Exhibit AE

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CLASSlflC1':rruN OF TmJSTS 

property in good faith. Thirdly, the trust property is afim.d, in the sense that the 

trustees have power to sell its constituent parts free of the beneficiaries' proprietary 

rights, and reinvest the proceeds in other assets, which thereupon automatically 

become subject to those rights. The unique feature of this "real subrogation" in the 

case of a trust is that, if the trustees wrong/idly transpose trust assets into other assets, the beneficiaries' proprietary interests attach to the new assets, and bind them, 

not only in the hands of the trustees, their creditors and successors, but also in the 

hands of third parties generally other than bonafide purchasers for value without 

notice. 

2. CLASSIFICATION OF TRUSTS 

Bare or simple trusts and special trusts 

A distinction has traditionally been drawn between "bare" trusts, or "simple" or 1-028 

"naked" trusts, and "special" trusts. According to that distinction, a bare trustee 

holds property in trust for a single beneficiary absolutely and indefeasibly, and is a 

mere passive repository for the beneficial owner, having no duties other than a duty 

to transfer the property to the beneficial owner or as he directs. By contrast a trustee 

holding property on special trusts has active duties to perform, for example in 

executing the trusts of a will or settlement, with administrative (and perhaps also 

dispositive) powers accompanying his active duties. It is still possible to distinguish 

between an absolute trust for a single beneficiary, which might still be called a bare 

or simple trust, and other types of trust. On closer examination, however, a distinction cannot satisfactorily be drawn between bare and special trusts on the basis that 

a person holding property on trust for another absolutely and indefeasibly is always 

a mere passive repository for the beneficial owner while a trustee holding property 

on special trusts has active duties to perform. The description of a bare trustee as a 

mere passive repository for the beneficial owner with no active duties to perform 

other than a duty of transfer requires at least some qualification in its application 

to cases where a beneficiary has an absolute and indefeasible interest. We consider 

later in this Chapter aspects of the law concerning bare or absolute trusts and bare 

trustees, and the distinction between such trusts and special trusts. 99 

and discretionary trusts and powers 

Special trusts may be subdivided into fixed 100 trusts, where the objects are identi- 1-029 

fied, and discretionary trusts, where their choice is left to the trustee. A trust for A 

for life with remainder to his children, or to B, is a fixed trust. A trust to divide the 

income among such of A's children and in such shares as the trustees think fit is a 

discretionar/trust. 101 To be distinguished is a power, where the trustees are 

authorised, but not directed, to distribute. w2 What at first sight appears a power may 

impose a duty to distribute, requiring the trustees to choose the recipients. The 

99 See § 1-036 onwards. 100 Or "ministerial" or "instrumental''. 191 See, for instance, Att. -Gen. v Scott ( 1749) 1 Yes. Sen. 413 (trust to select preacher); Gar/side v I.R. C. 

[19681 A.C. 553, HL. 

See McP/zail v Dou/ton (Baden No. I) [1971] A.C. 424, HL On the release of a possibility of benefiting under such a power, see Re Gulbrnldan '., Settlements (No.2) [1970] Ch. 408 and§ 28-148. 

[17] 

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CLASSIFICATION OF EQU!lABLE fNTERl,STS UNDER TRUSTS 

on their true construction amount to declarations of trust, arc express trusts, because 

in such cases the court finds as a matter of construction that the settlor expressed, 

indirectly, an intention to create a trust. Trusts arising by operation of law are trusts 

that are not express trusts. 

Resulting, implied and constructive trusts 

Trusts arising by operation of law comprise resulting, implied and constructive 1-034 

trusts. These trusts differ in many respects from express trusts and arise in widely 

varying sets of circumstances, which are considered elsewhere. 109 

Executed and executory trusts 

This distinction refers to the method of drafting the trust instrument, which naturally 1-035 

affects its interpretation. An executed trust in this sense is one where the limitations of the equitable interests have been set out in complete and final form, whereas 

in an executory trust they are intended merely to serve as minutes or instructions 

for perfecting the settlement at a later date. 110 

3. CLASSIFICATION 017 EQUITABLE INTERESTS UNDER TRUSTS 

Absolute indefeasible interest in possession under a bare or simple trust 

The greatest interest that a beneficiary can have is an absolute indefeasible inter- 1-036 

est in possession under a bare or simple trust. We now turn to consider aspects of 

the law concerning bare or absolute trusts and bare trustees, and the distinction 

between an absolute indefeasible interest in possession under a bare or simple trust 

and interests under special trusts. 

