Trusts: Beneficial Entitlement

Excluding purpose trusts what must all trusts have?

A beneficiary

What is a fixed trust?

Entitlement of the beneficiaries is fixed by the settlor.

What happens if there is a fixed trust with a sole beneficiary?

Trustee has the legal right to deal with the trust property as owner and the beneficiary has personal rights against the trustee and can sue to enforce them.

What happens if there is a fixed trust with fixed shares?

Both beneficiaires have proprietary rights in the trust property and have personal rights against the trustee to enforce the trust.

What is a successive interest trust?

Involves a series of consecutive interests in the same trust property.

What is a life interest trust?

Involves a beneficiary (life tenant) receiving income during their lifetime, with another beneficiary or beneficiaries (remainderman) being entitled to the capital after the life tenant's death.

What is a power of appointment?

A right to choose who, from within a specified class of objects, receives property

What is a fiduciary power?

A power given to a trustee.

What is a personal power?

A power given to someone who is not a trustee. They are not required to exercise it.

Example of a discretionary trust.

My trustees must distribute the trust between such of my children as they, in their absolute discretion, determine

Example of a personal power

My trustees must distribute the trust fund between such of my children as my wife may determine within 12 months of my death and, if no such determination is made, in equal shares

Example of a fiduciary power

My trustees must hold the trust fund for my children in equal shares. During the trust period, my trustees may pay any or all of the trust fund to such of my wife and children as they see fit

What is a vested interest?

A current right to property. Nothing more needs to happen for the beneficiary to become entitled to the property.

What is a contingent interest?

A contingent interest is conditional upon the occurrence of an uncertain future event. Contingent interests become vested if the condition is satisfied. The beneficiary has no entitlement unless and until the condition is satisfied.

What is an interest which has vested in possession?

A current right to enjoyment of the property.

What is an interest which has vested in interest?

A current future right to enjoyment of the property.

What are examples of capital?

Land, bank account, shares

What are examples of income?

Rent, interest, dividends

What happens if there is a sole beneficiary who is absolutely entitled?

The beneficiary will have a vested interest in the income and the capital.

What happens if there is a sole beneficiary with a future interest (needs to turn 21)?

Capital is vested in interest until 21 and vested in possession at 21. The capital carries the intermediate income.

What happens if there is a contingent interest? "My trustees must hold my house on trust for my daughter if she reaches the age of 21"

Her interest in the capital is contingent (if she reaches the age of 21). Nobody has been given a separate interest in the income so the capital interest carries the intermediate income.

What is the rule in Saunders v Vautier?

A sole beneficiary of sound mind with a vested interest in the trust property, is entitled to direct the trustee to transfer legal title to them, bringing the trust to an end. A beneficiary can only do this alone if they are absolutely entitled to the trust property.

What happens if each beneficiary has a distinct interest in the property which can be severed without impact the others?

They can separately exercise their Saunders v Vautier rights.

What about in more complicated fixed trusts (e.g. successive interest trusts)?

Because the rights of the beneficiaries under such trusts are not easily severable, it can only be done if all beneficiaries agree.

Can beneficiaries with contingent interests exercise their Saunders v Vautier rights?

Only if they are together with all the other persons who share the beneficial interest in the property.

Can beneficiaries use Saunders v Vautier to interfere with the administration of a trust?

No

What options do beneficiaries have in relation to Saunders v Vautier?

1. Exercise their Saunders v Vautier rights by directing the trustee to transfer the property out of the trust.

2. Remaining objects of the trust and allowing the trustee to continue to act in accordance with trust terms.