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Equity and Trust - Beneficiary Principle
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Comprehensive notes on Equity and Trust Law in the UK, on the beneficiary principle.
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EQUITY & TRUSTS REVISION NOTES1. OVERVIEW:
WHAT IS THE BENEFICIARY PRINCIPLE?
• Once the three certainties have been established, we need to determine whether the
beneficiary principle is satisfied.
→ BENEFICIARY PRINCIPLE: the requirement that there is an identifiable beneficiary who can
enforce the trust, i.e. a beneficiary who can go to the court for said court to decree
performance in their favour if the trustee does not fulfil their obligation to carry out the trust.
⇒ Morice v Bishop of Durham: “every trust must have a definite object. There must be somebody in
whose favour the court can decree specific performance.”
WHAT IS THE RATIONALE FOR THE PRINCIPLE?
• Without a beneficiary, there is no owner: a trust renders the beneficiaries the equitable
owners of the trust property.
• A trust cannot be enforced by the court without a beneficiary: it is the beneficiaries, as the
people who are most interested in the proper administration of the trusts, that bring any
abuses by the trustee(s) to the court’s attention (Lord Eldon in Morice). Only beneficiaries
have the locus standi to bring proceedings against the trustee.
! “Just as a car needs an engine, so a trust needs an enforcer.” – Professor David Hayton.
• The principle links to the rules of perpetuity: the law provides that property may not be
subject to a trust for an excessive period of time. A private purpose trust cannot exceed the
perpetuity period (two years longer than the life of any humans connected to the gift in the
trust) or else, it will be void.
HOW DOES IT DIFFER FROM ‘CERTAINTY OF OBJECTS’?
• This seems to overlap with the certainty of objects requirement – if there are certain objects,
it follows that there are identifiable beneficiaries.
• However, this principle has a distinct function in terms of requiring identifiable beneficiaries.
For example, the trust for the settlor is for his relatives – this is conceptually and evidentially
certain. However, all his relatives are deceased and thus, the class of beneficiaries will be
empty. The trust will fail under the beneficiary principle, because there is no-one available to
enforce the trust and therefore, it will be invalid.
WHICH TRUSTS FALL WITHIN AND OUTSIDE THE PRINCIPLE?
• A consequence of recognising the beneficiary principle is that an express trust must be a
trust for persons (these trusts have ascertainable beneficiaries who can enforce the trust).
, EQUITY & TRUSTS REVISION NOTES
• This means trusts for purpose will, generally, not be valid. However, there are three
exceptions to this, as will be explored below.
⇒ Roxburgh J, Re Astor: “anomalous and exceptional… concessions to human weakness or
sentiment.” Here, he makes a classic statement of the principle: trusts for the benefit of people
will be valid and trusts for the fulfilment of abstract purposes will be invalid.
⇩
2. THE NATURE OF THE BENEFICIARY’S INTEREST:
THE RULE IN SAUNDERS v VAUTIER:
• The rule in Saunders v Vautier: this rule states that the beneficiaries may terminate the trust,
bring the equitable interest to an end and convert it into an absolute interest if they are: (1)
sui juris, i.e. of full age (18) and of sound mind; (2) and they are collectively absolutely
entitled to do so in equity.
⇒ Saunders v Vautier: the trustees resisted the beneficiary’s claim to immediate transfer of the
shares and accumulations of income to himself, on the basis that they were directed not to transfer
the legal title to him until he reached 25. However, it was held that he was entitled to the transfer
immediately as he was absolutely entitled to the beneficial interest. The beneficiary/ beneficiaries
under a trust, who together make up 100% of the beneficial interest, can bring that whole trust to an
end against the settlor’s will and the trustees.
↓
INSOLVENCY:
• One will be insolvent if they are no longer able to service debt, i.e. they cannot keep up with
the payments.
• If this is the case, they can apply to the courts for a trustee in bankruptcy, to take hold of
their estate and determine how to satisfy their creditors with the insufficient funds. Creditors
tend not to obtain what they are owed, but they will obtain something.
• Allocation will be prioritised and there will be a queue of creditors (see below). If one can
demonstrate they have a beneficial interest in a property, they can skip the queue of
creditors completely and their property will not even make it to the estate in bankruptcy.
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