[b] Most well-drafted trust instruments also provide for a power to add or exclude beneficiaries from the class;[c] this allows the trustees greater flexibility to deal with changes in circumstances (and, in particular, changes in the revenue laws of the applicable jurisdiction).
Each beneficiary of a discretionary trust, in contrast, is dependent upon the trustees to exercise their power of selection favourably.
Whilst the beneficiaries will have standing to sue the trustees for failing to fulfill their duties, it is not clear that they would gain by such action.
In Re Locker's Settlement [1977] 1 WLR 1323 the trustees of a discretionary trust did not make any distributions for a number of years based upon the expressed wishes of the settlor.
The court held that their discretionary powers continued, and that they should exercise it in respect of the dormant years now as they should have done at the time.
Discretionary trusts still serve a useful function to their beneficiaries, despite their original source of popularity (tax savings) having diminished in most countries.
They still continue to be used for these reasons, among others: The popularity of discretionary trusts rose sharply after the decision of the House of Lords in McPhail v Doulton [1971] AC 424 where Lord Wilberforce restated the test for certainty of objects in connection with discretionary trusts.
But Lord Wilberforce held that provided it could be said of any person whether they were "in or out" of the class, as described by the settlor, the trust would be valid.
This in turn can impact tax liability, as income derived from the trust can then be distributed to its beneficiaries by the trustee.
This allows for the income made to be divided between family members, who then may each pay a lower rate of taxation than otherwise would be due.