Learning Outcomes
This article explains the principle established in Saunders v Vautier, which empowers beneficiaries to collectively terminate a trust under specific conditions. After reading this article, you should understand the requirements for applying this rule, including the concepts of sui juris and absolute entitlement, the necessity for unanimous agreement among beneficiaries, and the limitations to the rule's application, particularly concerning discretionary trusts and minors. This knowledge will enable you to identify when beneficiaries can override the settlor's original intentions regarding the duration of a trust in SQE1 scenarios.
SQE1 Syllabus
For SQE1, you are required to understand the rights of beneficiaries under a trust, including their ability to terminate the trust arrangement prematurely. This involves applying the rule derived from Saunders v Vautier. Your revision should focus on:
- The requirements for beneficiaries to collapse a trust under the rule in Saunders v Vautier.
- The meaning of sui juris and absolute entitlement in the context of beneficial interests.
- The application of the rule to different types of trusts, including fixed interest and discretionary trusts.
- Limitations on the beneficiaries' power to terminate a trust.
- The consequences for trustees when the rule is validly invoked.
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- What three conditions must generally be met for beneficiaries to terminate a trust under the rule in Saunders v Vautier?
- True or False: The rule in Saunders v Vautier can be applied even if one of the beneficiaries is a minor (under 18).
- Under what circumstances might the beneficiaries of a discretionary trust be able to terminate the trust using the Saunders v Vautier rule?
- If beneficiaries validly invoke the Saunders v Vautier rule, what is the primary duty of the trustees?
Introduction
In trust law, the intentions of the settlor, as expressed in the trust instrument, usually dictate how trust property is managed and distributed. However, the beneficiaries, as the equitable owners of the trust property, possess certain rights that can, in specific circumstances, override the settlor's original directions. A key example of this is the rule established in the case of Saunders v Vautier (1841) 4 Beav 115.
This rule provides a mechanism by which beneficiaries can collectively decide to end a trust prematurely and demand the transfer of the trust property to themselves, provided certain conditions are met. It fundamentally empowers beneficiaries who hold the entire beneficial interest and have full legal capacity. Understanding this rule is essential for advising beneficiaries on their rights and trustees on their obligations when faced with such a demand.
THE RULE IN SAUNDERS v VAUTIER
The core principle established in Saunders v Vautier is that where beneficiaries are absolutely entitled to the trust property, are of full age and capacity, and unanimously agree, they can compel the trustees to transfer the legal title of the trust property to them, thereby terminating the trust.
This rule reflects the fundamental principle that, once the beneficial ownership is entirely vested in individuals who are legally capable of managing their own affairs, there is no longer a compelling reason to maintain the trust structure against their collective wishes, even if doing so contradicts the settlor's original instructions regarding the timing or manner of distribution.
Requirements for Application
For the rule in Saunders v Vautier to apply, three key conditions must be satisfied:
- Absolute Entitlement: The beneficiaries seeking to terminate the trust must, collectively, be absolutely entitled to the entire beneficial interest in the trust property. This means there can be no other potential beneficiaries (born or unborn) and no outstanding contingencies that could affect their entitlement.
- Full Legal Capacity (Sui Juris): All beneficiaries involved must be sui juris. This means they must be of the age of majority (currently 18 in England and Wales) and possess the mental capacity to understand the nature and consequences of their actions and to give valid consent.
- Unanimous Agreement: All beneficiaries who are absolutely entitled must unanimously agree to terminate the trust and direct the trustees. If even one qualifying beneficiary dissents, the rule cannot be invoked.
Key Term: Saunders v Vautier
The legal principle allowing beneficiaries who are sui juris and together absolutely entitled to the trust property to collectively terminate the trust and demand the transfer of assets, overriding the settlor's original terms regarding duration or distribution timing.Key Term: Sui Juris
A legal term meaning 'of one's own right'. In the context of trusts, it refers to beneficiaries who have reached the age of majority (18) and have full mental capacity, enabling them to make legally binding decisions regarding their property.Key Term: Absolute Entitlement
Refers to a beneficiary's (or a group of beneficiaries') complete and unconditional right to the trust property, both capital and income. No other person has any current or potential future interest, and no conditions remain unfulfilled.
Worked Example 1.1
A trust fund is held for Ben on attaining the age of 25. Ben is currently 22 years old and is the sole beneficiary with no gift-over provision if he fails to reach 25. He is mentally capable. Can Ben demand the transfer of the trust fund now under the rule in Saunders v Vautier?
Answer: Yes. Although the trust specifies distribution at age 25, Ben's interest is effectively vested (as there's no gift-over, if he died before 25, the fund would pass to his estate). As he is the sole beneficiary, absolutely entitled (subject only to reaching the age, which affects timing not entitlement per se in this context), and is sui juris (over 18 and mentally capable), he can invoke the rule to terminate the trust early.
