21.2 Beneficial Entitlement and Purpose Trusts
Key Takeaways
- A fixed-interest beneficiary has a defined proprietary share; a discretionary object has a right to be considered, not a share in any asset, until an appointment is made.
- An interest is vested when no condition precedent remains; it is contingent if, for example, it depends on attaining a stated age.
- Under Saunders v Vautier, beneficiaries who are of full age and capacity and collectively absolutely entitled may terminate the trust despite the settlor's timetable.
- Charitable trusts need an exclusively charitable purpose and public benefit under the Charities Act 2011; they are not defeated by the beneficiary principle and may last indefinitely.
- Non-charitable purpose trusts are generally void; only narrow anomalous cases (Re Endacott) and Re Denley-type arrangements with ascertainable individuals survive.
A trust that has passed the filters in 21.1 Express Trusts: Certainties, Formalities and Constitution still leaves a practical question: who can call for income, capital or collapse of the fund, and can a purpose without a human owner be valid at all? SQE1 FLK2 groups those issues as beneficial entitlement and the distinction between charitable trusts and non-charitable purpose trusts. Independent OpenExamPrep material here is for England and Wales. It is not SRA-approved text. The job is to advise a client on the strength of their claim, not to recite labels.
Fixed and discretionary interests
A fixed interest gives the beneficiary a defined share: "one-third of the residue," or "the income for life." That share is proprietary. The beneficiary can compel due administration, restrain a misapplication, and — if the other Saunders v Vautier conditions are met — call for the property. Trustees of a fixed trust have no discretion to rewrite the shares.
A discretionary object stands in a different place. Until the trustees appoint, the object has no proprietary slice of any particular asset (Gartside v IRC [1968] AC 553). What they have is a right to be considered, and to have the trustees exercise the trust power honestly and with the right questions in mind. They can sue to restrain a clear excess of power. They cannot demand "my half" on the strength of membership of the class alone. That distinction matters for tax, for creditors, and for the exam's "who can force a distribution?" questions.
Do not confuse a discretionary trust with a mere power. Under a discretionary trust the trustees must distribute (or at least must consider and, in a typical exhaustive trust, dispose of the income). Under a mere power they may decide to do nothing. Administrative unworkability can kill a discretionary trust; it does not kill a wide intermediate power in the same way (Re Manisty's Settlement [1974] Ch 17).
Vested and contingent interests
An interest is vested in possession when the beneficiary can enjoy it now (a life tenant in receipt of income). It is vested in interest when no condition precedent remains, even if enjoyment waits for a prior interest to end: "to A for life, remainder to B" gives B a vested remainder the moment the trust takes effect, unless further words postpone B. B's interest is not contingent merely because A is still alive. If B dies before A, the remainder generally passes through B's estate.
An interest is contingent when it depends on a condition precedent that has not yet occurred: "to B if B attains 25," or "to such of my grandchildren as survive me." Until the condition is satisfied, B has a hope that may fail. If the gift is to a class, ask whether a member's share is still liable to open or close; class-closing rules can accelerate vesting for those who have already qualified. For SQE1, the working contrast is simple: no outstanding condition precedent means vested; an unmet gateway condition means contingent. Settlor language about "when my daughter is ready" without an objective test may also create uncertainty of subject matter or objects rather than a clean contingency.
| Label | What the person has now | Typical wording | Can they demand the asset today? |
|---|---|---|---|
| Fixed, vested in possession | Defined proprietary share, enjoyment now | "Income to A for life" | Income, yes; capital, only if absolutely entitled or the trust so provides |
| Fixed, vested in interest | Defined remainder, no condition precedent | "To A for life, remainder to B" | Not until the prior interest ends, unless Saunders v Vautier applies collectively |
| Contingent | Gift waits on a condition | "To B if B attains 25" | No, until the condition is met |
| Discretionary object | Right to be considered | "Among my children as trustees think fit" | No share until appointment; collapse only if the whole class can use Saunders v Vautier |
The rule in Saunders v Vautier
Saunders v Vautier (1841) Cr & Ph 240 is the rule that surprises settlors. If a beneficiary is of full age, of sound mind, and absolutely entitled, they can call for a transfer of the trust property and terminate the trust, even if the settlor said "hold until she is 30." The settlor's timetable yields. If several people are entitled, all of them must be sui juris and collectively absolutely entitled, and they must agree. A minor, an unborn person, or an unascertained member of an open class blocks the rule.
The rule can apply to a discretionary trust where the class is closed and every object is an ascertained adult who agrees (Re Smith [1928] Ch 915). It does not apply merely because one favourite object wants their "fair share" over the others' objection. It does not bind a charity that is a remainder beneficiary unless that charity consents. It is not the same as an application under the Variation of Trusts Act 1958, which needs the court and can approve an arrangement on behalf of people who cannot consent. On FLK2, if every adult object is in the room and wants the fund, Saunders v Vautier is the first tool; if someone is missing or under age, it is not.
