Beneficiaries Flashcards
What is the primary role of a beneficiary in a trust?
A) To oversee the trustee’s personal finances
B) To enforce the trustee’s obligations and benefit from the trust property
C) To manage and distribute the trust assets
D) To act as a legal owner of the trust property
B) To enforce the trustee’s obligations and benefit from the trust property
Explanation: The beneficiary principle states that a trust must have a beneficiary who can enforce the trustee’s duties. Without an enforceable obligation, the trustee would have absolute ownership, contradicting the concept of a trust.
What is a fixed trust?
A) A trust where beneficiaries’ entitlements are determined by trustee discretion
B) A trust where the settlor has fixed the beneficiaries’ entitlements
C) A trust that is only valid for a fixed period
D) A trust that cannot be revoked
B) A trust where the settlor has fixed the beneficiaries’ entitlements
Explanation: In a fixed trust, the settlor specifies how the trust assets will be distributed, meaning the trustee has no discretion over the beneficiaries’ entitlements.
What is the key characteristic of a discretionary trust?
A) Beneficiaries have fixed equitable proprietary rights
B) Beneficiaries have no enforceable rights
C) Trustees have discretion in distributing trust property
D) Trustees have no control over trust property
C) Trustees have discretion in distributing trust property
Explanation: In a discretionary trust, trustees decide how to distribute the trust fund among the objects (potential beneficiaries). The beneficiaries only have a hope of benefit rather than a fixed entitlement.
Which of the following is NOT a right of a beneficiary under a trust?
A) Right to enforce the trustee’s duties
B) Right to demand that the trustee distributes the trust property in a specific way
C) Right to be informed of their entitlement once vested
D) Right to sue for breach of trust
B) Right to demand that the trustee distributes the trust property in a specific way
Explanation: While beneficiaries can enforce a trustee’s duties, discretionary beneficiaries cannot demand a particular distribution—they can only ensure the discretion is exercised.
Why is certainty of objects important in a trust?
A) To ensure the trust assets remain in the trustee’s control
B) To allow the court to enforce the trust if necessary
C) To give trustees the power to change beneficiaries
D) To make sure the settlor can reclaim the trust property
B) To allow the court to enforce the trust if necessary
Explanation: The certainty of objects principle ensures that the beneficiaries are identifiable so they can enforce the trust and hold the trustee accountable.
Which of the following statements about discretionary trusts is TRUE?
A) Beneficiaries have absolute ownership over the trust assets
B) The trustee must distribute the trust property equally among beneficiaries
C) The trustee has discretion over which beneficiaries receive assets and in what proportions
D) The beneficiaries can sell their interest in the trust
C) The trustee has discretion over which beneficiaries receive assets and in what proportions
Explanation: In discretionary trusts, the trustee has the power to decide which beneficiaries benefit and to what extent.
A settlor creates a trust stating, “I leave £50,000 to my trustee to distribute as they see fit.” What is the legal status of this trust?
A) A valid fixed trust
B) A valid discretionary trust
C) A trust that fails due to lack of certainty of objects
D) A resulting trust arises for the settlor
C) A trust that fails due to lack of certainty of objects
Explanation: A trust must have certainty of objects (i.e., identifiable beneficiaries). The phrase “as they see fit” is too vague, and without clear beneficiaries, the trust is likely to fail.
A trustee sells trust property to a third party. The fixed beneficiaries claim their equitable interest against the buyer. What is the likely outcome?
A) The buyer takes the property free of the beneficiaries’ claims
B) The beneficiaries can assert their equitable proprietary rights if the buyer had notice of the trust
C) The trustee is personally liable, but the property remains with the buyer
D) The trust property automatically returns to the trust
B) The beneficiaries can assert their equitable proprietary rights if the buyer had notice of the trust
Explanation: Beneficiaries of a fixed trust have equitable proprietary rights and can assert their interest against a third party if the buyer knew the property was subject to the trust.
A trustee refuses to exercise discretion in a discretionary trust. What can the beneficiaries do?
A) Demand the trustee to distribute trust assets in equal shares
B) Request the court to intervene and ensure discretion is exercised
C) Take legal ownership of the trust assets themselves
D) Remove the trustee and become legal owners of the trust
B) Request the court to intervene and ensure discretion is exercised
Explanation: Beneficiaries of a discretionary trust cannot dictate distributions but can ask the court to intervene if the trustee refuses to exercise their discretion.
