Beneficial Entitlement Flashcards
Define capital return.
Relates to the underlying value of the property itself. Capital gain means that the underlying value of the thing you own has gone up over time.
Define income return.
Money (or monetary equivalent) received on regular basis serving from the property. This may be generated regardless of whether the property itself has made a capital gain (eg rent from a property, dividends form shares, interest from money in a bank etc).
What is a vested interest in a trust?
- Beneficiary will have a vested interest where they do not have to fulfil any specified conditions in order to become entitled to the trust property.
- Effectively their interest is unconditional.
- If beneficiary dies before trust property is paid over to them, it forms part of their estate.
- Where beneficiary is under 18, trustees hold the property for them until they reach the age of 18 (known as the requirement to give good receipt). Once they turn 18 the beneficiary must request the property form the trustees in order to become entitled.
What is a contingent interest?
- Where beneficiary has an interest in the trust property conditional upon something happening (a future event) which may not happen. For example reaching a certain age, getting married etc.
- If beneficiary dies prior to the stipulated event, property reverts back to the settlor, unless there is a provision stating someone else will obtain property in the event beneficiary dies.
- Note a trust with a contingent interest is still a fixed interest trust as settlor has stated who gets what, and when (ie there is no discretion left to the trustees).
What is a successive trust interest?
- Trust where property is intended to be distributed over successive generations.
- For example ‘ Shares in company X to my wife Molly for life, remainder to my son Adam’. As such, this separates income from capital. Whilst Adam has a vested interest in the capital of the shares, Molly has the life interest (ie income from the shares) and so Adam’s right to the capital value of the shares is postponed until Molly’s life enjoyment has expired. This would become a contingent interest trust should it state that remainder goes to Adam should he reach the age of 25.
- Trusts creating successive interests are called ‘life interest trusts’.
When does an object (ie potential beneficiary) gain a vested interest in the trust property of a discretionary trust?
Once the trustees select the individual object as being entitled to the relevant property. At that point they gain a vested interest in the trust property.
Is it possible to have a trust with is both a fixed interest trust and a discretionary trust?
Yes, the below is an example of such:
‘I give my shares in Kingfisher plc to my Trustees to hold on trust for my wife, Francesca, for life, remainder to such of my children as survive my wife and in such shares as my Trustees in their discretion see fit’.
Give a classic example of a bare trust.
Stockbroker usually holds shares on bare trust for the client and the client has the sole power to dictate how the property is dealt with (ie they can call to have the shares transferred back to them at any time).
Define what is meant by a bare trust.
- A trust for a sole adult, mentally capable beneficiary which gives the beneficiary a vested interest is called a ‘bare trust’.
- The beneficiary of a bare trust is said to be absolutely entitled to the trust property.
Explain the rule of Saunders v Vautier.
Principle has been established to extend the bare trust meaning to trusts with more than one beneficiary.
Effectively, beneficiaries can end the trust by calling for transfer of trust property to themselves or other trustees, provided all beneficiaries under the trust who could become entitled:
1) are in existence and ascertained;
2) are aged 18 and over (and have mental capacity);
3) agree to what is being proposed.
