Trusts - Beneficial Entitlement (3) Flashcards
What is the beneficial entitlement?
Beneficial Entitlement: A beneficiary’s entitlement differs by trust.
What may beneficiaries be entitled to?
Capital and Income: Beneficiaries may be entitled to capital, or income, or both.
(1) Capital: Capital is the underlying value of a property.
Interest: An ‘absolute’ interest.
(2) Income: Income is the regular return generated by a property, such as rent.
Interest: A ‘limited’ interest.
What are fixed trust interests?
Fixed Trust Interests: Beneficiaries under fixed trust have their interests ‘fixed’ by the settlor. The settlor may also decide when they will become entitled, and whether they are entitled to income, capital or both.
(1) Vested Interests: Beneficiary exists and needs to satisfy no conditions to become entitled. Their interest is ‘unconditional’, and on death the property passes to their estate.
(2) Contingent Interests: Beneficiary will only become entitled on the happening of some future event, or the beneficiary does not yet exist. If condition is not met, the property will return to settlor or pass as stipulated.
(3) Successive Interests: Property may be distributed over generations. Commonly, ‘My wife for life, remainder to my son’. The wife (life tenant) receives income for life. The son (remainderman) receives capital on her death.
What are discretionary trust interests?
Discretionary Trust Interests: Settlor determines class of potential beneficiaries, but trustees decide who benefits and to what amount.
(1) Objects: Members of the potential class are ‘objects’, not beneficiaries. Once benefited, any relevant property is vested in them.
(2) Combination: A combination of fixed and discretionary elements may be achieved. For example, ‘Francesa for life, then to my children as selected by my trustees’.
What is the rule of saunders v vautier?
Saunders v Vautier: Beneficiaries may elect to bring a trust to an end if certain conditions are met.
Bare Trusts
Bare Trusts: A trust for a sole, adult, capable beneficiary with a vested interest is a ‘bare trust’.
(1) In Practice: Common in the investment world, where clients can instruct stockbrokers, but receive the shares back at will. Also common where a sole contingent interest vests.
(2) Effect: Trustee can end trust at any time.
Extended Rule
Extended Rule: Trusts for multiple beneficiaries can be ended in the terms requested provided certain conditions are met.
(1) Conditions: All beneficiaries who could possibly become entitled are: a) in existence and ascertained (known); b) sui juris (capable adults); and c) agree.
(2) Effect: Effectively, beneficiaries can override the provisions of the settlor’s intention. A trust with 90/10 split can be paid out 50/50 if this is agreed.
