3) Beneficial Entitlement Flashcards
(66 cards)
1
Q
What are the two key components of a trust?
A
- A proprietary component
- An obligation component
2
Q
What are the two types of rights that a beneficiary gains?
A
- Equitable proprietary interests in trust property
- Person rights to enforce the trust
3
Q
What are the two principles that the ability to enforce a trust gives rise to?
A
- Beneficiary Prinicple
- Certainty of objects
4
Q
Th beneficiary principle
A
- Trust must have a beneficiary
- Trustee must be able to be held to account.
- Without a beneficiary, no enforceability of obligations, trust is meaningless
5
Q
Exceptions to the beneficiary principle
A
- Charitable and non-charitable purpose trusts
6
Q
Certainty of objects
A
- Objects of a trust will be the beneficiaries / potential beneficiaries
- Certainty needed for enforceability
- Objects and their rights needs to be ascertainable.
- Precise rights may vary, depending on whether the trust is fixed or discretionary.
7
Q
Fixed trust
A
A trust in which the entitlement of the beneficiaries is fixed by the settlor.
A fixed interest trust
8
Q
Discretionary Trust
A
- Trust under which the trustees have some discretion to distribute between the objects of the trust
9
Q
What type of rights do beneficiaries of a fixed trust have?
Proprietrary
A
Equitable proprietary rights
* Capable of sale or other forms of transfer,
* can be asserted against third parties
* Beneficiaries can have either vested or contingent interest
10
Q
Equitable proprietary rights
A
- Capable of sale or other forms of transfer,
- can be asserted against third parties
- Beneficiaries can have either vested or contingent interest
11
Q
Vested Interest
A
They have the current right
12
Q
Contingent Interest
A
They have
13
Q
What type of proprietary rights do beneficiaries of a discretionary trust?
Proprietary rights
A
- Objects of a discretionary trust do not have proprietary rights
14
Q
Personal rights of objects of Fixed trust
A
- Beneficiaries of a fixed trust have the right to compel the proper adminsitration
- Can direct trustee to take action against third party.
- Can sue trustee for a brach if act outside of their powers
- Also have the right to be informed of their entitlement under the trust once vested
15
Q
Personal rights of objects of Discretionary Trust
A
- More limited rights as do not have proprietary interests
- Enforce the trust by asking court to ensure discretion is exxercised.
- No right to request it is exercised in a particular way.
- Once discretion has been exercised in favour of an individual they have the right to be informed of their entitlement.
- Can sue trustee for breach and require personal compensation
16
Q
Fixed trusts
A
- No discretion in relation to distribution of property
- Distribute as directed by the settlor.
- May be multiple beneficiaries with different forms of entitlement
17
Q
Types of Fixed Trust
A
- Sole beneficiary
- Multiple beneficiaries with fixed shares
- Successive interest trust
18
Q
Successive interest trust
A
- Give some beneficiaries a right to income, while others are entitled to capital
19
Q
Life Interest Trust
A
A common type of successive interest trust involving a beneficiary receiving income during their lifetime, with another beneficiary or beneficiaries becoming entitled to the capital after the income beneficiary’s death.
20
Q
Income beneficiary
A
Entitled to income produced by a successive interest trsut.
“Life Tenant”
21
Q
Capital Beneficiary
A
Beneficiary entitled to the capital held on a successive interest trust
“remainderman”
22
Q
What is a life interest trust?
A
A common way to leave property via a Will as it allows testators to provide for their spouse but ensures that the spouse cannot disinherit their children when they die
23
Q
What type of trust would a contingent interest with a clear mechanism be?
A
A fixed trust, as clear mechanism for how the capital must be distributed, and trustees can determine entitlement at the point of Settlor’s death
24
Q
Discretionary Trusts
A
- Distributive discretion
- Settler determines potential beneficiaries
- Trustee determines who receives what sum
- They are flexible and enable payment based on future needs.
- Potential beneficiaries have no equitable interest in the trust property, until discretion exercised.
Do have a right to ensure trustees exercise powers properly
25
Are potential beneficiaries of a trust objects of a trust?
Yes
26
Discretion trust scenario
* Trustee must exercise discretion within a reasonable time
* Either as determined by trust document, or the facts
* Can sue to enforce discretion to be exercised
* Objects cannot compel exercise of discretion in their favour
* Can sue for breach of trust - improper investing or distributing to non-objects.
* Any compensation payable to trust not objects
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Power of appointment
A right to choose who from within a specified class of objects receives property
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Donor
The person who confers the power
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Donee
The person who receives the power
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Fiduciary power of appointment
Power of appointment given to a trustee.
Trustee does not need to exercise it, but must periodically consider whether to do so.
31
Personal power of appointment
A power of appointment given to someone who is not a trustee.
They are not required to consider exercising it.
32
Comtrast discretionary trusts with powers of appointment
* A power is at the donee's complete discretion.
* They can choose whether to exercise the power, and who to.
* Objects have more limited rights thatn objects of discretionary trusts.
* Cannot compel exercise
* Can constrain an improper exercise
*Trustee often the donee*
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Key features of powers of appointment
* No obligation on the donee to exercise power of appointment.
* Donor should make clear what will happen if not exercised = "gift over"
34
How to determine if a power of appintment or discretionary trust?
