Beneficial entitlement

Question 1

What is the difference between capital and income?

Answer 1

Capital = underlying value of property (eg: value of house/shares/bank accounts)

Income = money receeived on a regular basis deriving from the property (eg: rent, dividends, income)

Question 2

What interest and right does the B have?

Answer 2

Equitable proprietary interests in trust property and personal rights against T

Question 3

What is the beneficiary principle?

Answer 3

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
• 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 4

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

Answer 4

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

Question 5

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

Answer 5

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 6

What are the different types of fixed trusts?

Answer 6

• 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 7

What is the diffrence between vested, contingent, and sucessive proprietary rights?

Answer 7

• Vested = current right (unconditional)
• Contingent = conditional right (eg: on reaching 18)
• Successive = distribution of property over successive generations (eg: wife for life, remainder to son)

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

Question 8

If B’s interest is vested but they are under 18, can they ask trustees to give assets to them?

Answer 8

Only when a beneficiary is 18 can the trustees be discharged (known as the requirement to give ‘good receipt’)

Question 9

When a B turns 18, is the trust automatically brought to end?

Answer 9

No – trustees will continue holding property until the beneficiary requests the trust to be transferred to them.

Until then, it is held on a bare trust

Question 10

What are life tenants usually entited to?

Answer 10

1. Income from the trust property and/or
2. Use and enjoyment (esp re land)

Question 11

How does a life interest trust work?

Answer 11

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 capital)

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 12

If the remainderman dies before the life tenant, what happens to the trust property? How is it held?

Answer 12

Remainderman’s interest does not fail – property will pass under their will/intestacy rules applicable to them

Eg: Trust for A for life, remainder to B.

Question 13

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 13

• 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 14

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 14

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 15

What general terminology is helpful to distinguish between beneficiaries of discretionary and fixed trusts?

Answer 15

Object = discretionary
Beneficiary = Fixed

Question 16

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

Answer 16

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

Question 17

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

Answer 17

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

Question 18

How does Saunders v Vautier apply to sole adult beneficiaries and what type of trust do they have?

Answer 18

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

Bare trust = for a sole adult mentally capable beneficiary with a vested interest

Bare trusts common in the investment world! Stockbroker (who can make quick decisions on buying/selling shares) will hold portfolio of shares on bare trust for client (who has the real power and can end stockbroker’s retainer)

Question 19

Can a group of Bs exercise the rule under Saunders?

Answer 19

Yes –so long as all beneficiaries under the trust who could possibly become entitled (ie: no other person with a potential interest in trust fund):

1. Are in existence and ascertained
2. Are 18+ with mental capacity; and
3. Agree to collapsing the trust

EXAMPLE 1:
“Trust for my children until they are 21 years” There are three children: Gregory (aged 24 years), Harriet (aged 22 years) and Iain (aged 20 years). Between them, all rules are satisfied:

1. They are absolutely entitled– no one else has interest
2. They are all in existence + over 18 + mental capacity
3. They agree to collapse trust

EXAMPLE 2:
“Trustees to hold on trust for my husband, Jack, for life and remainder to my daughter, Katherine.’ Jack is still alive. Katherine is aged 20 years.

Both Jack and Katherine can agree to collectively collapse trust.

EXAMPLE 3:
Nicola gave £300,000 to trustees to hold on trust for her cousin, Matt, so long as he reached the age of 30 years. Matt is currently aged 25 years. Nicola died intestate a year ago – her statutory next-of-kin is her estranged husband, Oliver.

Matt cannot bring it to an end on his own as there is a resulting trust for Oliver

Question 20

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

Answer 20

Back to the trust fund rather than an individual

Question 21

What is a successive interest trust with a contingent interest?

Answer 21

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 22

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

Answer 22

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 23

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

Answer 23

• 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 24

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

Answer 24

• 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 25

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

Answer 25

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

Question 26

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

Answer 26

* 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 27

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 27

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 28

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 28

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 29

Example of a power of appointment

Answer 29

*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 30

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

Answer 30

* **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 31

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

Answer 31

*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 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

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

Answer 33

* 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 34

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

Answer 34

* 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 35

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 35

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 36

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

Answer 36

* 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 37

What is the income beneficiary and the capital beneficiary?

Answer 37

Other terms for the life tenant and remainderman

Question 38

What is the rule in Saunders v Vautier?

Answer 38

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 39

When can a B not exercise SvV by themselves?

Answer 39

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 40

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 40

* 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 41

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 41

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