Beneficial entitlement

Question 1

What is the beneficiary principle

Answer 1

a trust must have a beneficiary

Question 2

Beneficiaries in a fixed trust?

Answer 2

The trustees of a fixed trust have no distributive discretion. Beneficial entitlement is determined by the settlor.

Question 3

Successive interest trusts?

Answer 3

Successive interest trusts involve a series of interests in the same trust property. A common example is a life interest trust. The lifetime beneficiary (or “life tenant”) is entitled to the income during their lifetime, after which the remainder beneficiary (or “remainderman”) is entitled to the capital.

Question 4

Trustees of a discretionary trust?

Answer 4

The trustees of a discretionary trust must exercise the power but have a distributive discretion. The objects are determined by the settlor but the trustees have the discretion to determine how to distribute amongst that class of objects.

Question 5

Power of appointment?

Answer 5

The donee of a power of appointment has no obligation to exercise it (although if it is a fiduciary power they must periodically consider it). The objects are determined by the donor and the donee has the power to determine whether and how to distribute.

Question 6

True or false: The trustees of a fixed trust have a distributive discretion.

Answer 6

False

Question 7

True or false: The objects of a discretionary trust have proprietary rights in the trust property.

Answer 7

FALSE

The objects of a discretionary trust are only potential beneficiaries. They have no equitable interest in the trust property until the discretion is exercised in their favour

Question 8

What is a vested interest?

Answer 8

· A vested interest is a current right to property. Nothing more needs to happen for the beneficiary to become entitled to the property.

Question 9

What is a contingent interest?

Answer 9

· 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.

Question 10

What does vested in possession mean?

Answer 10

· A beneficiary whose interest is ‘vested in possession’ has a current right to current enjoyment of the property.

Question 11

What does vested in interest mean?

Answer 11

· A beneficiary whose interest is ‘vested in interest’ has a current right to future enjoyment of the property.

Question 12

What is the rule in Saunders v Vautier?

Answer 12

The basic principle in Saunders v Vautier is that a sole adult beneficiary of sound mind, with a vested interest in the trust property, is entitled to direct the trustee to transfer legal title to them, thereby bringing the trust to an end early.

· They could alternatively direct the trustees to transfer legal title to a third party.

Question 13

Can the rule in Saunders v Vautier be exercised by trusts with multiple beneficiaries?

Answer 13

· The rule in Saunders v Vautier can be exercised by trusts with multiple beneficiaries.

In a simple fixed trust, without successive interests, each beneficiary can sever their share of the capital without affecting the interests of others.

In the case of more complex trusts, where shares cannot be severed, Saunders v Vautier can only be exercised if all the beneficiaries are adults of sound mind who agree to collapse the trust. This includes beneficiaries with contingent interests and the objects of discretionary trusts.

Question 14

Can Saunders v Vautier rights be exercised to interfere with the administration of the trust?

Answer 14

The beneficiaries cannot use Saunders v Vautier to interfere in the administration of the trust. They can either collapse the trust (and settle the property on a new trust if they choose to) or leave the trustees to carry out their obligations.

Question 15

True or false: Only beneficiaries with vested interests in the trust property have Saunders v Vautier rights.

Answer 15

False

Although only beneficiaries with vested interests can exercise Saunders v Vautier alone, the rule can be exercised together by adult beneficiaries providing they all agree.

Question 16

A trustee holds property on trust for A for life, remainder to B (age 18) and C (age 16). A, B and C (all of whom are of sound mind) wish to use the rule in Saunders v Vautier to collapse the trust and divide the property equally between them.

Which one of the following is correct:

A can exercise Saunders v Vautier immediately because their interest is vested in possession. B and C cannot exercise Saunders v Vautier until their interests vest in possession.

A cannot exercise Saunders v Vautier because they do not have a right to the capital. B and C must wait until A dies before they can collapse the trust.

A, B and C can collapse the trust and share the property equally now.

A and B can take their shares of the trust property now. C must wait until they reach the age of 18.

A, B and C cannot collapse the trust until C reaches the age of 18.

