Beneficial entitlement

Question 1

What interest and right does the B have?

Answer 1

Equitable proprietary interests in trust property and personal rights against T

Question 2

What is the beneficiary principle?

Answer 2

A trust must have B who can hold the T to account

• Without this, the obligation component of trust is meaningless and T could do whatever they want with the property
• This would effectively make T the absolute owner (incompatible with notion of a trust)

Exception is a charitable trust (can be enforced by charity commission)

Question 3

Why is the certainty of objects interrelated to the beneficiary principle?

Answer 3

It is essential to know who the Bs of a trust are; if they are uncertainm, the T does not know to whom they owe their obligations and B will not know of their enforceable rights

Question 4

What are the B’s proprietary and personal rights in a fixed trust?

Answer 4

Proprietary (assets capable of sale/transfer)

• May be vested or contingent
• Assert against TPs (e.g. T gives away trust property, B can assert beneficial rights over new legal owner)
• Can dispose of interest
• Right to terminate under SvV

Personal

• To compel administration (e.g. suing TP on behalf of trust)
• To be informed (once interest has vested)
• To sue Ts in breach

Question 5

What is the diffrence between vested and contingent proprietary rights?

Answer 5

• Vested = current right
• Contingent = conditional right

Contingent does not necessarily mean an ‘if’ situation, can just mean there is a condition to be fulfilled

Question 6

What are the B’s proprietary and personal rights in a discretionary trust? Are their rights vested or contingent? Can they agree to terminate? Can they sue Ts for breach?

Answer 6

Proprietary (not in true sense)

• Not vested or contingent - only a hope discretion is exercised in their favour
• Can seek return of misappropriated property to trust
• Can agree to terminate (unlikely as all must agree)

Personal

• To compel exercise of discretion
• To be informed (once discretion exercised in their favour)
• To sue Ts for breach

Question 7

To what extent can objects of a DT enforce the trust using the court?

Answer 7

They can ask the court to ensure that discretion is exercised, but not in a particular way

Question 8

Can a B of a discretionary trust assert their rights against TPs?

Answer 8

No, but they do have sufficient interest to compel its return to trust fund

Question 9

What does the rule in SvV entail, who can exercise it and what is the result?

Answer 9

• Absolutely entitled B (over 18 and of sound mind) requests the T transfers trust property to them
• When B receives legal title, the equitable interest merges into it = B becomes the full legal owner

Question 10

Can a group of Bs exercise the rule under SvV?

Answer 10

Yes provided they all meet condition (age and soundness of mind) and they agree

Question 11

If compensation is obtained in a successful claim against T for breach, where will the money go?

Answer 11

Back to the trust fund rather than individual

Question 12

What is a fixed trust?

Answer 12

Trust in which entitlement of Bs is fixed by S and Ts have no discretion over distribution of the trust property

Question 13

What are the different types of fixed trusts?

Answer 13

• Sole B
• Bs with fixed shares (can be unequal)
• Successive interest trusts

E.g. on trust for A and B in proportions of 60% and 40% respectively - income and capital must be distributed in the same proportions

Question 14

What is a successive interest trust?

Answer 14

A series of consecutive interests over the same trust property e.g. a life interest trust

Question 15

How does a life interest trust work?

Answer 15

Both Bs hold the entire beneficial interest but…

• The life tenant receives income during lifetime (only interested in income)
• The remainderman are entitled to capital after life tenant’s death (only interested in capita)

Common way to leave propety via will - can provide for spouse (life tenant) but ensure spouse cannot disinherit their children (remainderman) when they die

Question 16

If there is a house on trust to X for life, remainder to Y, what is each B’s interest and what can they each do?

Answer 16

• X is interested in the income and receives income produced by house during lifetime - can live in house but cannot leave house to anyone in will
• Z is interested in the capital and receives the house on X’s death

Question 17

What is a successive interest trust with a contingent interest?

