Beneficial entitlement & types of trust

TR.03 — Beneficial Entitlement & Types of Trust

Core idea. A trust splits ownership: the trustee holds the legal title; the beneficiary holds the equitable (beneficial) interest. Equity treats the beneficiary as the "real" owner. The trustee's job is fiduciary — manage the property for the beneficiary, not themselves.

Fixed vs discretionary trusts

• Fixed trust — beneficiaries' shares are defined ("to A and B equally"). Certainty of objects test: the complete list test (IRC v Broadway Cottages) — you must be able to list every beneficiary.
• Discretionary trust — trustees choose who, among a class, benefits and how much. Objects test: the "is or is not" / given postulant test (McPhail v Doulton; Re Baden (No 2)) — can you say of any given person whether they are or are not within the class. No list needed.
• Power of appointment (not a trust duty): same "is or is not" test (Re Gulbenkian), but trustees may, not must, exercise it.

Vested vs contingent

• Vested interest — already belongs to the beneficiary (even if possession is postponed). A vested interest passes to the beneficiary's estate on death.
• Contingent interest — depends on a future event (e.g. "to A if she reaches 21"). If the condition fails, the interest fails.

The Saunders v Vautier rule

A beneficiary who is adult (18+), of sound mind, and absolutely entitled can demand the trust property and end the trust early — overriding the settlor's wishes. If interests are shared, all beneficiaries together (sui juris, between them absolutely entitled) can collapse the trust (Saunders v Vautier).

Bare trusts

Trustee holds for a single absolutely-entitled beneficiary with no active duties — beneficiary can call for the property at any time.

Common traps

• Don't confuse the certainty-of-objects tests. Fixed = complete list; discretionary/powers = is-or-is-not. Mixing them loses marks.
• Administrative unworkability can still void a discretionary trust even if the is/is/not test is met (R v District Auditor ex p West Yorkshire — "all residents of West Yorkshire").
• Conceptual vs evidential certainty. Only conceptual uncertainty (vague class definition) is fatal; evidential gaps are not.
• Vested ≠ in possession. A remainder can be vested but enjoyed later.
• Saunders v Vautier needs all beneficiaries acting together and absolute collective entitlement — one minor or unborn beneficiary blocks it.