Saunders v Vautier
Encyclopedia
Saunders v Vautier EWHC Ch J82 is a leading English trusts law
case. It laid down the rule of equity which provides that, if all of the beneficiaries
in the trust
are of adult age
and under no disability, the beneficiaries may require the trustee
to transfer the legal estate to them and thereby terminate the trust. The rule has been repeatedly affirmed in common law
jurisdictions.
in the East India Company
on trust for Vautier. According to the terms of the trust, it was to accumulate until V attained the age of 25. The stock's dividends were to be accumulated along with the capital. Upon reaching the age of maturity (21 at the material time) he sought access to the capital and dividends immediately.
Lord Langdale MR held as follows:
for a sole beneficiary (usually where the trusts were held for the benefit of a tenant for life, who has died, and the sole beneficiary is the remainderman
), the rule is not limited to those circumstances. However, if there is more than one beneficiary, then all of them need to be adults and without any disability.
There are a number of reasons why the beneficiaries may elect to do this. In Saunders v Vautier, the accumulation trusts were to continue until the beneficiary was 25, and (at 21) the beneficiary wished to terminate the accumulation. Similarly, if the trusts are held for a tenant for life, and then for the benefit of a remainderman, both tenant for life and remainderman may decide to terminate the trusts and obtain the capital immediately, and agree a partition of the funds between them; this situation often occurs where changes in the revenue laws means that upon the death of the tenant for life the trust fund may be subject to inheritance tax
in a way that was not envisaged when the trust fund was originally set up.
It has also been held that the rule in Saunders v Vautier also applies to discretionary trust
s as well as fixed trusts. However, some caution is in order, as that decision was made at a time when the law was understood to require that a valid discretionary trust need to be able to draw up a complete list of the beneficiaries of the trust in order to be valid; subsequent to the decision of the House of Lords
in McPhail v Doulton
[1971] AC 424, this is no longer the appropriate test, and accordingly it may be that not all discretionary trusts are capable of being terminated by the beneficiaries under the rule.
Where the beneficiaries are all sui juris, and between them absolutely entitled to the trust property, they may require the trustees to end the trusts and distribute the funds as the beneficiaries agree.
English trusts law
English trusts law is the original and foundational law of trusts in the world, and a unique contribution of English law to the legal system. Trusts are part of the law of property, and arise where one person gives assets English trusts law is the original and foundational law of trusts in the...
case. It laid down the rule of equity which provides that, if all of the beneficiaries
Beneficiary (trust)
In trust law, a beneficiary or cestui que use, a.k.a. cestui que trust, is the person or persons who are entitled to the benefit of any trust arrangement. A beneficiary will normally be a natural person, but it is perfectly possible to have a company as the beneficiary of a trust, and this often...
in the trust
Trust law
In common law legal systems, a trust is a relationship whereby property is held by one party for the benefit of another...
are of adult age
Age of majority
The age of majority is the threshold of adulthood as it is conceptualized in law. It is the chronological moment when minors cease to legally be considered children and assume control over their persons, actions, and decisions, thereby terminating the legal control and legal responsibilities of...
and under no disability, the beneficiaries may require the trustee
Trustee
Trustee is a legal term which, in its broadest sense, can refer to any person who holds property, authority, or a position of trust or responsibility for the benefit of another...
to transfer the legal estate to them and thereby terminate the trust. The rule has been repeatedly affirmed in common law
Common law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...
jurisdictions.
Facts
A testator had bequeathed £2,000 worth of stockStock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
in the East India Company
East India Company
The East India Company was an early English joint-stock company that was formed initially for pursuing trade with the East Indies, but that ended up trading mainly with the Indian subcontinent and China...
on trust for Vautier. According to the terms of the trust, it was to accumulate until V attained the age of 25. The stock's dividends were to be accumulated along with the capital. Upon reaching the age of maturity (21 at the material time) he sought access to the capital and dividends immediately.
Judgment
The case was ruled in favor of the defendant. The rights of the beneficiary were held to supersede the wishes of the settlor as expressed in the trust instrument.Lord Langdale MR held as follows:
Significance
Although the rule is most often exercised where there is a sole trustee holding the trust fund on a bare trustBare trust
A bare trust is a trust in which the beneficiary has a right to both income and capital and may call for both to be remitted into his own name. He is also entitled to take actual ownership and control of the trust property...
for a sole beneficiary (usually where the trusts were held for the benefit of a tenant for life, who has died, and the sole beneficiary is the remainderman
Remainderman
A remainderman is a person who inherits or is entitled to inherit property upon the termination of the estate of the former owner. Usually this occurs due to the death or termination of the former owner's life estate, but this can also occur due to a specific notation in a trust passing ownership...
), the rule is not limited to those circumstances. However, if there is more than one beneficiary, then all of them need to be adults and without any disability.
There are a number of reasons why the beneficiaries may elect to do this. In Saunders v Vautier, the accumulation trusts were to continue until the beneficiary was 25, and (at 21) the beneficiary wished to terminate the accumulation. Similarly, if the trusts are held for a tenant for life, and then for the benefit of a remainderman, both tenant for life and remainderman may decide to terminate the trusts and obtain the capital immediately, and agree a partition of the funds between them; this situation often occurs where changes in the revenue laws means that upon the death of the tenant for life the trust fund may be subject to inheritance tax
Inheritance tax
An inheritance tax or estate tax is a levy paid by a person who inherits money or property or a tax on the estate of a person who has died...
in a way that was not envisaged when the trust fund was originally set up.
It has also been held that the rule in Saunders v Vautier also applies to discretionary trust
Discretionary trusts and powers in English law
Discretionary trusts and powers in English law are elements of the English law of trusts, specifically of express trusts. Express trusts are trusts expressly declared by the settlor; normally this is intended, although there are situations where the settlor's intentions create a trust accidentally...
s as well as fixed trusts. However, some caution is in order, as that decision was made at a time when the law was understood to require that a valid discretionary trust need to be able to draw up a complete list of the beneficiaries of the trust in order to be valid; subsequent to the decision of the House of Lords
Judicial functions of the House of Lords
The House of Lords, in addition to having a legislative function, historically also had a judicial function. It functioned as a court of first instance for the trials of peers, for impeachment cases, and as a court of last resort within the United Kingdom. In the latter case the House's...
in McPhail v Doulton
McPhail v Doulton
Re Baden's Deed Trusts or McPhail v Doulton [1971] AC 424 was a landmark decision of the House of Lords in English trusts law.-Facts:...
[1971] AC 424, this is no longer the appropriate test, and accordingly it may be that not all discretionary trusts are capable of being terminated by the beneficiaries under the rule.
Where the beneficiaries are all sui juris, and between them absolutely entitled to the trust property, they may require the trustees to end the trusts and distribute the funds as the beneficiaries agree.