CG34430 - Bare trusts: Conventional but bare trusts
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Specific cases: contingency gift over to executors
Specific cases: powers of appointment held by beneficiary
Specific cases: Scotland – Special cases
Specific cases: transfer by way of security
Specific cases: payment at a particular age
Specific cases: where limitations apply
Saunders v Vautier
In certain circumstances a settlor may set up a trust which at first sight appears to be a conventional trust with settled property, trustees, one or more beneficiaries and powers and duties of the trustees set out in the deed. If however one person, has all the interests under the settlement, then under the principle in Saunders v Vautier, (1841) 4 Beav 115, he or she may call upon the trustees to hand over the property. If so then that person is absolutely entitled as against the trustees and TCGA92/S60, or there are several beneficiaries see CG34320.
In Saunders v Vautier the testator left stock to trustees in trust to accumulate the interest until Vautier reached the age of 25 and then hand over stock and accumulations to him. When he reached 21 he claimed the whole fund because he had a vested interest and the accumulations were for his benefit only.
The Master of the Rolls said: `Where a legacy is directed to accumulate for a certain period, or where the payment is postponed, the legatee, if he has an absolutely indefeasible interest in the legacy, is not bound to wait until the expiration of that period, but may require payment the moment he is competent to give a valid discharge,’ in other words, at majority.
Similar principles apply in Scottish law except that the holder of an alimentary liferent, even if he or she has every other interest, can only terminate the settlement with the court’s consent, Section1(4) Trusts (Scotland) Act 1961.
Several beneficiaries
If there are several beneficiaries, the position is rather more complicated. For instance, if one beneficiary is entitled to half the income and half the capital, and there is no possibility of either interest being taken away, then provided
the trust assets are divisible, see CG37510+, and
the beneficiary is not a minor,
he or she can call upon the trustees to hand over half the property.
If there are several beneficiaries who are entitled to a specific share of the income and the same share of the capital, they may together be jointly absolutely entitled to the property. There is a helpful discussion of the principles involved in Stephenson v Barclays Bank Trust Co, 50TC374.
If on the other hand there are beneficiaries with differing interests, then although taken together they have all the interests under the settlement, they are not absolutely entitled as against the trustee unless they specifically take action to bring the settlement to an end.
Specific cases – contingency gift over to executors
A deed or will may provide that property is held for an individual, subject to a particular contingency, typically that the individual reaches a particular birthday. Meanwhile he or she is entitled to the income. If he or she dies without the contingency being fulfilled, then the property goes to his or her executors.
In such a case there is in fact only one beneficiary because the personal representatives cannot be regarded as distinct from the individual. Therefore, the individual is absolutely entitled to the property from the outset.
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Specific cases – powers of appointment held by beneficiary {#}
In certain cases a person may have a life interest and also a general power of appointment (to give) by deed or will. This means he or she can execute a deed giving the property to anyone he or she chooses or state in his or her will exactly whom the property goes to and on what conditions. The simple test is whether the beneficiary has all the interests under the settlement, without exercising the power of appointment.
These are examples of bare trusts.
A has a life interest. He has a general power of appointment by deed or will. A also has the interest in remainder under the settlement.
B is the settlor. He has a life interest. He has a general power of appointment by deed or will. There is no remainderman specified in the deed. In this case B has the interest in remainder by law because he is the settlor, and therefore has all the interests.
This is a more difficult situation.
C has a life interest. She has a general power of appointment by will only. There is no remainderman specified in the deed.
C however also has the residual interest under the settlor’s will. Assuming that the settlor is dead, this means that she has the interest in remainder under the settlement.
In this case too the beneficiary has all the interests under the trust. Therefore it is a bare trust. The restriction to appointment by will may make it seem that her powers are restricted, but under the principle in CG34430 she can call for the property.
While the settlor was still alive however it was settled property because the settlor could always have changed his will.
By way of contrast this is not a bare trust:
D has a life interest. She has a general power of appointment by deed or will. If this is not exercised the property goes to Y.
