to carry out. (Hence, the obligations of this trust are ‘imperfect’.). Normally, a trust that creates an obligation on the trustees beyond the duty to benefit any ascertainable object(s) will be held invalid (see, e.g., beneficiary principle) unless it is a charitable trust. The term ‘trust of imperfect obligation’ is not a precise one, and different authors have used it to describe one or both of the following types of trust:

1. A trust possessing ascertainable human beneficiaries but with a supervening purpose. An example is Re Osaba (1979), where the trustees were directed to apply the fund towards the university education of the settlor’s daughter. The court interpreted this trust as for the benefit of the daughter, albeit with the supervening purpose of providing for her education.
2. An anomalous valid private purpose trust, such as the one described in Re Endacott (1960), whose designated purpose was the maintenance of a grave.

Quite obviously, the difference between these two categories is that the Osaba trust specified a human beneficiary, whereas the Endacott trust did not. Consequently, the first category may not represent a strong exception to the beneficiary principle, while the second category certainly does.

A trust of the form described in Re Denley’s Trust Deed (1969) would probably not be described as a trust of imperfect obligation since the court found it possible to construe the trust as allowing for (human) beneficiaries who could properly enforce it.

This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

This glossary post was last updated: 11th April 2024.