Charitable trusts
A charitable trust is a purpose trust the law is willing to enforce without a human owner of the beneficial interest. The Attorney General and the Charity Commission police it. The modern definition sits in the Charities Act 2011 (as amended). A charity is an institution established for charitable purposes only. A purpose is charitable only if it falls within the descriptions in s.3 and is for the public benefit (s.4). The s.3 list includes prevention or relief of poverty, advancement of education, advancement of religion, advancement of health, amateur sport, animal welfare, and a residual analogous head. Historical cases under Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531 still explain the older four heads, but advice now starts with the statute.
Public benefit has two strands: the purpose must be beneficial, and the benefit must be available to the public or a sufficient section of it. A personal nexus (employees of one company, members of one family) is often fatal for education and religion (Oppenheim v Tobacco Securities Trust Co Ltd [1951] AC 297). Poverty is treated more gently: a trust for poor employees can be charitable (Dingle v Turner [1972] AC 601). Fee-charging bodies can be charities, but they must still show public benefit in fact (Independent Schools Council v Charity Commission [2011] UKUT 421 (TCC)). Political purposes — changing the law or government policy as a main object — are not charitable (McGovern v Attorney General [1982] Ch 321).
Charity brings structural advantages the exam expects you to name. The beneficiary principle does not apply. Charitable trusts may last indefinitely; they are not trapped by the same perpetuity objections that kill private purpose trusts. If a charitable gift is impossible or impractical, cy-près may send the property to a similar charitable purpose rather than back to the settlor, where a general charitable intention is found (Charities Act 2011, ss.62–67 as amended). A failed private trust, by contrast, often results automatically to the settlor, which is the next section's territory.
Non-charitable purpose trusts
The beneficiary principle is the default: a trust must have a human beneficiary who can enforce it (Morice v Bishop of Durham (1804) 9 Ves 399; Re Astor's Settlement Trusts [1952] Ch 534). A trust "to promote the independence of the press" or "to maintain good relations between nations," with no charitable character and no ascertainable objects, is void. The property then sits on an automatic resulting trust for the settlor or the estate.
Re Endacott [1960] Ch 232 treats the old exceptions as concessions to human sentiment that are not to be extended. The anomalous cases, each of which must still be certain and confined within the perpetuity period, include trusts to maintain particular tombs or monuments (Re Hooper [1932] 1 Ch 38) and to care for specific animals (Re Dean (1889) 41 Ch D 552). "Some useful memorial to myself" was too vague even for that residual category in Re Endacott.
A more modern escape is Re Denley's Trust Deed [1969] 1 Ch 373: a trust expressed as a purpose (a sports ground for employees) was upheld because ascertainable individuals took a direct or indirect benefit they could enforce. Re Denley does not validate abstract purposes. Unincorporated-association cases (Re Recher's Will Trusts [1972] Ch 526; Re Lipinski's Will Trusts [1976] Ch 235) often succeed as additions to the members' contract-holding, not as pure purpose trusts. If the association is a charity, treat it under the charitable rules instead.
| Feature | Charitable trust | Non-charitable purpose trust |
|---|---|---|
| Beneficiary principle | Does not apply; Attorney General / Charity Commission enforce | Generally fatal unless an anomalous case or Re Denley benefit to persons |
| Certainty | Charitable purpose plus public benefit | Purpose must be certain; vague memorials fail |
| Perpetuity | May last indefinitely | Anomalous cases must be limited to the perpetuity period |
| Failure | Cy-près may apply | Usually automatic resulting trust to the settlor |
| Political main object | Not charitable | Still void as a private purpose trust |
Putting the distinctions to work
Helen leaves £400,000 "to my trustees to use as they think fit among my nieces and nephews," all of whom are adults and identified. That is a discretionary trust with a closed class. No niece can demand a particular sum. All of them, acting together, can invoke Saunders v Vautier and split the fund. If Helen had added "and to erect a lasting monument to my name in the park," that extra purpose is not charitable and is not a Re Denley benefit to the nieces; it risks partial voidness and a resulting trust of that slice. If she had given the same sum "to advance the education of the public in marine biology," public benefit and exclusive charitable purpose would put the gift on the charitable side, with cy-près available if the named institute had closed.
A will trust says capital is to be held until the sole beneficiary is 30. She is 24, of full capacity, and absolutely entitled. Can she call for the fund now?
A will directs trustees 'to maintain a monument to my late spouse in Highgate Cemetery for 21 years, and thereafter to hold the fund for my niece.' How should that be characterised?
Trustees hold a fund on discretionary trust for 'my children.' The settlor has died, the class is closed, and every child is an adult of full capacity. They all want the trust ended. Which statement is accurate?