Beneficial Entitlement

Question 1

What is a fixed trust?

Answer 1

A fixed trust is a trust where the entitlement of the beneficiaries is fixed by the settlor. The trustees have no discretion in the distribution of the trust property.

Question 2

What are successive interest trusts?

Answer 2

Successive interest trusts involve a series of consecutive interests in the same trust property, such as a life interest trust.

Question 3

What is a life interest trust?

Answer 3

A life interest trust involves a beneficiary receiving income during their lifetime, with another beneficiary entitled to the capital after their death.

Question 4

What happens in the example ‘A house on trust to A for life, remainder to B’?

Answer 4

A receives the income from the house during their lifetime, and upon A’s death, B receives the house itself.

Question 5

What is a discretionary trust?

Answer 5

In a discretionary trust, trustees have the discretion to determine how to distribute the trust property among potential beneficiaries.

Question 6

What rights do objects of a discretionary trust have?

Answer 6

Objects have no equitable interest until the discretion is exercised in their favor, but they can ensure proper administration of the trust.

Question 7

What is a power of appointment?

Answer 7

A power of appointment is a right to choose who receives property from within a specified class of objects, with complete discretion for the donee.

Question 8

What is the difference between a power of appointment and a discretionary trust?

Answer 8

A power of appointment does not require exercise, while trustees of a discretionary trust must exercise their discretion.

Question 9

What is a vested interest?

Answer 9

A vested interest is a current right to property, requiring nothing more for the beneficiary to become entitled.

Question 10

What is a contingent interest?

Answer 10

A contingent interest is conditional upon the occurrence of an uncertain future event and becomes vested if the condition is satisfied.

Question 11

What are the two types of vested interests?

Answer 11

Vested interests can be vested ‘in possession’ (current right to enjoyment) or vested ‘in interest’ (right to future enjoyment).

Question 12

What is the significance of a ‘gift-over’ in trusts?

Answer 12

A ‘gift-over’ indicates that an interest is contingent and specifies what happens if the condition is not met.

Question 13

What is the difference between capital and income in trusts?

Answer 13

Beneficial entitlement to capital and income can differ; an absolutely entitled beneficiary has a vested interest in both.

Question 14

What is a fixed trust?

Answer 14

A fixed trust is a trust where the entitlement of the beneficiaries is fixed by the settlor. The trustees have no discretion in the distribution of the trust property.

Question 15

What are successive interest trusts?

Answer 15

Successive interest trusts involve a series of consecutive interests in the same trust property, such as a life interest trust.

Question 16

What is a life interest trust?

Answer 16

A life interest trust involves a beneficiary receiving income during their lifetime, with another beneficiary entitled to the capital after their death.

Question 17

What happens in the example ‘A house on trust to A for life, remainder to B’?

Answer 17

A receives the income from the house during their lifetime, and upon A’s death, B receives the house itself.

Question 18

What is a discretionary trust?

Answer 18

In a discretionary trust, trustees have the discretion to determine how to distribute the trust property among potential beneficiaries.

Question 19

What rights do objects of a discretionary trust have?

Answer 19

Objects have no equitable interest until the discretion is exercised in their favor, but they can ensure proper administration of the trust.

Question 20

What is a power of appointment?

Answer 20

A power of appointment is a right to choose who receives property from within a specified class of objects, with complete discretion for the donee.

Question 21

What is the difference between a power of appointment and a discretionary trust?

Answer 21

A power of appointment does not require exercise, while trustees of a discretionary trust must exercise their discretion.

Question 22

What is a vested interest?

Answer 22

A vested interest is a current right to property, requiring nothing more for the beneficiary to become entitled.

Question 23

What is a contingent interest?

Answer 23

A contingent interest is conditional upon the occurrence of an uncertain future event and becomes vested if the condition is satisfied.

Question 24

What are the two types of vested interests?

Answer 24

Vested interests can be vested ‘in possession’ (current right to enjoyment) or vested ‘in interest’ (right to future enjoyment).

Question 25

What is the significance of a ‘gift-over’ in trusts?

Answer 25

A ‘gift-over’ indicates that an interest is contingent and specifies what happens if the condition is not met.

Question 26

What is the difference between capital and income in trusts?

Answer 26

Beneficial entitlement to capital and income can differ; an absolutely entitled beneficiary has a vested interest in both.

Question 27

When there are successive interest trust who has interest vested in income and who has interest in capital

Answer 27

Life beneficiary - interest in income
Remainder beneficiaries - interest in capital

Question 28

What is the basic principle in Saunders v Vautier?

Answer 28

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 29

Under what condition can a beneficiary exercise their rights in Saunders v Vautier?

Answer 29

A beneficiary can only exercise their rights if they are absolutely entitled to the trust property.

Question 30

How has Saunders v Vautier been extended?

Answer 30

It has been extended to cases involving multiple beneficiaries, allowing them to separately exercise their rights if their interests can be severed without impacting others.

Question 31

Can an adult beneficiary require the trustee to transfer their share in a fixed trust?

Answer 31

Yes, if the trust fund is easily divisible, the adult beneficiary can require the trustee to transfer their share to them.

Question 32

What is required for beneficiaries of complicated fixed trusts to exercise their rights?

Answer 32

All beneficiaries must agree and satisfy the conditions relating to age and capacity.

Question 33

Can objects without vested interests exercise Saunders v Vautier rights?

Answer 33

Yes, objects of a discretionary trust or fiduciary power with a gift-over in default of appointment can exercise these rights.

Question 34

What is the practical limitation of exercising Saunders v Vautier in large trusts?

Answer 34

It is unlikely to happen in practice due to the difficulty in identifying all objects and reaching a consensus.

Question 35

What legal limitations exist regarding the rule in Saunders v Vautier?

Answer 35

Beneficiaries cannot interfere in the administration of a trust while it subsists; they can either collapse the trust or allow trustees to continue their obligations.

Question 36

What choices do beneficiaries have regarding the administration of the trust?

Answer 36

They can direct the trustee to transfer the property out of the trust or remain as objects of the trust.

Question 37

What is the summary of the rule in Saunders v Vautier?

Answer 37

The rule allows absolutely entitled adult beneficiaries of sound mind to terminate the trust and take legal title to the capital, or direct the trustees to transfer legal title to a third party.