3. Beneficial Entitlement Flashcards
What is a capital return?
Underlying value of property has gone up over time.
What is an income return?
Money received on a regular basis from property.
What is an absolute interest?
Beneficiary with an interest in capital.
What is a limited interest?
Beneficiary with an interest in income only.
What is a fixed interest trust?
Settlor has indicated upfront who will get what.
What can the settlor decide in a fixed interest trust?
Whether a beneficiary should have a present entitlement to property and whether and when the beneficiary will get the capital and income.
What are vested interests?
Beneficiary exists and does not have to satisfy any conditions before becoming entitled to trust property.
What are contingent interests?
Beneficiary’s entitlement is conditional on certain conditions being met.
What are successive interests?
Beneficiary’s entitlement is dependent on the prior beneficiary’s interest ending.
What is a capital gain?
Underlying value of the thing you own has gone up over time.
What is a monetary equivalent?
Money received in place of property.
What is a beneficiary?
Person who receives benefits from a trust.
What is a settlor?
Person who creates a trust.
What is property?
Something that can be owned or possessed.
What is an interest in capital?
Beneficiary has a right to the underlying value of the property.
What is an interest in income?
Beneficiary has a right to the regular income generated by the property.
What is a present entitlement?
Beneficiary has a current right to property.
What is a conditional entitlement?
Beneficiary’s right to property is dependent on certain conditions being met.
What happens if the beneficiary dies before receiving the trust property?
The trust property will belong to the beneficiary’s estate.
What happens if the beneficiary is a minor?
The property is held by trustees until they turn 18.
Can the transfer of property to a beneficiary discharge the trustees from the trust?
Yes, once the beneficiary turns 18.
Does the trust automatically end when the beneficiary turns 18?
No, the beneficiary must request the transfer of property.
What happens if a beneficiary has a contingent interest?
Their interest is conditional upon a future event.
What happens when a beneficiary satisfies the condition of a contingent interest?
The beneficial interest vests in them and they have a vested interest.
What happens if a beneficiary with a contingent interest dies before the stipulated event?
Their interest may go back to the settlor.
What should be looked out for in terms of death/survival conditions?
Death is certain but surviving someone else is not.
What are trusts that create successive interests often called?
Life interest trusts.
What is an example of a life interest trust?
A trust where the property is held for the life of the beneficiary, with remainder to another person.
What is the role of the life tenant in a life interest trust?
The life tenant has a vested, limited interest in trust income during their lifetime.
What is the interest of the life tenant known as?
The life interest.
What does it mean for a life tenant to have an interest ‘in possession’?
They have the use and enjoyment of the trust property.
What is the purpose of separating out capital from income in a life interest trust?
To ensure the life tenant only has access to the income.
Who is the life tenant in the example trust given?
Yara, the wife of the settlor.
Who is the remainder beneficiary in the example trust given?
Adam, the son of the settlor.
What is the role of the trustees in a life interest trust?
To hold and manage the trust property for the benefit of the life tenant and remainder beneficiary.
What is the purpose of a life interest trust?
To distribute property over successive generations.
What is a remainderman?
The person who has a vested interest in trust capital.
What does it mean for Adam’s interest to be ‘in remainder’?
Adam’s interest is postponed and he cannot enjoy it immediately.
When can Adam enjoy his vested beneficial interest?
Adam can enjoy his interest once Yara’s right to enjoyment expires.
Why can’t Adam receive any trust property during Yara’s lifetime?
It would lessen trust property generating income and prejudice Yara’s interests.
Is Adam’s interest in remainder contingent?
No, it is not contingent because the reason for postponement is certain (Yara’s death).
What happens if Adam dies before Yara?
His interest in remainder would not fail and the trust property would pass to Adam’s estate.
How does a contingent interest in remainder work?
It is dependent on a specific condition being met, such as reaching a certain age.
What happens if Adam dies before reaching the age of 25?
His interest in remainder will fail and go back to the settlor on a resulting trust.
What are discretionary trusts?
Trusts where the settlor identifies a class of people to benefit, but leaves it up to the trustees to decide who and how much.
Do individual members of the class have a beneficial entitlement prior to distribution?
No, they are known as ‘objects’ and do not have a beneficial entitlement yet.
What happens if an individual object is selected by a trustee?
The individual usually has a vested right in that part of the trust property.
Can elements of fixed interest trusts and discretionary trusts be combined?
Yes, it is possible to combine elements of both types of trusts.
What is the rule in Saunders v Vautier?
A beneficiary can require the trustees to convey trust property and end the trust.
What is a bare trust?
A trust for a sole, adult, mentally capable beneficiary that gives them a vested interest.
What does it mean for a beneficiary to be ‘absolutely entitled’?
The beneficiary has full control over the trust and can end it at any time.
When are bare trusts common?
They are common in investment, allowing quick decisions without consulting the client.
When does a bare trust arise?
When a beneficiary with a contingent or remainder interest becomes solely and beneficially entitled.
What is the extended rule of Saunders v Vautier?
It applies to trusts with multiple beneficiaries, allowing them to end the trust by calling for a transfer of property.
What are the requirements for beneficiaries to end a trust under the extended rule of Saunders v Vautier?
They must be in existence, aged 18 or over with mental capacity, and agree to the proposed transfer.
What are the consequences of giving beneficiaries a beneficial entitlement to the property?
The beneficiaries ultimately own the property and can choose who receives it.
What is a vested right?
A right that is guaranteed and cannot be taken away.
What is a fixed interest trust?
A trust where the beneficiaries have a fixed entitlement to a specific portion of the trust property.
What is a discretionary trust?
A trust where the trustees have discretion in deciding how to distribute the trust property among the beneficiaries.
What is a successive interest life time trust?
A trust where the beneficiary’s interest lasts for their lifetime and then passes to another beneficiary.
What is a remainder interest?
An interest in a trust property that only takes effect after the expiration of a prior interest.
What is a contingent interest?
An interest in a trust property that is dependent on the occurrence of a future event.
What is a stockbroker?
A professional who buys and sells stocks and other securities on behalf of clients.
What is a retainer?
A fee paid to a professional in advance for their services.
What does it mean for beneficiaries to be ‘ascertained’?
They are identified and known.
What is mental capacity?
The ability to understand and make decisions about one’s own affairs.
What is the power of trustees to override the terms of the original trust?
Trustees can effectively override the terms of the original trust.
What must trustees do in relation to their choice of distribution?
Trustees must comply with their choice of distribution.
