Beneficial Entitlement

Question 1

Capital vs Income

Answer 1

A settlor can decide that a particular beneficiary should get both capital and income or just one or the other.

• A capital return relates to the underlying value of the property in question.
• An income return is money (or a monetary equivalent) received on a regular basis
  deriving from property. That income return might be generated regardless of whether the
  underlying property has made a capital gain.

A beneficiary with an interest in capital is often referred to as having an ‘absolute’ interest.
A beneficiary with an interest in income only is often referred to as having a ‘limited’ interest.

Question 2

3 types of interest in fixed interest trusts

Answer 2

1. Vested interest
   Beneficiary exists and do not have to satisfy
   any conditions imposed by the terms of the trust before becoming entitled to trust property.

Trustees have to hold it until they are 18.

Have ‘bare trust’ until property transferred to them.

2. Contingent interest
   Interest is conditional upon the happening of some
   future event that may not happen, or if the beneficiary is not yet in existence.

If beneficiary dies, goes back to settlor unless says otherwise.

3. Successive interest
   Trust used to distribute property over successive generations e.g. to X remainder to Y.

Question 3

Rule in Saunders v Vautier

Answer 3

If bare trust (beneficiaries have vested interest) can dictate how trustee handles property.
Also where contingent or reminder interest becomes solely entitled.

Extended rule:
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.