The reason it is not a bare trust is that she does not at this stage hold all the interests. If she dies the property goes to Y. She must override Y’s interest by appointing the property to herself. A general power of appointment over trust property does not automatically make its holder absolutely entitled.
Specific cases – Scotland – special cases {#}
In Scott v Scott, [1930] SC903 it was held that where A created a trust in favour of a future wife and children it was a trust for administration only and the property was fully at his disposal. Therefore if the case had concerned CGT it would have been regarded as within TCGA92/S60.
The principle of the trust for administration can also extend to other cases where there is a remainder to a specified person. For example, P may create a trust giving himself a liferent until he reaches a particular age, say 50, at which time he is entitled to the capital. If he dies before that age the property goes to Q. If it is a trust for administration, he can claim all the property despite the interests of Q. The principles for identifying a trust for administration are complicated, and if necessary advice should be sought from BAI Assets, Residence and Valuation (Technical)
Specific cases – transfer by way of security {#}
TCGA92/S26 (1) & (2)
The transfer of an asset by way of security is not to be regarded as involving any disposal or acquisition, TCGA92/S26 (1).
Any dealings with the asset by the person holding it by way of security are to be treated as the acts of a nominee for the person entitled but for the security, TCGA92/S26 (2).
In certain cases, particularly on the breakdown of a marriage, the method of giving security may be to transfer the asset to a trustee. For instance, a husband, Mr F, may transfer shares or cash to a trustee. The trustee is to pay the income to the husband, and after his death to his heirs, unless there are arrears of alimony or maintenance payments, in which case payment is made to Mrs F. The trust will terminate on vesting day, which is the earlier of the death or remarriage of Mrs F. Purely on the test in TCGA92/S60 this is not a bare trust, because Mrs F has a contingent interest in the trust property. She receives payment from the trustees if Mr F defaults on his alimony payments. However, the transfer was basically by way of security. Therefore, Section 26 applies. But this would not be the case if the deed provided more than mere security, for example if it gave Mr F a power of appointing the property to his children on vesting day.
Specific cases – payment at a particular age
It is sometimes necessary, for the purposes of determining whether a person is absolutely entitled to trust property, to decide whether the will or deed provides that a person is entitled to it only if he or she reaches a particular age, or the reference to age is merely an instruction that the property should be transferred to the person on a particular birthday. In the latter case the person is absolutely entitled or absolutely entitled but for being an infant, and TCGA92/S60 applies. It will be necessary to consider carefully the wording of the will or deed.
Help can be obtained from BAI Assets, Residence and Valuation (Technical) if required, because generally the question matters for Income Tax purposes as well.
Suppose a will provides property for X at age 21' or on attaining 21’. Is this an absolute gift which will not be paid over until 21, although as the age of majority is now 18 under the principle in CG34430 this could be claimed at 18? Or is it a gift which will only vest if X reaches that age. In the former case it is a bare trust. X is absolutely entitled but for being an infant, see CG34320. In the latter case it is settled property.
The general rule in English law is that the presumption is that a gift in a will to someone at a particular age is contingent. Therefore a gift to P if', when’, in case' or provided’ he attains a specific age is at first sight contingent. The same applies to a gift to P on', upon’, at' or from and after’ the attainment of a particular age.
This presumption is reversed, and it is regarded as a vested gift with payment postponed if there is a specific direction in the will to pay to X the whole of the income, or such part as the trustees consider fit. Therefore, X would be absolutely entitled, or absolutely entitled but for being an infant.
But it can be difficult to distinguish a contingent gift from one which is vested but with payment deferred to a specified age. It is basically a question of determining the intentions of the testator from the terms of the will. You should exercise caution in challenging the interpretation of a trust deed on this particular point which is accepted by both the trustees and the beneficiaries.
Specific cases – where limitations apply
If a gift is limited in any way, for example a will provides for property to go `to my wife during widowhood’, this makes it settled property.
The same is true if there is a condition subsequent, that is a condition upon the fulfilment of which the property goes to someone else: for example a will provides for property to go to K `unless he becomes a solicitor’.
In both cases the gift may be described as `vested but liable to be divested’. The property is settled because the interest is not absolute.