Beneficiaries Flashcards
What is the beneficiary principle?
- a trust must have a beneficiary (Morice v Bishop of Durham)
What two broad types of rights do objects have?
- proprietary rights
2. personal rights
Explain the proprietary rights that the beneficiaries have and in a fixed trust.
- The beneficiaries of a fixed trust have equitable proprietary rights. Their rights may be vested or contingent but they are proprietary.
- These rights are assets which are capable of sale or other forms of transfer and can be asserted against third parties
- The objects have the power to bring the trust to an end by exercising the rule inSaunders v Vautier.
What is the rule in Saunders v Vautier?
- an absolutely entitled beneficiary (who is over 18 and of sound mind) requesting that the trustee transfers the trust property to them & collapse the trust.
- When the legal title reaches the beneficiary, the equitable interest merges into it and the beneficiary becomes the full legal owner.
- This can also be done with trust funds which are held for multiple individuals, providing that they all meet the conditions relating to age and soundness of mind, and that they agree.
Explain the proprietary rights that the beneficiaries have and in a discretionary trust.
- The objects of a discretionary trust do not have proprietary rights, at least not in the true sense, although some of their rights are akin to proprietary rights.
- Until the discretion is exercised, all the objects have is a hope that that discretion will be exercised in their favour.
- They cannot assert their rights against third parties although they do have sufficient interest in the trust property to compel its return to the trust fund.
- The objects have the power to bring the trust to an end by exercising the rule inSaunders v Vautier.
Explain the personal rights that the beneficiaries have and in a discretionary trust.
- The objects of discretionary trusts are limited
- They can enforce the trust by asking the court to ensure that the discretion is exercised (whether by the trustees, by appointment of new trustees or by the court itself) but they have no right to request that it is exercised in a particular way. Once a discretion has been exercised in favour of an individual, they have the right to be informed of their entitlement.
- Like the beneficiaries of fixed trusts, they can also sue the trustee for breach of trust and require the trustee to personally compensate the trust fund for any loss.
Explain the personal rights that the beneficiaries have and in a fixed trust.
- The beneficiaries of a fixed trust have the right to compel the proper administration of the trust by the trustees, meaning they can direct the trustee to take action such as suing a third party on behalf of the trust.
- Beneficiaries can always sue the trustees for breach of trust if they act outside their powers or in breach of their duties (although any compensation will be paid back to the trust fund rather than the individual). They also have the right to be informed of their entitlement under the trust once their interest has vested.
What is a vested interest?
- a current right/entitlement to property
What is a contingent interest?
- an interest conditional upon the occurrence of a future event (condition precedent)
- Contingent interests become vested if the condition precedent is satisfied.
- The beneficiary has no entitlement unless and until the condition is satisfied.
How can vested interests be defeated by a condition subsequent?
Vested interests can be defeated by a condition subsequent as the beneficiary’s interest is lost if the condition is satisfied. The beneficiary has an entitlement unless and until the condition is satisfied.
What are interests that are vested in possession?
A beneficiary whose interest is ‘vested in possession’has a current right to current enjoyment of the property.
What are interests that are vested in interest?
A beneficiary whose interest is ‘vested in interest’has a current right to future enjoyment of the property.
Can someone who has a contingent or defeasible interest exercise their Saunders v Vautier rights?
Not usually - a beneficiary can only collapse the trust if they are absolutely entitled to the trust property
- They may exercise those rights but only if they act together with all the other persons who share the beneficial interest in the property. In the case of contingent interests, this will include the objects of any gift-over.
Can Saunders be extended to cases involving multiple beneficiaries?
- If each beneficiary has a distinct interest in the trust property, which can be severed without impacting the others, they can separately exercise theirSaunders v Vautierrights.
○ Example is a fixed trust in equal shares, where one beneficiary is an adult and the other is a minor. As long as the trust fund is easily divisible the adult beneficiary can require the trustee to transfer their share to them. They cease to be a beneficiary and the remaining half of the fund is held entirely for the minor.
Can Saunders be extended to successive interest trusts?
- Yes
- because the rights of the beneficiaries under such trusts are not easily severable, it can only be done if all the beneficiaries agree (and they must all satisfy the conditions relating to age and capacity).
- In such circumstances, the beneficiaries may direct the trustee to transfer the trust fund to them (in such shares as they choose). This is because together they share the absolute beneficial interest in the fund.
- The effect of the extensions above means thatSaunders v Vautierrights are not strictly exercisable only by beneficiaries with indefeasible, vested interests.
