Types of Beneficial Interests

Introduction

A trust is a flexible vehicle that can confer very different forms of entitlement on different people. Before mapping the various beneficial interests, this chapter draws the fundamental distinction between **capital** and **income**, and then explains the core classifications of beneficial interest examined in SQE1 FLK1 — **vested v contingent**, **fixed v discretionary**, the **bare trust**, and **successive interests** (life interest and remainder). You must be able to read a trust instrument in a client scenario and correctly classify each beneficiary's interest.

Assessment focus

For the SQE1 FLK1 assessment you must be able to identify, from a set of facts, the **nature of each beneficiary's beneficial interest**. The examiners frequently set client-style scenarios in which you must distinguish a **vested interest** (an established, guaranteed right, whether **vested in possession** or **vested in interest**) from a **contingent interest** (one dependent on a condition being satisfied), and a **fixed trust** from a **discretionary trust**. You should also recognise a **bare trust** (the Saunders v Vautier position) and a **successive interest** (life tenant and remainderman). These are single best answer questions (SBAQs) requiring **application**, not mere recall. The assessment is closed-book.

Study tips

1) Fix the **capital v income** distinction first — many interests are defined by reference to one or the other. 2) Learn the two species of vested interest: **vested in possession** = a 'present right to present enjoyment'; **vested in interest** = a 'present right to future enjoyment'. 3) A **contingent** interest **vests** the moment the condition is satisfied. 4) **Fixed v discretionary** turns on whether the trustees have a **choice**: in a fixed trust the shares are predetermined; in a discretionary trust the trustees select who benefits and how much. 5) Remember **Saunders v Vautier (1841)**: a sole adult beneficiary of sound mind who is absolutely entitled (a bare trust) can compel the trustees to transfer the property — and the **rule extends** where all beneficiaries are sui juris and together absolutely entitled. 6) For **successive interests**: the **life tenant** takes the income; the **remainderman** takes the capital; trustees must hold an **even hand** between them.