* Imperative wording suggests discretionary trust *eg "must"*
* Permissive wording such as *"may"* suggests a power of appointment.
* If discretion has been given to a third party (not a trustee) = a power of appointment, not a discretionary trust/
* A gift-over - power of appointment
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Gift over?
## Footnote
*Trust* or *power of appointment*?
* Power of Appointment
* as power not exercised
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Discretion has been given to a third party
## Footnote
*Trust* or *power of appointment*?
* If discretion given to third party
* Who is not a trustee
* Means not a discretionary trust
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Permissory wording ie *"may"*
## Footnote
*Trust* or *power of appointment*?
Suggests a power of appointment
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Mandatory language
## Footnote
*Trust* or *power of appointment*?
A discretionary trust
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Vested Interest
## Footnote
Definition
* A current right to property
* Nothing more needs to happen for beneficiary to become entitled to the property
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Contingent Interest
## Footnote
Definition
An interest in property which is conditional upon the occurrence of an uncertain future event.
Contingent interests becomevested if the condition is satisfied.
The beneficiary has no entitlement until the condition is satisfied.
41
Subdivision of vested interests
* Vested in possession
* Vested in interest
42
Vested in possession
A current right to current enjoyment of the property
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Vested in interest
A current right to future enjoyment of the property
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Contingent interests
* Ie only if survived mother.
* Otherwise would be a gift over to a charity.
* Lack of a gift-over is not fatal in creation of a contingent interest.
**The key word is "if"**
45
Entitlement to income under 18
* If under 18, the position will depend on the dispositive powers and duties of trustees
46
Successive Interests Characteristics
* Separate beneficial interests whcih follow each other
* First with interest in income
* Second in capital
Can be a life time interest, can also be limited until a certain age
* Up to the statutory perpetuity period = 124 years
47
Basic principle of Saunders v Vautier
* Sole adult beneficiary of sound mind, with a vested interest in trust property
* Is entitled to direct the trustee to transfer the legal title to them, thereby bringin the trust to an end early.
* **only if they are absolutely entitled to the trust property**
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Up to the statutory perpetuity period
= 124 years
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If two peope have beneficial interest can the rule from *Suanders v Vautier* apply?
* No
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Saunders v Vautier Case
## Footnote
**Facts**
* Under a testamentary trust shares held for Vautier until age of 25 years old.
* Requirement to accumulate income from the trust until them.
* No gift over
* When he reached 21 claimed right to have trust poperty transferred over as he had a vested interest in it.
51
Sauders v Vautier
## Footnote
Held
* Vautier's interest was vested
* Intention was not to make interest conditional upon surviving until 25, but to delay enjoyment
* Absence of gift over indicated that the testator had not inteded the property to pass to anyone else.
**If wished to receive it early that was his reight**
52
Beneficiaries with vested interests
## Footnote
Extension of the rule in Saunders v Vautier
* If each beneficiary has a distinct interest in trust proeprty
* Which can be severed without impacting the others.
* Then multiple beneficiaries can separately exercise their right.
53
Can *Saunders v Vautier* be exercised in more complicated fixed trusts, such as successive trusts?
* Yes
* May be more difficiult if rights are not easily severable,
* then can only be done if all beneficiaries agree
* And they all satisfy conditions relating to age and capacity
**Collectively they are absolutely entitled to the trust property**
54
Objects without vested interests
## Footnote
Saunders v Vautier
* *Saunders v Vautier* rights are not strictly exercisable only by beneficiaries with vested interests
* **Contingent interests** may exercise those rights but only if they act together with all the other persons who share beneficial interests *ie objects of a gift over*
55
Can beneficiaries with contingent interests exercise *Saunders v Vautier* rights?
Yes
* Only if they act together with all 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
56
Can *Saunders v Vautier* also bee xercised by the objects of a **discretionary trust **?
Yes
57
Can *Saunders v Vautier* be exercised by the objects of fiduciary power which has a gift-over in default of appointment?
Yes
* Although none of the objects have vested interests in the trust property
* Together they can be treated as a single object in whom the interest subject to the discretion of power is vested.
* Must all be adults of sound mind
58
Practical Limitations to *Saunder v Vautier*
* Large and complex trusts
* Unlikely to happen in practice
* May not be able to identify everyone to reach a concensus.
* more likely to be used in small trusts
59
Legal limitations to *Saunders v Vautier*
Choice between:
* Exercising *Saunders v Vautier* rights by directing trustee to transfer property out of the trust (whether to them or a third party)
* Remaining objects of the trust and allowing trustees to continue to act in accordance with terms
60
If beneficiaries are not happy with the administration of the trust
* May see remedies - removal and replacement of trustee
* Cannot tell trustee how to perform their role
* If wish to vary terms, could exercise *S v V* and create a new trust
61
Distinguishing between *vested* and *contingent* interests
* Look for conditional wording
* Look for a gift-over = good evidence
62
Distinguishing between *vested in possession* or *vested in interest*
* IN possession = immediate benefit
* In interest = in the future
63
Three conditions to exercise *Saunders v Vautier* for a *sole beneficiary*?
* They must be over 18
* Of sound mind
* Have a vested interest in the property
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**Review ACTIVITY 1**
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**DO A FLOW DIAGRAM**
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