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FLK 2 - Trusts > 3. Beneficial Entitlement > Flashcards

3. Beneficial Entitlement Flashcards

1
Q

What is a capital return?

A

Underlying value of property has gone up over time.

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2
Q

What is an income return?

A

Money received on a regular basis from property.

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3
Q

What is an absolute interest?

A

Beneficiary with an interest in capital.

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4
Q

What is a limited interest?

A

Beneficiary with an interest in income only.

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5
Q

What is a fixed interest trust?

A

Settlor has indicated upfront who will get what.

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6
Q

What can the settlor decide in a fixed interest trust?

A

Whether a beneficiary should have a present entitlement to property and whether and when the beneficiary will get the capital and income.

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7
Q

What are vested interests?

A

Beneficiary exists and does not have to satisfy any conditions before becoming entitled to trust property.

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8
Q

What are contingent interests?

A

Beneficiary’s entitlement is conditional on certain conditions being met.

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9
Q

What are successive interests?

A

Beneficiary’s entitlement is dependent on the prior beneficiary’s interest ending.

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10
Q

What is a capital gain?

A

Underlying value of the thing you own has gone up over time.

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11
Q

What is a monetary equivalent?

A

Money received in place of property.

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12
Q

What is a beneficiary?

A

Person who receives benefits from a trust.

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13
Q

What is a settlor?

A

Person who creates a trust.

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14
Q

What is property?

A

Something that can be owned or possessed.

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15
Q

What is an interest in capital?

A

Beneficiary has a right to the underlying value of the property.

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16
Q

What is an interest in income?

A

Beneficiary has a right to the regular income generated by the property.

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17
Q

What is a present entitlement?

A

Beneficiary has a current right to property.

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18
Q

What is a conditional entitlement?

A

Beneficiary’s right to property is dependent on certain conditions being met.

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19
Q

What happens if the beneficiary dies before receiving the trust property?

A

The trust property will belong to the beneficiary’s estate.

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20
Q

What happens if the beneficiary is a minor?

A

The property is held by trustees until they turn 18.

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21
Q

Can the transfer of property to a beneficiary discharge the trustees from the trust?

A

Yes, once the beneficiary turns 18.

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22
Q

Does the trust automatically end when the beneficiary turns 18?

A

No, the beneficiary must request the transfer of property.

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23
Q

What happens if a beneficiary has a contingent interest?

A

Their interest is conditional upon a future event.

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24
Q

What happens when a beneficiary satisfies the condition of a contingent interest?

A

The beneficial interest vests in them and they have a vested interest.

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25
Q

What happens if a beneficiary with a contingent interest dies before the stipulated event?

A

Their interest may go back to the settlor.

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26
Q

What should be looked out for in terms of death/survival conditions?

A

Death is certain but surviving someone else is not.

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27
Q

What are trusts that create successive interests often called?

A

Life interest trusts.

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28
Q

What is an example of a life interest trust?

A

A trust where the property is held for the life of the beneficiary, with remainder to another person.

29
Q

What is the role of the life tenant in a life interest trust?

A

The life tenant has a vested, limited interest in trust income during their lifetime.

30
Q

What is the interest of the life tenant known as?

A

The life interest.

31
Q

What does it mean for a life tenant to have an interest ‘in possession’?

A

They have the use and enjoyment of the trust property.

32
Q

What is the purpose of separating out capital from income in a life interest trust?

A

To ensure the life tenant only has access to the income.

33
Q

Who is the life tenant in the example trust given?

A

Yara, the wife of the settlor.

34
Q

Who is the remainder beneficiary in the example trust given?

A

Adam, the son of the settlor.

35
Q

What is the role of the trustees in a life interest trust?

A

To hold and manage the trust property for the benefit of the life tenant and remainder beneficiary.

36
Q

What is the purpose of a life interest trust?

A

To distribute property over successive generations.

37
Q

What is a remainderman?

A

The person who has a vested interest in trust capital.