Absolute beneficiary:, right to direct transfer of trust property 

The trustee of a trust for a beneficiary absolutely entitled has a duty to transfer the 1-037 

property to or at the direction of the beneficiary, 111 assuming that the beneficiary is 

of full age and capacity and so able to give a valid direction and receipt, that the 

property is capable of transfer by the trustee in the manner directed, and that the 

trustee has no unsatisfied right of indemnity against the trust property. This is not 

a unique distinguishing feature of a bare trust, however, since the beneficiaries of 

a special trust, if they are all ascertained and of full age and capacity and act 

together, have a similar right under the rule in Saunders v Vautier. 112 A bare trustee 

~as been described as a person who would, on the requisition of his beneficiaries, 

be compellable in_ equi~y to convey the estate to them, whether or not duties have 

een attached to his ofhce, and whether or not a request for a conveyance has been 

lllade. 113 That description has been both rejected114 and approved. 115 The descrip109 M. 

amly in Chaps 8-10 (see the definitions in §§ 8-002, 8-004), 41 to 45, 50; and see§§ 3-037 

llo ~nwards, §§ 4-003 lo 4-0 l l, 4-036 onwards. 

111 ee§7-002. 

See§ 22-003 11' s '' 11 ; ee §§ 22-014 onwards. 

114 Christie v Ovi11gron ([875) 1 Ch.D. 279. 

Morgan v Swansea Urban Sonitory Authoritv ( 1878) 9 Ch.D. 582 at 584-585. 

[ 19] 

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DEFINITION AND CLASS!HCAT!ON 

tion restates the rule in Saunders v Vautier, but does not, by itself, draw a distinc, 

tion between a bare trust and a special trust by reference either to the nature of the 

beneficiary's interest or the scope of the powers and duties of a trustee for a 

beneficiary absolutely entitled. A trustee for a beneficiary absolutely entitled is liable to account to the trustee, and if he acts on behalf of the beneficiary in relation 

to the management of the trust property, he is liable to account as agent as wel1_t16 

Administrative directions by absolute beneficiary pending transfer 

1-038 In the case of a special trust, the beneficiaries, even if they are all ascertained and 

of full age and capacity and act together, are not entitled to require the trustees 

pending transfer of the trust property, to administer the trust in accordance with 

directions given by them, u7 unless the terms of the trust otherwise provide, and unless certain statutory exceptions to this rule about the appointment of new trustees 

apply. l18 The Court of Appeal has described a bare trustee of shares in a company 

as a "dummy", 119 and that imagery might suggest, perhaps, that the function of the 

bare trustee, pending transfer, is to do what he is told to do by the beneficiary, so 

that the beneficiary is entitled to give the trustee directions in relation to the 

administration of the trust property which are binding on the trustee, even if the 

terms of the trust do not so provide. If an absolute beneficiary were entitled to give 

such directions to the trustee, that would provide a significant distinction between 

a bare trust and a special trust. 

1-039 It is, however, doubtful how far, in the absence of express provision, a trustee is 

bound to give effect to directions given by an absolute beneficiary, other than a 

direction to transfer the trust property to him or as he directs. The matter is to a very 

limited extent governed by statute. A trustee for a beneficiary absolutely entitled can 

(like a trustee of a special trust) effectively be given directions in relation to his 

compulsory retirement from office 120; and (unlike a trustee of a special trust) effectively be given directions in relation to the insurance of trust property.rn Leaving aside rights to give directions under statutory provisions, it is clear that, in the 

case of a trust of land, the beneficiary, though absolutely entitled, is not able to give 

the trustee binding administrative directions. 122 In the case of shares in a company 

and other assets, the position is less clear. Romer J. considered that there was no 

doubt that a bare trustee must vote shares at a meeting of the company in accordance with directions by the beneficial owner. t

23 It has been held, however, in New 

Zealand that there is no such obligation. 124 It has been held also that where the 

115 Re Cunningham and Frayli11g [ 1891] 2 Ch. 567 at 571-572. 

116 Cheong Soh Chin v Eng Clziet Shoong [2015] SGHC 173 at [38]. 

117 See§§ 22-031 and 22-032. 

m See§ 1-039, first fn in that paragraph. 

