Beneficiaries Flashcards
What is a fixed trust?
A trust in the entitlement of the beneficiaries is fixed by the settlor.
- Trustees have no discretion in relation to the distribution of the trust property - must distribute as directed by the settlor.
- Can have one or more beneficiaries and those beneficiaries may have very different entitlements
What are the rights of beneficiaries under a fixed trust?
- Personal rights against the trustee and can sue to enforce them
- Equitable proprietary interest in the trust property
What are successive interest trusts?
Involve a series of consecutive interest in the same trust property.
Common example: life interest trust with a remainderman
What is a discretionary trust?
Discretionary trusts mean the trustees have distributive discretion. Settlor determines the potential beneficiaries of the trust but the trustees determine who from within that class of objects is to receive what sum.
They are flexible and enable a settlor to make provision for different beneficiaries according to future needs.
What rights do beneficiaries under a discretionary trust have?
Objects of a discretionary trust are only potential beneficiaries. They have no equitable interest in the trust property until the discretion is exercised in their favour.
They do, however, have a right to:
1. Ensure that the trustees exercise their powers properly (must exercise discretion and do so within a reasonable time).
- Ensure that the trust is administered properly.
- Can sue for breaches of trust but any compensation will be awarded to the trust not the beneficiaries.
Cannot: compel the exercise of a discretion in their favour as they do not have any proprietary rights unless the discretion is exercised in their favour.
What is a power of appointment?
A power of appointment is a right to choose who, from within a specified class of objects receives property.
Essence of the power is the donee’s complete discretion. They can choose whether to exercise the power at all. If exercised, they have absolute discretion as to which member(s) of the of objects should benefit from its exercise.
The person who confers the power is the ‘donor’ of the power and the recipient is the ‘donee’. Often trusts will include powers and the trustee will be the donee.
What rights do objects of a power of appointment have?
Objects of a power cannot compel the exercise of the power but can constrain an improper exercise.
What are the two ways a power of appointment can be held?
As a fiduciary power - this is the case when the power is given to the trustee. Trustee does not need to exercise it but must periodically consider whether to do so.
A personal power - this is when the power is given to someone who is not a trustee. They are not even required to consider exercising it.
What is the key difference between a power of appointment and a discretionary trust?
There is no obligation on the donee to exercise a power of appointment, whereas the trustees of a discretionary trust must exercise their discretion.
Because a power does not have to be exercised, it is good practice for the donor to make clear what will happen to the property if it is not. Sometimes described as a ‘gift-over’ in default of the exercise of the power.
What factors are relevant when deciding whether an arrangement is a discretionary trust vs a power of appointment?
- Imperative working such as ‘must’ suggests a discretionary trust whereas wording such as ‘may’ suggests a power of appointment.
- If discretion has been given to a third party (not a trustee) it is a power of appointment, not a discretionary trust.
- The presence of a gift-over indicates a power of appointment but lack of one is not determinative.
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 is a contingent interest?
A contingent interest is conditional upon the occurrence of an uncertain future event. Contingent interests become vested if the condition is satisfied. The beneficiary has no entitlement unless and until the condition is satisfied.
What is vested in possession?
A beneficiary whose interest is vested in possession has a current right to current enjoyment of the property.
What is vested in interest?
A beneficiary whose interest is vested in interest has a current right to future enjoyment of the property.
What is the rule in Saunders v Vautier?
Basic principle is that a sole 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.
A beneficiary should only be able to do this alone if they are absolutely entitled to the trust property. If someone else could obtain a beneficial interest the beneficiary has no entitlement to have it transferred to them and become the absolute owner. But if each beneficiary has a distinct interest which can be severed without impacting the others, they can separately exercise their Saunders v Vautier rights.