38
Q

What does it mean for Adam’s interest to be ‘in remainder’?

A

Adam’s interest is postponed and he cannot enjoy it immediately.

39
Q

When can Adam enjoy his vested beneficial interest?

A

Adam can enjoy his interest once Yara’s right to enjoyment expires.

40
Q

Why can’t Adam receive any trust property during Yara’s lifetime?

A

It would lessen trust property generating income and prejudice Yara’s interests.

41
Q

Is Adam’s interest in remainder contingent?

A

No, it is not contingent because the reason for postponement is certain (Yara’s death).

42
Q

What happens if Adam dies before Yara?

A

His interest in remainder would not fail and the trust property would pass to Adam’s estate.

43
Q

How does a contingent interest in remainder work?

A

It is dependent on a specific condition being met, such as reaching a certain age.

44
Q

What happens if Adam dies before reaching the age of 25?

A

His interest in remainder will fail and go back to the settlor on a resulting trust.

45
Q

What are discretionary trusts?

A

Trusts where the settlor identifies a class of people to benefit, but leaves it up to the trustees to decide who and how much.

46
Q

Do individual members of the class have a beneficial entitlement prior to distribution?

A

No, they are known as ‘objects’ and do not have a beneficial entitlement yet.

47
Q

What happens if an individual object is selected by a trustee?

A

The individual usually has a vested right in that part of the trust property.

48
Q

Can elements of fixed interest trusts and discretionary trusts be combined?

A

Yes, it is possible to combine elements of both types of trusts.

49
Q

What is the rule in Saunders v Vautier?

A

A beneficiary can require the trustees to convey trust property and end the trust.

50
Q

What is a bare trust?

A

A trust for a sole, adult, mentally capable beneficiary that gives them a vested interest.

51
Q

What does it mean for a beneficiary to be ‘absolutely entitled’?

A

The beneficiary has full control over the trust and can end it at any time.

52
Q

When are bare trusts common?

A

They are common in investment, allowing quick decisions without consulting the client.

53
Q

When does a bare trust arise?

A

When a beneficiary with a contingent or remainder interest becomes solely and beneficially entitled.

54
Q

What is the extended rule of Saunders v Vautier?

A

It applies to trusts with multiple beneficiaries, allowing them to end the trust by calling for a transfer of property.

55
Q

What are the requirements for beneficiaries to end a trust under the extended rule of Saunders v Vautier?

A

They must be in existence, aged 18 or over with mental capacity, and agree to the proposed transfer.

56
Q

What are the consequences of giving beneficiaries a beneficial entitlement to the property?

A

The beneficiaries ultimately own the property and can choose who receives it.

57
Q

What is a vested right?

A

A right that is guaranteed and cannot be taken away.

58
Q

What is a fixed interest trust?

A

A trust where the beneficiaries have a fixed entitlement to a specific portion of the trust property.

59
Q

What is a discretionary trust?

A

A trust where the trustees have discretion in deciding how to distribute the trust property among the beneficiaries.

60
Q

What is a successive interest life time trust?

A

A trust where the beneficiary’s interest lasts for their lifetime and then passes to another beneficiary.

61
Q

What is a remainder interest?

A

An interest in a trust property that only takes effect after the expiration of a prior interest.

62
Q

What is a contingent interest?

A

An interest in a trust property that is dependent on the occurrence of a future event.

63
Q

What is a stockbroker?

A

A professional who buys and sells stocks and other securities on behalf of clients.

64
Q

What is a retainer?

A

A fee paid to a professional in advance for their services.

65
Q

What does it mean for beneficiaries to be ‘ascertained’?

A

They are identified and known.

66
Q

What is mental capacity?

A

The ability to understand and make decisions about one’s own affairs.

67
Q

What is the power of trustees to override the terms of the original trust?

A

Trustees can effectively override the terms of the original trust.

68
Q

What must trustees do in relation to their choice of distribution?

A

Trustees must comply with their choice of distribution.

FLK 2 - Trusts (11 decks)

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