Answer 17

E.g. house on trust for A for life, remainder to B if he survives A and, if not, to C

• What happens on A’s death depends on if B is still alive
• If B alive = B receives house
• If C alive = C receives house
• If C is not alive = C’s estate receives house

Not known who receives at outset - but clear mechanism for determining

Cf successive interest trust with vested interest: here nothing can divest holder of their eventual right to property

Question 18

What is a discretionary trust?

Sometimes described as a power ‘in the nature of a trust’

Answer 18

• Trust in which entitlement of Bs is not fixed and Ts have distributive discretion
• S has determined potential Bs of the trust but Ts must determine who from within that class of objects receives what sum

Enable S to make provision for different Bs according to future needs

Question 19

Do Bs of a discretionary trust have an equitable interest (proprietary right) in the trust property?

Answer 19

No - not until discretion is exercised in their favour; they are only potential Bs

But do have a right to ensure Ts exercise powers properly

Question 20

When must Ts exercise their discretion (if not specified) and what can (potential) Bs do if they do not?

Answer 20

• Trust document may specify, but if not, within a ‘reasonable time’ (fact-specific)
• If they do not exercise discretion = objects can sue to enforce trust and ensure discretion exercised (but not in their favour; just a hope)

Question 21

What can an object of a discretionary trust sue the T for and where will compensation be payable?

Answer 21

• Can do so for breaches of trust e.g. improper investing, distributing to non-objects
• Any awarded compensation is payable to trust fund and not objects (still no proprietary rights)

Question 22

What are powers of appointment? Are they trusts? Must they be exercised?

Answer 22

• POA = a right to choose who, from within a specifed class of objects, receives property (if at all; do not have to exercise power)
• Are not trusts - but common for trusts to include powers

Objects of a power have even more limited rights than objects of DTs

Donor = confers power
Donee = receives power
Gift-over = provision for what happens if power is not exercised

Question 23

What are fiduciary and personal powers and who is each given to? Must they consider exercising it?

Answer 23

• Fiduciary power = given to T; does not need to exercise but must consider whether to periodically
• Personal power = given to non-T; not even required to consider exercising it

Question 24

What is the key difference between a power of appointment and discretionary trust and how do you tell the difference? What would a gift-over indicate?

I.e. discretion, gift-over

Answer 24

Ts of a DT must exercise discretion, donee of POA needn’t
To tell the difference:

• ‘Must’ = DT, ‘may’ = power
• If discretion given to TP and not T = POA
• Presence of a gift-over indicates POA (but lack of not determinative)

Question 25

What is a fixed trust coupled with a power? What happens if the power is not exercised? ## Footnote *my Ts must hold the trust fund for my children in equal shares. During the trust period, **my trustees may** pay any or all of the trust fund to such of my wife and children as they see fit*

Answer 25

Ts hold trust fund on fixed trust for Bs but also have power to pay some/all of property to a wider class of objects (greater flexibility but no obligation to actually exercise) * There if needed, but if not, property will be distributed in accordance with terms of FT

Question 26

Example of a power of appointment

Answer 26

*My Ts must distribute the trust fund between such of my children **as my wife may determine within 12 months of my death, and if no such determination is made in equal shares*** * Power held by a TP (S's wife) * 'May' = no obligation * Gift-over in default of exercise Ts here hold no power at all and must distribute as directed (either by wife or in equal shares)

Question 27

What is the difference between vested and contingent interests?

Answer 27

* **Vested interest** = current (but not necessarily immediate!) right to property i.e. nothing more needs to happen * **Contingent interest** = right is conditional upon occurrence of uncertain future event and will become vested once condition satisfied (B hs no entitlement unless condition satisfied) | Contingent interest will always contain '**if**'

Question 28

What is the difference between interests which are vested in interest and interests which are vested in possession?

Answer 28

* **Vested in possession** = a current right to enjoy the property (*e.g. life tenant in life interest trust*, B once reaches age of 21) * **Vested in interest** = a current right to future enjoyment of the property (*e.g. remainderman in life interest trust*, B when at an age under 21) ## Footnote The remainderman's interest is not contingent: does not obtain interest if the life tenant dies but **when** the life tenant dies

Question 29

If a B does not have a right to the property until they are a certain age, is their interest vested or contingent?

