Beneficial Entitlement

Question 1

Why must a trust have a beneficiary?

Answer 1

They must have a beneficiary otherwise there is no one to enforce the trust and hold the trustee to accounts

Question 2

Why must a trust have certainty of objects?

Answer 2

So the trustee know who they owe obligations to.

Objects themselves know of their rights.

So court can enforce obligations as a last resort

Question 3

What is a fixed trust?

Answer 3

A trust which the entitlement of the beneficiaries is fixed by the settlor

Question 4

What is a discretionary trust?

Answer 4

A trust which the trustees have a discretion to distribute the objects of the trust

Question 5

What proprietary right do beneficiaries have under a fixed trust?

Answer 5

They have equitable proprietary rights in trust property which can be sold or transferred and can be asserted against third parties

Question 6

What proprietary rights do beneficiaries have under a discretionary trust?

Answer 6

They have no proprietary rights.

They just have hope that discretion will be exercised in their favour.

Question 7

What personal rights do beneficiaries have under a fixed trust?

Answer 7

• right to compel proper administration of the trust by the trustees
• can sue trustees for breach of trust
• right to be informed of entitlement under the trust once it has vested

Question 8

What personal rights do beneficiaries have under a discretionary trust?

Answer 8

• they can enforce the trust by asking the court to ensure that the discretion is exercised (no right to request that discretion is done in a particular way)
• once discretion is exercised in favour of individual, they have right to be informed
• can sue trustees for breach of trust

Question 9

What is a successive interest trust?

Answer 9

A trust involving a series of consecutive interests in the same trust property

Question 10

What is a life interest trust?

Answer 10

Successive interest trust whereby beneficiary receives income during lifetime, and another beneficiary receives capital on income beneficiary’s death

Question 11

What is an income beneficiary?

Answer 11

The beneficiary entitled to the income produced by a successive interest trust

Question 12

What is a capital beneficiary?

Answer 12

The beneficiary entitled to the capital held on a successive interest trust (also known as remainderman)

Question 13

Under a discretionary trust who determines the beneficiaries and how much they are to receive?

Answer 13

The settlor determines the class of beneficiaries/potential beneficiaries

The trustee determines who within that class of objects is to receive what sum

Question 14

What is a power of appointment?

Answer 14

A power of appointment is a right to choose who from a specified class of objects, receives property

Question 15

What is the difference is there if a power of appointment is held by a trustee compared to some other third party?

Answer 15

If held by a trustee, it is fiduciary power of appointment and trustee must consider periodically whether to exercise the power or not

If held by non-trustee, it is a personal power of appointment and no obligation to even consider exercising it.

Question 16

How can you determine between a power of appointment and a discretionary trust?

Answer 16

• imperative wording such as ‘must’ suggests a discretionary trust whereas permissive wording such as ‘may’ suggests a power of appointment
• if discretion has been given to a third party it is a power of appointment, not a discretionary trust
• the presence of a gift-over indicates a power of appointment but lack of gift-over is not determinative

Question 17

What is a vested interest?

Answer 17

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

Question 18

What is a contingent interest?

Answer 18

A contingent interest is an interest in property which 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 19

What is vested in possession?

Answer 19

A current right to current enjoyment of the property

Question 20

What is vested in interest?

Answer 20

A current right to future enjoyment of the property

Question 21

How can you distinguish between capital and income?

Answer 21

Capital is like a tree whereas income is the fruit produced by the tree

Question 22

What assets would typically be considered capital and what would typically be considered income?

Answer 22

Capital - land, bank account, shares

Income - rent. interest, dividends

Question 23

What is the basic rule in Saunders v Vautier?

Answer 23

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

Question 24

When is a beneficiary entitled to exercise their Saunders v Vautier rights?

Answer 24

Only where they are absolutely entitled to the trust property

Question 25

If there are multiple beneficiaries with a vested interest under a trust, can a beneficiary exercise their Saunders v Vautier rights?

Answer 25

Yes - if they have a distinct interest in the trust property that is easily severable.

If they do not have a distinct interest in the property which is easily severable, then yes IF all beneficiaries agree and they meet the conditions (age and capacity)

This is because collectively they are absolutely entitled to all of the trust property

Question 26

Can beneficiaries under a trust with contingent interests exercise Saunders v Vautier rights?

Answer 26

Yes but only if all those with beneficial interest under the trust act together to collapse the trust.

This would include the objects of any gift-over

Question 27

When would it be unlikely or impractical for a Saunders v Vautier rights to be exercised?

Answer 27

Where the are very large numbers of beneficiaries or if the trust is very complicated.

Question 28

What are the legal limitations on Saunders v Vautier rights?

Answer 28

Saunders v Vautier rights give beneficiaries the choice of:

• having their share of trust property transferred to them
• or remaining objects of the trust

Does not give beneficiaries entitlement to tell trustees how to perform their role