Answer 16

A, B and C cannot collapse the trust until C reaches the age of 18.

C is not yet an adult so cannot exercise Saunders v Vautier rights. Due to the nature of the trust, it is not possible to sever A and B’s shares.

Question 17

Bare trust?

Answer 17

A trust for a sole, adult, mentally capable beneficiary that gives the beneficiary a vested
interest is called a ‘bare trust’. The beneficiary of a bare trust is often said to be ‘absolutely
entitled’.

Question 18

The extended rule of Saunders v Vautier?

Answer 18

The beneficiaries can end the trust by calling for a transfer of trust property to themselves
or other trustees, so long as all the beneficiaries under the trust who could possibly become
entitled:
(a) are in existence and ascertained;
(b) are aged 18 years or over and have mental capacity; and
(c) agree to what is being proposed.

Question 19

Question 1
A dentist died last week. His valid will contained the following provisions:
‘Clause 4: My Trustees shall hold £300,000 on trust for such of my children who before the
age of 25 years successfully obtain an undergraduate 1st class degree …
Clause 15: Following the payment of my debts, funeral expenses, all gifts under this will
and inheritance tax, whatever remains shall belong to my wife.’
There are two children: a son aged 24 years who graduated two years ago with a 1st
class degree, and a daughter aged 17 years who has decided not to go to university. The
children have agreed between them to split the £300,000 in equal shares.
Which of the following provides the best advice to the children in relation to the trust
under clause 4?
A The trust can be brought to an end now because the children have agreed between
them what should happen to the trust property.
B The trust can be brought to an end once the daughter has reached the age of
18 years, but not before then.
C The trust can be brought to an end now, but only if the wife agrees.
D The trust can be only be brought to an end once the daughter has reached the age of
18 years, but only if the wife agrees.
E The trust can only be brought to an end if and when the daughter successfully obtains
a 1st class degree.

Answer 19

Answer
Option B is correct. At present, the children cannot use the rule in Saunders v Vautier to
bring the trust to an end because the daughter is under the age of 18 years. Once she
reaches the age of 18 years, she and the son will be, between them, absolutely entitled
to the trust fund under clause 4. Even if the daughter decides not to go to university and
therefore does not satisfy the contingency in clause 4, the trust fund will be paid out to
‘such of my children’ who satisfy that contingency. As the son has satisfied that contingency,
he would in those circumstances be entitled to the trust fund in full. There is no- one else,
beyond the son and daughter, who could benefit from the trust fund in clause 4.
Option A is wrong because the daughter is under the age of 18 years and therefore the
conditions in the rule of Saunders v Vautier have not yet been fully met.
Options C and D are wrong. Whilst it might be good from a family perspective for the wife
to agree what happens, her consent is not required. She cannot under any circumstances
have a beneficial interest in the trust. Even if the daughter does not go to university, the son
will take in full. No trust property will fall into the residuary estate.
Option E is wrong. Whilst the dentist may have wanted both children to go to university, if
the son and daughter agree next year to bring the trust to an end, they will be able to do
so using the rule in Saunders v Vautier.

Question 20

Question 2
A woman died and was survived by her wife and son who is aged 22 years. Under the
terms of her valid will, the woman created a trust fund of her residuary estate in the
following terms:
‘to be held on trust for my wife for life, remainder to my son if he attains the age of 21 years
but otherwise to the Solicitors Benevolent Association’.
The wife is discussing the possibility of bringing the trust to an end with the trustees.
Whose agreement is required to bring the trust to an end now?
A The wife and the trustees.
B Only the wife.
C The wife and son.
D The wife, son and the Solicitors Benevolent Association.
E The son and the Solicitors Benevolent Association.

