On the Society of Will Writers they state that leaving the default gift of a discretionary trust to the discretionary beneficiaries can be problematic as those beneficiaries may all be dead by the time the default clause comes into effect. Therefore, they state that the default gift would pass to the default beneficiaries’ estates.
Are they mistaken, my understanding is, if you leave a gift to someone in a will, and they pre-decease the gift fails and passes into residue. If they are correct, what rule explains why, in the case of a default clause, the gift passes to the default beneficiaries’ estates but for other legacies they pass into residue?
It looks like the guidance is addressing the situation whereby the default beneficiaries (or at least one of them) survives the testator but has died by the time the default clause vests in possession, which could be many years later.
In that situation, they are correct, you would ordinarily expect the remaining trust fund to vest in their estates.
They are right about a dead beneficiary ceasing to be eligible. A gift over if a beneficiary of a Will pre-deceases to those who benefit from the estate by Will or intestacy is valid. This conjures up nightmares of retrospective practical estate administration. The kind of default clause here would need to be carefully worded because it would only apply when the perpetuity period or shorter defined trust period ended.
If only one eligible beneficiary remained alive he could terminate the trust, but most DTs will employ a wide class and cover several generations.
The default gift should not be made to the DBs as a class as it might fail for uncertainty. The certainty test is met initially as long as the trustees can identify anyone eligible but with an absolute gift to all who do they would need to identify everyone.
A default gift to charity will concentrate the minds of the trustees and the DBs as the trustees cannot fail to exercise their discretion’s indefinitely without the threat of litigation.
Andrew is right but for vesting the default beneficiaries need to be clearly identified and survive the testator and it still leaves the retrospection problem if all or any of them die well before the default clause becomes operative.