Beneficial Entitlement-FS Flashcards
(28 cards)
What is the main difference between capital and income in a trust context?
Capital refers to the value of an asset itself, which may be sold for a lump sum, while income is the recurring profit it generates (e.g., rent, interest, dividends).
How can a house generate both capital and income in a trust?
A house can produce income if let (through rent) and capital if sold.
What defines a vested interest under a Fixed Interest Trust?
A beneficiary has a vested interest if they are alive and do not need to satisfy any conditions to be entitled to the trust property.
Can a minor have a vested interest in a trust?
Yes, but they cannot give good receipt for the property until reaching legal age (typically 18), though their interest will still pass to their estate if they die
When is a beneficiary’s interest considered contingent?
When entitlement to the trust property depends on fulfilling a specific condition, such as reaching a certain age or another event.
What happens if a contingency in a trust is not met and no alternative is provided?
he trust property returns to the settlor if alive, or to the settlor’s estate if deceased.
In the context of a trust, how are shares an example of both capital and income sources?
Shares may generate income through dividends and capital through sale.
What must a trustee consider when distributing trust returns under a Fixed Interest Trust?
Whether the beneficiary is entitled to income, capital, or both, based on their vested or contingent interest and the terms of the trust.
What do successive interests in a trust determine?
They determine when a beneficiary will receive benefits from the trust and whether those benefits are capital or income.
Who is a life tenant in a trust context?
A life tenant is a beneficiary who has a vested interest in the income of the trust for the duration of their life.
What is a remainder man in a trust?
A remainder man is a beneficiary who holds a vested interest in the trust capital, which becomes payable after the life tenant’s death.
Why does a remainder man not receive any trust capital while the life tenant is alive?
Because distributing capital would reduce the income available to the life tenant, negatively impacting their interest.
Is the interest of a remainder man considered contingent?
No, because the death of the life tenant is inevitable, the interest is vested, even if the remainder man dies first (in which case it passes to their estate).
What is the difference between absolute and limited interests in a trust?
An absolute interest provides entitlement to the trust capital, while a limited interest typically grants access only to income (e.g. a life tenant’s interest).
Can a remainder man have a contingent interest?
Yes, if entitlement to capital depends on meeting a condition (e.g. finishing a degree), then their interest is contingent until the condition is fulfilled.
What happens if a life tenant dies before a contingent remainder man satisfies the condition?
The contingent remainder man is not immediately entitled to the trust property until the condition (e.g. completing education) is met.
What is a key feature that distinguishes discretionary trusts from fixed trusts?
Trustees in discretionary trusts have the power to decide which beneficiaries (objects) will receive trust property, whereas in fixed trusts, beneficiaries’ entitlements are predetermined.
In a discretionary trust, does any object have a beneficial entitlement before the trustees act?
No, objects of a discretionary trust do not have beneficial entitlement until the trustees exercise their discretion and select a beneficiary.
What happens to an object’s interest once trustees exercise their discretion in a discretionary trust?
The object’s interest will vest, and they will become a beneficiary with a beneficial entitlement to the trust property.
What is an absolute interest in the context of trusts?
An absolute interest refers to full entitlement to the capital of the trust, as opposed to merely receiving income.
What does the rule in Saunders v Vautier allow a beneficiary to do once they are solely entitled to the trust property?
They may compel the trustees to transfer the trust property to them and thereby terminate the trust.
What is a bare trust and when does it typically arise?
A bare trust arises when a beneficiary has a vested interest and full entitlement to the trust property, either from the outset or after satisfying a condition.
Bare trusts are often used by individuals who wish to invest money but delegate responsibility to a professional trustee. They transfer legal title to the trustee but retain the full beneficial interest. Because their interest is vested from the outset, they can end the trust at any time.
Under the rule in Saunders v Vautier, what conditions must be met for multiple beneficiaries to end a trust?
All beneficiaries must:
(1) be over 18
(2) have mental capacity
(3) be ascertained and in existence,
(4) All must agree
Can beneficiaries under a trust override the settlor’s wishes if they meet the rule’s conditions?
Yes, if they are all absolutely entitled and meet the legal criteria, they can terminate the trust despite the settlor’s intentions.