Answer 20

Option C is correct. The son’s beneficial interest was contingent on him reaching the age of
21 years. He has satisfied that contingency and therefore his remainder interest has vested.
If the son were to die before the wife, the son’s beneficial interest would pass under the
terms of his will or intestacy. As at today’s date, therefore, the wife and son are, between
them, absolutely entitled to the trust fund and can use the rule in Saunders v Vautier to
bring that trust to an end.
Option A is wrong. The decision as to whether to bring the trust to an end is one for the
beneficiaries alone and not the trustees.
Option B is wrong. The wife’s interest is limited to income only. She is not, by herself,
absolutely entitled to the trust fund.
Options D and E are wrong. As the son has satisfied the contingency, his remainder interest
will not fail (even if he dies before the wife). The Solicitors Benevolent Association have no
possible beneficial interest under the trust and their consent to bringing the trust to an end
is not required

Question 21

Question 3
A trust deed contains the following provision:
‘My Trustees shall hold my house in Oxford on trust to permit my husband to live in the
property for the remainder of his life and after his death to hold the property upon trust for
such of my son and daughter who survive my husband and attain the age of 25 years.’
The son is aged 28 years and the daughter is aged 20 years.
Which of the following best describes the beneficial interests in the trust fund?
A The husband, son and daughter all have vested interests.
B The husband and the son have vested interests, but the daughter’s interest is contingent.
C The husband has a vested interest, but the son’s and daughter’s interests are
contingent.
D The husband, son and daughter all have contingent interests.
E The husband has a contingent interest, but the son’s and daughter’s interests are
vested.

Answer 21

Answer
Option C is correct. The husband has a vested interest. (Ordinarily, the life tenant will receive
trust income – in the case of a residential dwelling, this would be any rent generated from
letting the dwelling. Instead of receiving rental income, however, the life tenant can instead
live in that dwelling rent- free for the rest of his life.) Remainder beneficiaries will have vested
(albeit postponed) interests in capital, unless the trust makes it clear that their interests are in
fact conditional on events that might not happen. In this case, there are two such conditions:
(i) the children must reach the age of 25 years; and (ii) they must still be alive when the
husband dies (the husband’s death is a certainty – the children surviving him is not). The son’s
and daughter’s interests will only vest if they satisfy these two conditions. We do not currently
know whether the son and daughter will survive the husband (and can only know that when
he dies). Given the specific wording of this trust, their interests are still contingent.
Option A is wrong. The son’s and daughter’s interests are conditional, not vested.
Option B is wrong. There are two conditions that the son and daughter must satisfy before
their interests vest: (i) they have to reach the age of 25 years; and (ii) they have to survive
the husband. The son has satisfied the former but not the latter. His interest is therefore still
contingent. (This option would have been correct had the wording been ‘on trust to permit my
husband to live in the property for the remainder of his life and after his death to hold the
property upon trust for such of my son and daughter who attain the age of 25 years’ – in that
case, there is only one condition the children must satisfy, ie reaching the age of 25, which the
son has. The wording of the trust must therefore be carefully scrutinised.)
Option D is wrong. The husband has a vested interest – he does not have to satisfy any
condition before being able to live rent- free in the house in Oxford.
Option E is wrong. The beneficial interests are the wrong way round.

Question 22

A man intends to create a trust to benefit his daughter during her lifetime but ultimately he wants the trust fund to pass to his grandson.

The man transfers the trust fund to trustees to hold on trust for his daughter for life remainder to his grandson provided the grandson qualifies as a solicitor in England and Wales.

After the trust is created, the daughter and grandson are involved in a car accident. The grandson dies at the scene of the accident and the daughter dies shortly afterwards in hospital. The grandson was in his second year of a law degree in London.

The trustees seek advice as to who is entitled to the trust fund.

Which of the following statements best describes who is entitled to the trust fund?

A. The trust fund belongs to the daughter’s estate as she survived the grandson.

B. The trust fund belongs to the grandson’s estate as it was the settlor’s intention that the grandson should take it on the death of the daughter.

C. The trust fund belongs to the man as the grandson failed to survive the daughter.

D. The trust fund will be shared equally between the daughter’s and grandson’s estates.

E. The trust fund belongs to the man as the grandson failed to satisfy the condition.

Answer 22

E - The trust fund belongs to the man as the grandson failed to satisfy the condition.