Beneficial entitlement Flashcards
What is a trust?
A trust is a sophisticated instrument that can be used to give different people different types of entitlement
Fixed interest
In a fixed interest trust, the settlor has stipulated upfront who will get what. The interests of beneficiaries under a fixed interest trust are fixed by the settlor.
However, the settlor can also decide:
(a) whether a beneficiary should have a present entitlement to property, or whether that entitlement should be made conditional on (for instance) the beneficiary attaining a certain age; and
(b) whether and when the beneficiary will get the capital and income generated by the trust, or merely one or the other.
Vested interest (A type of fixed interest)
A beneficiary has a vested interest if that beneficiary exists and does not have to satisfy any conditions imposed by the terms of the trust before becoming entitled to trust property.
Their interest is unconditional.
If a beneficiary is a minor (ie under the age of 18 years), the trustees will hold the property on trust for the beneficiary until they reach the age of 18 years. Only once the beneficiary is aged 18 years can the transfer of property to them discharge the trustees from the trust (trust lawyers often call this requirement the need to give ‘good receipt’).
Contingent interest (A type of fixed interest)
A beneficiary has a contingent interest if it is conditional upon the happening of some
future event that may not happen, or if the beneficiary is not yet in existence.
Once the beneficiary satisfies the condition, the beneficial interest vests in them and they have a vested interest.
If a beneficiary dies before the happening of the stipulated event, their interest will go back to the settlor unless the settlor has provided that the beneficial interest should pass to someone else.
A trust with a contingent interest is still a fixed interest trust, because the settlor has stipulated upfront who gets what (and when) and the trustees have no discretion when it comes to the distribution of trust property.
Successive interest
Trusts can be used to distribute property over successive generations.
Discretionary trust
Until the trustees exercise their discretion to distribute property to particular members of the class, no individual member of that class has a beneficial entitlement to the trust fund. Pending the distribution of trust property by the trustees, the individual members of the class are referred to as the ‘objects’ of the trust as opposed to beneficiaries (to make it clear that they do not yet have any individual proprietary entitlement). If an individual object is selected by a trustee, at that point they have a (usually) vested right in that part of the trust property that the trustee has decided to transfer to them.
The rule in Saunders v Vautier
Bare Trusts
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’.
The extended rule of Saunders v Vautier
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.
