⇒ The beneficiary principle holds that a trust can be valid only if it has a beneficiary
⇒ The principle gives rise to the following questions:
There are 2 different understandings of what a beneficiary is, and therefore 2 different versions of the beneficiary principle
⇒ The first understanding of a beneficiary equates a beneficiary with an equitable owner
“Beneficiary” as equitable owner of the trust property
⇒ On one view, a “beneficiary” is someone who has equitable ownership of the trust property → The “beneficiary principle” thus demands the existence of an equitable owner in order for there to be a valid trust
When does X have “equitable ownership” of trust property?
⇒ X has equitable ownership of trust property if he has an immediate claim to the trust property → X has a claim to the trust property if he can avail himself of the rule in Saunders v Vautier (1841) (i.e. is able to wind up the trust and take the trust property absolutely)
“Beneficiary” as anyone holding a proprietary interest in trust property
⇒ An alternative view takes a “beneficiary” to be anyone possessing a proprietary interest in trust property → the “beneficiary principle” thus demands the existence of someone with a proprietary interest in the trust property in order for there to be a valid trust
When does X possess a “proprietary interest” in trust property?
⇒ X possesses a “proprietary interest” in trust property if it is at least possible that the trust property will be paid out to him (Nolan)
⇒ While the “equitable owner” of trust property necessarily has a “proprietary interest” in it, the converse is not true
⇒ In consequence, the 1st understanding of the beneficiary principle, is narrower than the 2nd
Does either version of the ben principle provide an accurate description of our law?
BENEFICIARY PRINCIPLE VERSION 1: EQUITABLE OWNER ESSENTIAL FOR VALIDITY:
Is this, first, description of the beneficiary principle an accurate description of our law?
⇒ The first, narrower, version of the beneficiary principle has the support of James Penner:
⇒ Equitable ownership is undoubtedly a feature of bare trusts
⇒ It is less clear that equitable ownership characterises other trust configurations, e.g.:
⇒ Even if we are happy, in theory, with viewing multiple individuals as together possession equitable ownership of trust property, we certainly encounter a problem with large scale discretionary trusts e.g. the large scale discretionary trust in Mcphail v Doulton
BENEFICIARY PRINCIPLE VERSION 2: PROPRIETARY INTEREST ESSENTIAL FOR VALIDITY:
⇒ The 2nd, wider, version of the beneficiary principle is implicit in various judicial statements including: “If the beneficial interest was in [X] and he fails to give it away effectively to another or others…it must remain in him.” (Vandervell v IRC [1967] Lord Upjohn)
⇒ The version of the beneficiary principle which demands a proprietary interest in order for a trust to be valid provides a more accurate description of our law
⇒ Crucially, this version of the beneficiary principle accommodates trusts requiring payment to multiple people
⇒ However, this wider version of the beneficiary principle – just as much as the narrower version – struggles to account for the existence in our law of the validity of purpose trusts
⇒ The descriptive accuracy of the wider beneficiary principle is, however, called into question by the existence of legally valid purpose trusts
⇒ A “purpose trust” does not provide for the trust fund to be given to a person(s) as cash but instead specifies that it is to be spent on delivering a particular purpose
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⇒ There are three categories/types of legally valid purpose trust:
⇒ A purpose trust not falling within one of the above categories is legally void (Re Astor’s Settlement Trusts [1952]; Re Shaw’s Will Trust [1957])
⇒ A charitable trust is one aimed at exclusively charitable purposes (CA s.1)
⇒ A charitable purpose is a purpose which falls within the list in CA s.3(1) and is for the public benefit (CA s.2)
⇒ The law has accepted as valid some non-charitable purpose trusts.
⇒ The trusts accepted as valid are limited to those aimed at the following purposes:
⇒ The final category of valid purpose trusts are what is known as a Re Denley purpose trust
⇒ Trusts aimed at purposes are valid when there are individuals directly and tangibly benefited by the purpose’s performance (Re Denley [1969])
⇒ In Re Denley, a trust for the purpose of providing a sports field to be used by the employees of a particular company was held legally valid
⇒ The principle in Re Denley underlies a number of other decisions e.g. Re Abbott Fund Trusts [1900]; Re Aberconway [1953]; Barclays Bank v Quistclose [1970]
⇒ Purpose trusts clearly lack a beneficiary (in both the narrow and wide sense of the word), but this does not dissuade those who consider the beneficiary principle an accurate description of our law
⇒ Advocates of the beneficiary principle regard charitable trusts as ‘exceptional’ (Re Endacott [1960]), miscellaneous, non-charitable purpose trusts as ‘anomalous’ (Re Astor [1952]) and Re Denley etc. as wrongly decided (Twinsectra v Yardley [2002])
⇒ Enforceability principle holds a trust can be valid only if there is someone to enforce it
⇒ So what the enforceability principle is dictating then that a trust is only valid if there is someone who can take the trustees to court in the event of a breach or suspected breach of their duty
⇒ There are various judicial statements supporting the enforceability principle:
⇒ Trusts with beneficiaries (in both the narrow and wide sense of the word) comply with the enforceability principle: they are enforced by their beneficiaries
⇒ Importantly, the enforceability principle can also accommodate some categories of legally valid purpose trust
⇒ Charitable trusts comply with the enforceability principle: they are enforced by the Attorney-General and Charity Commission (something neither beneficiary principle could do)
⇒ Re Denley purpose trusts comply with the enforceability principle: they are enforced by those persons benefited by the purpose (as Goff J highlighted in the judgment)
⇒ The category of miscellaneous, non-charitable purpose trusts does not comply with the enforceability principle: such trusts are not fully enforceable as it is only the remainderman who has standing to sue the trustee (Pettingall v Pettingall (1842))
⇒ Given the legal validity of miscellaneous, non-charitable purpose trusts, the enforceability principle is not a fully accurate description of our law
⇒ Yet it provides a more accurate description than does the beneficiary principle
⇒ Are there any arguments to support the narrower version of the beneficiary principle as a normative vision of trust law i.e. should we be saying that you can only create a valid trust if that trust features an equitable owner?
⇒ The case for restricting valid trusts to those conferring equitable ownership rests on arguments relating to rights and economic utility
⇒ There are, however, countervailing considerations; not least, facilitative logic
⇒ The wider version of the beneficiary principle is inferior from a rights/economic utility perspective but responds better to facilitative logic
⇒ Although this version of the beneficiary principle is often rationalised and defended on its own terms, people frequently defend it as a normative vision on the grounds that a beneficiary is needed to enforce a trust
⇒ The enforceability principle, while rooted in the idea that trusts exist to facilitate settlor intent, does not fully express this idea
⇒ Facilitation is compromised by the demand for enforceability; this demand captures the thought that an unenforceable trust is an unintelligible concept
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