Worked Example 1.2
Property is held on trust for Chloe for life, remainder to her children David (aged 20) and Emily (aged 16) in equal shares. Chloe, David, and Emily all agree they want to terminate the trust now and divide the capital. Can they do so?
Answer: No. Although Chloe and David are sui juris and between them, they represent the entire beneficial interest, Emily is not sui juris as she is a minor (under 18). Because unanimous agreement among beneficiaries who are all sui juris is required, the rule cannot be applied. They must wait until Emily turns 18.
EFFECT OF THE RULE
When the conditions for Saunders v Vautier are met and the beneficiaries issue a valid direction to the trustees:
- The trustees are legally obligated to transfer the trust property to the beneficiaries (or their nominees) as directed. Failure to comply could constitute a breach of trust.
- The trust terminates, even if this contradicts the settlor's express intentions regarding the timing or manner of distribution (e.g., delaying entitlement until a certain age).
- The beneficiaries become the absolute legal and beneficial owners of the property previously held on trust.
Revision Tip
Remember that the rule in Saunders v Vautier concerns the timing of entitlement, not who is entitled. It allows beneficiaries with vested interests to accelerate their enjoyment of the property. It cannot be used to alter the beneficial interests themselves or introduce new beneficiaries.
LIMITATIONS ON THE RULE
The rule in Saunders v Vautier is not universally applicable. Its use is restricted in several key situations:
Minors and Persons Lacking Capacity
As established, all beneficiaries must be sui juris. If any beneficiary is a minor or lacks the requisite mental capacity, the rule cannot apply without court approval (often sought under the Variation of Trusts Act 1958, which is beyond the scope of this article).
Contingent Interests
If a beneficiary's interest is contingent upon an event that has not yet occurred (and might never occur), they are not absolutely entitled. For example, a trust for 'such of my grandchildren as attain the age of 21'. Grandchildren under 21 have contingent interests and cannot invoke the rule. Furthermore, the class of potential beneficiaries (grandchildren) may not yet be closed (more could be born), preventing absolute entitlement among the current group.
Key Term: Contingent Interest
A beneficial interest that is conditional upon the occurrence of a future event (e.g., attaining a certain age, surviving another person). The beneficiary is not entitled unless and until the condition is met.Key Term: Vested Interest
An unconditional beneficial interest. The beneficiary's entitlement is certain, although enjoyment might be postponed (vested in interest) or immediate (vested in possession).
Discretionary Trusts
In a discretionary trust, beneficiaries do not have individual entitlement to any specific part of the trust fund; they only have the hope (spes) of being selected by the trustees to receive a distribution. As no individual beneficiary has an absolute interest, they cannot collectively satisfy the 'absolute entitlement' requirement.
However, if the class of potential beneficiaries is closed (i.e., no more beneficiaries can come into existence) and all potential beneficiaries are sui juris and unanimously agree, they can collectively terminate the trust under the rule (Re Smith [1928] Ch 915). This is rare in practice due to the difficulty of identifying all potential objects and securing unanimous agreement within a potentially large class.
Protective Trusts
These trusts often include provisions that terminate a beneficiary's primary interest (e.g., a life interest) upon certain events like bankruptcy, with the property then held on discretionary trusts for a wider class. The presence of these protective mechanisms and potential discretionary beneficiaries prevents the primary beneficiary from being absolutely entitled, thus precluding the application of Saunders v Vautier.
Exam Warning
Be careful to distinguish between a vested interest where enjoyment is merely postponed (e.g., 'to A upon attaining 25') and a truly contingent interest (e.g., 'to A if he attains 25, but if not, to B'). In the former case, if A is sui juris, Saunders v Vautier can often apply. In the latter, A is not absolutely entitled while the contingency remains unmet.
Key Point Checklist
This article has covered the following key knowledge points:
- The rule in Saunders v Vautier allows beneficiaries to terminate a trust and demand the trust property if certain conditions are met.
- The core requirements are that all beneficiaries must be sui juris (of full age and capacity) and, together, absolutely entitled to the entire beneficial interest.
- Unanimous agreement among all qualifying beneficiaries is essential.
- The rule allows beneficiaries to override the settlor's intentions regarding the duration or timing of distributions.
- Trustees must comply with a valid direction under the rule.
- The rule cannot be applied if any beneficiary is a minor or lacks capacity, or if interests are contingent and not all potential beneficiaries are ascertained or sui juris.
- Application to discretionary trusts is limited and requires all potential objects to be ascertained, sui juris, and in unanimous agreement.
Key Terms and Concepts
- Saunders v Vautier
- Sui Juris
- Absolute Entitlement
- Contingent Interest
- Vested Interest
