Beneficial entitlement Flashcards
What is a fixed trust?
A fixed trust is a trust in which the entitlement of the beneficiaries is fixed by the settlor.
The trustees have no discretion in relation to the distribution of the trust property-they must distribute as directed by the settlor.
What is a discretionary trust?
The trustees of a discretionary trust have a distributive discretion. They must determine who from within the objects of the trust is to receive what sum.
Discretionary trusts are flexible-they enable a settlor to make provision for different beneficiaries according to their future needs.
What is the key difference between a power of appointment and a discretionary trust?
The key difference between a power of appointment and a discretionary trust is that there is no obligation on the donee to exercise a power of appointment, whereas the trustees of a discretionary trust must exercise their discretion.
What is a gift-over?
When a donor makes clear what will happen to the property if the power of appointment is not exercised.
What is a vested interest?
A vested interest is a current right to property. Nothing more needs to happen for the beneficiary to become entitled to the property.
What does vested in possession mean and provide an example?
A beneficiary whose interest is ‘vested in possession’ has a current right to current enjoyment of the property.
For example, a house is held on trust for a woman for life, with the remainder to the woman’s son. The woman’s interest is vested in possession
What does vested in interest mean and provide an example?
A beneficiary whose interest is ‘vested in interest’ has a current right to future enjoyment of the property.
For example, a house is held on trust for a woman for life, with the remainder to the woman’s son. The son’s interest is vested in interest.
What is a contingent interest and provide an example?
A contingent interest is conditional upon the occurrence of an uncertain future event. Contingent interests become vested if the condition is satisfied.
For example, a settlor creates a trust of a house for a woman for life, remainder to her son if he survives her, and if not, to charity.
The son’s interest is contingent on him outliving his mother. It will only vest if he is alive when his mother dies.
What is the rule in Saunders v Vautier?
The basic principle in Saunders v Vautier (1841) 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 to them thereby bringing the trust to an end early.
Describe the case of Saunders v Vautier (1841).
FACTS: Under a testamentary trust, shares were held for Vautier until he reached the age of 25, with a requirement to accumulate the income from the trust until then. There was no gift-over. When he reached the age of 21, Vautier claimed a right to have the trust property transferred to him on the basis that he had a vested interest in it.
HELD: Vautier’s interest was vested. The intention was to merely delay his enjoyment of the property until age 25, not to make his interest conditional upon surviving until age 25. The absence of a gift-over indicated that the testator had not intended to pass the property to anyone else-Vautier had a right to receive the trust property early.
Does the rule in Saunders v Vautier apply to cases involving multiple beneficiaries?
Yes, the principle has been extended to these cases.
If each beneficiary has a distinct interest in the trust property, which can be severed without impacting the others, they can separately exercise their Saunders v Vautier rights.
E.g. a fixed trust in equal shares, where one beneficiary is an adult and other is a minor, the adult beneficiary can require the trustee to transfer their share to them.
Can beneficiaries with contingent interests exercise Saunders v Vautier rights?
Yes, but only if they act together with all the other persons who share the beneficial interest in the property, including the objects of any gift-over.
