Beneficial Entitlement Flashcards
what is a fixed interest trust?
the entitlement of beneficiaries is fixed by the settlor
trustees have no discretion on how to distribute the trust property
beneficiaries will have personal rights against the trustee and can sue the trustee to enforce them AND equitable proprietary interests that can be enforced against third parties
what rights does a beneficiary of a fixed interest trust have? (5)
personal rights against the trustee which B can sue T to enforce:
(1) right to compel the proper administration of the trust by the trustee - meaning they can direct Ts to take actions against third parties
(2) if vested = have the right to be informed of their entitlement
(3) can sue trustees for breach of trust
proprietary rights against third parties:
(4) Bs that have vested or contingent rights in an asset can assert them against third parties
(5) Bs can exercise Saunders v Vautier rights
what is a discretionary trust and what are the rights of beneficiaries under a discretionary trust?
discretionary trust = trustees have discretion on how to administer and distribute the trust property
rights of beneficiaries =
- Bs have no equitable proprietary interest in the trust property (cannot assert it against third parties)
- Bs can exercise Saunders v Vautier rights
- Bs have a right to ensure that the trust is administered properly - they can sue for T breaches but any compensation is payable to the trust fund and not to the claimant Bs
- Bs can enforce the trust by asking the court to compel Ts to exercise discretion but Bs have no right to request discretion to be exercised in a particular way
- once discretion is exercised in a B’s favour, they have the right to be informed of their entitlement
what does a B’s right to be informed of their entitlement and of the trust entail?
trustees are ALWAYS obliged to provide Bs copies of trust accounts when they are requested
other docs and info = T does not have to but T has to supply unless there are compelling reasons not to
(Bs have this right once their interest is vested in fixed or discretionary trusts)
what are the rights of objects of a power of appointment?
cannot compel the donee of the power of appointment to exercise their power
but they can constrain improper exeercise of power
how can you ascertain if a power entails a discretionary trust or a mere power of appointment?
POA = wording of ‘may choose’, can be given to a non-trustee, can be indicated by the presence of a gift over in case the donee does not exercise the power
discretionary trust = wording of ‘must’ - the trustee will not have a choice not to exercise their discretion
what is the difference between a vested and contingent interest?
vested = the current right to property (nothing more needs to happen for B to be entitled to it)
contingent = right to property is conditional upon the occurrence of a future event - B will not be entitled or have a vested interest until the contingency is satisfied
what is the difference between a vested interest in possession vs interest?
vested in possession = current right to current enjoyment of the property (e.g., life tenant’s interest in the income)
vested in interest = current right to future enjoyment of the property (e.g., remainder interest in the capital only if not contingent on e.g., surviving the life tenant / attaining an age)
what is the difference between capital and income regarding trust property?
the capital is the trust property itself and the income is the money that is produced from the capital
examples:
- land is capital and rent it produces is income
- money in account is capital which produces interest income
- shares are capital and dividends are income
If T holds property on trust for B and B is absolutely entitled to it (interest vested in possession), will B be entitled to the income?
income:
If adult = B entitled to income as it arises
if minor = B not entitled to income, income accumulates until B is 18 (but T has powers of maintenance)
If B does not have a vested in possession entitlement to the capital, what happens to the income until B’s interests vests in possession (assuming no one else is entitled to the income)?
the capital carries the intermediate income
If adult = B entitled to income as it arises
if minor = B not entitled to income, income accumulates until B is 18 (but T has powers of maintenance)
If B has a contingent interest in the capital and no one has been given a right to the income, what happens to the income produced until B satisfies the contingency?
the capital carries the intermediate income
If adult = B entitled to income as it arises
if minor = B not entitled to income, income accumulates until B is 18 (but T has powers of maintenance)
what is a successive interest trust?
fixed interest trust
different beneficiaries have separate beneficial interests which follow each other – the beneficiary with an entitlement to the income receives their interest first for a designated period of time, followed by the beneficiary with an interest in the capital
examples:
- life interest trust
- T holds property on trust for A until A reaches 21, then pays capital to B
what is a life interest trust?
fixed trust where:
- A life tenant has an interest in the income which is vested in possession until their death - they are entitled to receive it as it arises. They do not have an entitlement to the capital - it does not pass to their estate after death.
- A remainderman is has an interest in the capital which is vested in interest until the life tenant dies, which is when their interest vests in possession and they will be entitled to it absolutely (assuming no contingencies). If they die before the life tenant, their interest in the capital goes to their estate when the life tenant dies. They will not have an interest in the income.
what is the rule in saunders v vautier?
a sole adult beneficiary of sound mind with a vested interest in the trust property is entitled to direct the trustees to transfer legal title to them, bringing the trust to an early end
