Beneficial Entitlement Flashcards
Give an overview of beneficial entitlement in fixed interest trusts
The settlor has decided the shares in which each beneficiary gets the trust property, when they get it and whether they get the trust capital, trust income or both
Difference between vested and contingent interests
Vested means that the beneficiary does not have satisfy any requirements to acquire the trust property
Contingent means they do have to satisfy requirements to be entitled to trust property
- If someone with a contingent interest dies before reaching the age/meeting the requirements, the rights they would have go back to the settlor; if they reach the age, the interest vests
Difference between present/possessory and postponed/remainder interests
Present or possessory means no one else has a prior interest to trust property, so they are entitled to income or capital now
Postponed or remainder means someone else has a prior interest and they must wait their turn
Example of how present + remainder interests work
Trust for X for life and remainder to Y
X has a vested, limited interest in trust income and has a life interest
Y has a vested interest in trust capital, in remainder (he is a remainderman)
If Y dies before X, when X dies, the trust property goes to Y’s estate (it wasn’t contingent on them outliving X)
Difference between limited and absolute interests
A limited right means the beneficiary is entitled to income only
Absolute right means they are entitled to trust capital and income
Example of how limited and absolute interests work
For land, the trust income is rental income and trust capital is the market value of the land
Example to bring the three different classifications of fixed interest together
If the settlor has used the expression ‘for life,’ this splits up the trust income and trust capital interests.
The person entitled to live/benefit from rental income in a house for life is called the ‘life tenant.’
If the remainder goes to grandchildren, their interest is postponed and will be absolute – these are ‘remainder beneficiaries.’
Give an overview of beneficial entitlement in discretionary trusts
The settlor gives the trustees discretion to decide which of the beneficiaries out of a group will become entitled and in what shares
Until the trustees decide how to split the entitlement, none of the beneficiaries have a beneficial entitlement, but they can enforce the trust
What is the rule in Saunders v Vautier?
Beneficiaries can end the trust early if all beneficiaries:
- Are in existence and ascertained
- Are 18+ (adults) with mental capacity
- They agree to do so
When will the Saunders v Vautier rule not apply, even if the three main requirements are met?
Where all beneficiaries have a contingent interest, they cannot bring the trust to an end, because they are not all beneficiaries
If the beneficiaries died tomorrow, the trust property would revert to the settlor, or if the settlor was dead, the beneficiary of the residuary estate in the will.
