Beneficial Entitlement Flashcards
The nature of a beneficiary’s entitlement under a trust
It varies depending on the terms of the trust. It is important to understand the nature of any beneficial interest in order to be able to advice:
a) whether the beneficiary’s interest is uncondidtional or conditional and liable to fail if the condition is not satisfied;
b) when the beneficiary will be able to call for trust property; and
c) to what the beneficiary is entitled.
Capital and income
Property’s return can either be a capital or an income return:
* A capital return relates to the underlying value of the property in question. A capital gain means that the underlying value of the thing you own has gone up over time.
* An income return is money received on a regular basis deriving from property.
Fixed interest trusts: vested, contingent and successive interests
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. There interest is unconditional. If the beneficiary dies before the trust property is paid over to them, the trust property will belong to the beneficiary’s estate, ie. it will pass as part of the beneficiary’s property under their will or intestacy.
If a beneficiary is a minor, 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.
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 shoul pass to someone else.
Trusts can be used to distribute property over SUCCESSIVE generations.
Discreationary trusts
In a discreationary trust, the settlor typically identifies the class of people they would like to benefit but leaves it up to the trustees to decide who amongst that class will in fact benefit and in what amount
The rule in Saunders v Vautier
The beneficiaries can end the trust by calling for a transfer of trust property to rhemselves 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) they all agree.