Answer 29

*When they reach 21* = They have a vested interest until they are that age, then vested possession once they reach that age *If they reach 21* = contingent

Question 30

What happens if the remainderman dies before the life tenant where the interest is **not** contingent on living longe than life tenant?

Answer 30

The interest remains part of the remainderman's estate and can pass under will/intestacy ## Footnote Interest is not contingent on living longer than life tenant!!

Question 31

When would a life interest trust contain a contingent interest?

Answer 31

*a trust of a house for a woman for life, remainder to her son **if** he survives her, and, if not, to charity* * Interest her is contingent as it will only vest if he is alive when mother dies; cannot pass to estate if he dies before (in which case charity is entitled to house)

Question 32

What is a gift-over and what will its presence indicate?

Answer 32

* Provision for what happens if power is not exercised * Presence indicates that an interest is intended to be contingent

Question 33

How to distinguish capital and income?

Answer 33

Capital is the tree (land, bank account, shares), income is the fruit produced by the tree (rent, interests, dividends)

Question 34

If a sole B is absolutely entitled, when will they (adult/minor) receive income?

Answer 34

* Adult = as it arises * Minor = not as it arises, will be accumulated, but Ts can through power of maintenance (also depends on despositive powers of T) Have a vested interest in both the income and the capital ## Footnote Same is true if B has a future interest if capital carries the intermediate income *e.g. house on trust for daughter until she reaches 21, and then transfer it to her absolutely*

Question 35

What is intermediate income (what does it arise between) and what does it mean that 'capital carries the intermediate income'?

Answer 35

* Intermediate income = income which arises between trust being established and B's capital interest vested in possession * If no one other than B is given a separate interest in the income during this period, **the capital carries the intermediate income** and B entitled to income as it arises

Question 36

If B's interest is contingent, are they entitled to income? | And no other B is given a separate interest in the income ## Footnote E.g. *hold house on trust for my daughter if she reaches the age of 21*

Answer 36

Where nobody is given separate interest in the income, the capital interest carries the intermediate income, so.., * Adult = entitled to income as it arises * Minor = accumulated

Question 37

Who has what interest in a successive interest trust (life interest trust)?

Answer 37

* Life tenant only ever has a vested interest in the income * Remainderman only ever has a vested interest in the capital (during A's lifetime, their interest in capital is vested in interest) ## Footnote NB limit does not have to be lifetime, life tenant can be limited to certain age etc.

Question 38

What is the income beneficiary and the capital beneficiary?

Answer 38

Other terms for the life tenant and remainderman

Question 39

What is the rule in Saunders v Vautier?

Answer 39

Sole adult B of sound mind and vested interest in the trust property is entitled to direct the Ts to transfer legal title to them which brings trust to end entirely | But this has been extended to multiple/contingent

Question 40

When can a B not exercise SvV by themselves?

Answer 40

If they are **not absolutely entitled** to the trust property e.g. someone else can obtain beneficial interest (B's interest contingent or could be affected by exercise of power of appointment)

Question 41

When can SvV be used where there are multiple Bs in the case of 1. each B having a distinct interest in the property which can be severed without impacting others (cash) and 2. if they do not (successive interest trusts?

Answer 41

* If each B has distinct interest in trust property which can be **severed** without impacting others (easier with cash, harder with house) * If they do not - e.g. **successive interest trusts** - where all Bs agree on how to share and satisfy age/capacity ## Footnote E.g. £2,000 held on trust for A and B in equal shares to be distributed once they reach 25 - B just turned 18 and asked Ts to transfer their share = * A and B both have vested interests and fixed shares * As adult B with SvV rights, Ts must comply with B's request and bring trust to end

Question 42

Can objects with contingent interests, of DTs, or of a fiduciary power which has a gift-over in default of appointment exercise SvV rights?

Answer 42

Only if they act together with all other persons with a beneficial interest in property (inc objects of any gift-overs!) * Together treated as single object in whom interest subject to discretion of power is vested ## Footnote But less likely where objects of a large, complex trust are too great in number to practically happen - more likely in small DTs with closed class of objects