A trustee distributes all trust assets to a single beneficiary, despite the terms requiring equal distribution among four beneficiaries. What legal action can be taken?
A) The trustee can be sued for breach of trust
B) The beneficiary must return the funds voluntarily
C) The trust automatically becomes a discretionary trust
D) The other beneficiaries lose their rights
A) The trustee can be sued for breach of trust
Explanation: Trustees must follow the terms of the trust. If they distribute improperly, they can be sued for breach of trust, and the affected beneficiaries can seek compensation.
Which of the following best describes the beneficiary principle in trusts?
A) A trust must have a clearly identifiable beneficiary who can enforce the trustee’s obligations.
B) A trust can exist without a beneficiary as long as it has a stated purpose.
C) Trustees are the legal owners of the trust property and owe no obligations to beneficiaries.
D) The beneficiary principle applies only to charitable trusts.
A) A trust must have a clearly identifiable beneficiary who can enforce the trustee’s obligations.
Explanation:
The beneficiary principle states that a private trust must have at least one identifiable beneficiary who can enforce the trust against the trustee. This principle was established in Morice v Bishop of Durham (1804). The only exception is charitable trusts, which are enforced by regulatory bodies rather than specific individuals.
In which of the following scenarios would the rule in Saunders v Vautier apply?
A) A discretionary beneficiary demands immediate access to trust funds, despite the trustees’ discretion.
B) A minor beneficiary requests that the trust be terminated and assets be distributed.
C) An absolutely entitled beneficiary, who is over 18 and mentally capable, requests to terminate the trust and claim legal ownership of trust property.
D) A group of potential beneficiaries, all with contingent interests, request that the trust be dissolved before the contingency is met.
C) An absolutely entitled beneficiary, who is over 18 and mentally capable, requests to terminate the trust and claim legal ownership of trust property.
Explanation:
The rule in Saunders v Vautier (1841) allows an absolutely entitled beneficiary (one who has an immediate and vested interest) to terminate the trust and demand the transfer of trust property, provided they are of full age (18 or older) and of sound mind. This applies even if the trust deed specifies that the property should remain in trust.
How does a fixed trust differ from a discretionary trust in terms of beneficiary rights?
A) In a fixed trust, beneficiaries have automatic rights to trust property, whereas in a discretionary trust, beneficiaries only have a hope of benefiting.
B) In both types of trusts, the trustees have complete discretion over how the trust property is distributed.
C) Beneficiaries of a discretionary trust have stronger proprietary rights than those of a fixed trust.
D) In a fixed trust, the trustee can choose who benefits and in what proportions.
A) In a fixed trust, beneficiaries have automatic rights to trust property, whereas in a discretionary trust, beneficiaries only have a hope of benefiting.
Explanation:
In a fixed trust, the settlor determines exactly how the trust assets will be distributed, and beneficiaries have a proprietary interest in the trust property. In a discretionary trust, the trustees have discretion over how the assets are distributed among potential beneficiaries, meaning no beneficiary has a guaranteed right until discretion is exercised.
A trustee distributes trust property to an individual not named in the trust deed. Which of the following is true?
A) The distribution is valid as long as the trustee acted in good faith.
B) The affected beneficiaries can challenge the distribution in court.
C) The trustee has the absolute discretion to distribute property to anyone.
D) The recipient of the distribution automatically becomes a new beneficiary of the trust.
B) The affected beneficiaries can challenge the distribution in court.
Explanation:
A trustee must follow the terms of the trust and distribute property only to named beneficiaries. If they exceed their powers by distributing to an unauthorized person, the beneficiaries can challenge the decision in court. Trustees are not allowed to use discretion beyond the scope of the trust deed.
Which of the following best describes the rights of beneficiaries under a discretionary trust?
A) Beneficiaries have a vested proprietary interest in the trust property.
B) Beneficiaries can demand a specific distribution from the trustee.
C) Beneficiaries have a right to be considered for distributions but no automatic entitlement.
D) Beneficiaries can sell or transfer their interest in the trust property.
C) Beneficiaries have a right to be considered for distributions but no automatic entitlement.
Explanation:
Under a discretionary trust, beneficiaries do not have automatic rights to trust property. Instead, they have a mere expectation or right to be considered for distribution. The trustee has discretion over how to distribute assets among potential beneficiaries.
