Beneficial entitlement? Flashcards
Beneficaires?
Generally a trust must have a beneficairy, they hold the trust to account.
Certainty of objects
- Objects of a trust will be the beneficiaries or potential beneficiaries. Key to enforceability. If objects are uncertain then trustee doesn’t know to who they owe duty.
Proprietary rights
- Fixed trust – entitlement of beneficiaries if fixed – the beneficiaries have an equitable proprietary right. These rights are assets capable of sale or other forms of transfer. May be vested of contingent
- Discretionary trust where trustees have discretion to distribute between objects of the trust. Do NOT HAVE PROPRIETRY RIGHTS, until discretion is exercised.
Personal rights
- Objects of fixed trusts have personal rights, to compel the proper administration of the trust. Can always sue for breach of trust. Also have right to informed of their entitlement under the trust once their interest has vested,
- Objects of discretionary trust have more limited rights. Can enforce the trust by asking courts to ensure that the discretion is exercised. Once discretion is exercised in favour of an individual, they have a right to know.
Fixed trusts?
Fixed trusts
- Normal – for sole beneficiary or for many shared
Successive interest trusts – is another type of fixed trusts- gives some beneficiaries right to income while others are entitled to capital
- Life interest trust – involving a beneficiary receiving income during their lifetime, with another beneficiary becoming entitled to the capital after the oncome beneficiary’s death.
o A house on trust to a for life, remainder to b.
- Income beneficiary – entitled to income produced by successive interest trust
- Capital beneficiary – entitled to capital in successive interest trust
Discretionary trusts?
- Distributive discretion
- Flexible
- Trust document may specify by what time discretion must be exercised
Power of appointment?
– a right to choose who received property. DIFFERENT TO DISCRETIOANRY TRUSTS
hey can choose whether to exercise
the power. If exercised, they have a discretion as to which member(s) of the class of objects
should benefit from its exercise.
The objects of a power therefore have even more limited rights than the objects of a discretionary
trust. They cannot compel the exercise of the power but can constrain an improper exercise.
Powers are not trusts but it is common for trusts to include powers. Often (but not necessarily) the
trustee will be the donee
Imperative wording such as ‘must’ suggests a discretionary trust whereas permissive wording
such as ‘may’ suggests a power of appointment.
(b) If discretion has been given to a third party (not a trustee) it is a power of appointment, not a
discretionary trust.
(c) The presence of a gift-over indicates a power of appointment (because it means the power
does not need to be exercised) but lack of a gift-over is not determinative.
Vested interests?
Vested interest –a current right to property –
- Vested in possession – a current right to current enjoyment of the property
- Vested in interest – a current right to future enjoyment of the property.
- Example is if a house is held on trust for a woman for life and the remainder to woman’s son.
- Woman has vested in possession
- Son is vested in interest
Contingent interest?
Something needs to happen to make beneficary entitled.
IF THEY REACH A CERTAIN AGE
OR THEYRE ALIVE WHEN SOMEONE ELSE IS
Capital of a trust?
Land
Bank acc
Shares
Income?
Rent
Interest in bank acc
Dividends
Trusts with sole beneficary?
- Trustee is holding the capital on trust for the beneficiary (the land)
- If the trust is producing income beneficiary is also entitled to that.
- If beneficiaries an adult they are entitled to receive that income as it arises.
Rule in sauder 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 them, thereby bringing the trust to an end early.
- Only if they are absolutely entitled to trust property
- ‘until’ indicates a future interest – vested interest
- ‘if’ – contingent interest
Extension of the rule in Saunder v Vautier
Beneficiaries with vested interests
- Has been subsequently extended to cases involving multiple beneficiaries.
- If each beneficiary has a distinct interest in trust property which can be served without impacting, they can separately exercise their Saunders v Vautier rights.
- Can also be done in complex cases but only if all beneficiaries agree.
Saunder v vautier rights with successive interests?
Example: Multiple beneficiaries with successive interests
A trustee holds property on trust for A for life, remainder to B. A is 50 and B is 17. They have asked
the trustees to share the trust fund equally between them.
Should the trustees distribute the trust fund as directed by A and B?
* A has a vested interest in the income and B has a vested interest in the capital. Their interests
are not severable and neither can exercise Saunders v Vautier alone.
As B is a minor, A and B cannot yet exercise Saunders v Vautier together and the trustees must
not distribute the capital in accordance with their request.
* Once B reaches the age of 18, they will have Saunders v Vautier rights. If A and B make the
request once B turns 18, the trustees must transfer the fund as directed.
Objects without vested interests?
Objects without vested interests
The effect of the extension above means that Saunders v Vautier rights are not strictly exercisable
only by beneficiaries with vested interests.
Beneficiaries with contingent interests may exercise those rights but only if they act together with
all the other persons who share the beneficial interest in the property. In the case of contingent
interests, this will include the objects of any gift-over.
This means that Saunders v Vautier can also be exercised by the objects of a discretionary trust or
even the objects of a fiduciary power which has a gift-over in default of appointment.
Even though none of the objects have vested interests in the trust property, together they can be
treated as a single object in whom the interest subject to the discretion or power is vested. Again,
as long as they are all adults of sound mind, they can agree to collapse the trust and share the
property between them.
Practical difficulties?
egal limitations
There are also legal limitations on the rule in Saunders v Vautier, which stem from the nature of
the trust itself.
The rule acknowledges that the objects of trusts are the true owners of the property and should
not be denied the right to manage their own property should they wish to.
However, it does not mean that they are able to interfere in the administration of a trust while it
subsists. They have a choice between the following:
(a) Exercising their Saunders v Vautier rights by directing the trustee to transfer the property out
of the trust (whether to them or to a third party); or
(b) Remaining objects of the trust and allowing the trustees to continue to act in accordance with
trust terms.
If the beneficiaries are not happy with the administration of the trust, they may seek appropriate
remedies (including removal and replacement of the trustee) but they cannot tell the trustee how
to perform their role. If they wish to vary the trust terms, they could exercise the Saunders v
Vautier rights and create a new trust on those terms.