119 I.R.C. v Silverts Ltd [1951] Ch. 521 at 530, CA. See too AAZ V BBZ [2016] EWHC 3234 (Fam); 

[2017] 2 F.C.R. 415 at [85)-[86]. 

11·11 Trusts of Land and Appointment of Trustees Act 1996, ss. l 9 and 20, as to wl1ich see§§ 24-034 referring to §§ 14-032 onwards (s.19) and §§ 16-028 onwards (s.20). 

121 Trustee Act I 925, s. I 9(2), as substituted by Trustee Act 2000, s.34. See§ l-040 and §§ 34-070, 34-

071. m Ingram v 1.R. C [l 997] 4 All E.R. 395 at 424d, CA, per Millett L.J. in a dissenting judgment approved by HL [2000] I A. C. 293 at 305D-H. 3 l 0G. 

121 Kirby v Willci11s [l929] 2 Ch. 444 at 454; and see Re CC1stiglione's Will Trusts [l958] Ch. 549 at 558. 

Re Kirkpatrick [2005] NZHC 469; 8 l.T.E.L.R. 597. The judgment does not refer to the English cases 

[20] 

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CLASSIFlCATION OF EQUITABLE INTERESTS UNDl'R TRUSTS 

property consists of shares in a company subject to pre-emption provisions under 

the company's articles of association, the trustee is not bound to give effect to directions by the beneficiary concerning the implementation of the pre-emption 

procedure. 125 In Hong Kong, a trustee for a beneficiary absolutely entitled is not 

bound to execute a power of attorney in favour of the beneficiary even if protected 

by an adequate indemnity. 126 Australian authority supports the view that the only 

direction to which a trustee for a beneficiary absolutely entitled must give effect is 

a direction to transfer the trust property. 127 In a case where the only duty of the 

trustee is to obey the order of the court in relation to the transfer of property, the 

trustee is a bare trustee 128 and no question arises of any effective directions being 

given by the beneficiary who is absolutely entitled. Last and by no means least, the 

Court of Appeal has expressed the view that it is quite obvious that a trustee for a 

beneficiary absolutely entitled bas no duty whatever to perform. 129 

Powers of' trustee for absolute beneficiary 

There are two potential explanations why a trustee holding property for a 

beneficiary absolutely entitled might have no duties other than a duty to transfer the 

property to the beneficiary or as he directs. The first explanation is that the position of such a trustee is so supine, being a mere repository, that he need do nothing 

whatever, save to effect the transfer. The other is that, pending transfer, he has powers, and hence with it, responsibility, of his own, and the exercise of the powers is 

up to him, not the beneficiary. The second explanation, to the extent that it is correct, militates against the view that a trustee for a beneficiary absolutely entitled has 

a passive role. Such a trustee has some powers, even in a case where the beneficiary 

is of full age and capacity, rn and the trustee has no unsatisfied rights of indemnity: 131 

(1) A trustee holding land on trust for an absolute beneficiary is not a mere 

cypher 132 and has the powers of a beneficial owner in relation to the land. 133 

His role is therefore an active one. 

(2) A trustee holding property other than land appears to have powers under the 

Trustee Act 2000. This is clearest in the case of insurance. The statutory 

power of insurance under section 19(1) of the Trustee Act 1925, 134 as 

substituted by the 2000 Act, 135 is exercisable by a trustee for an absolute 

beneficiary or beneficiaries of full age and capacity, unless the beneficiary 

cited in the previous footnote, but rather focuses on Bwt v Kelson [1952] Ch. 197. CA, a case about 

special trusts considered in this context in § 22-032. 125 Re Kirkparrick, above. 126 Hotung v Ho Yuen Ki (2002) 5 I.T.E.L.R. 556, HK CA. 127 Herdegen v Federal Commissioner of Taxation (1988) 84 A.L.R.271 at 281, Aus FC. 12 -1 Re Docwra (1885) 29 Ch.D. 693. 129 Re Lashmar [1891J I Ch. 258 at 267, CA. 130 As to the powers of a trustee of an absolute trustee for a minor, see§ 1-042. 131 As to the powers of a trustee with an unsatisfied right of indemnity, see § 1-043. 132 Ingram v 1.R.C. [1997] 4 All E.R. 395 at 424d, CA, per Millett L.J. in a dissenting judgment approved by HL [2000] I A.C. 293 at 305O-H, 3 lOG. See too Byrnes v Kendle [201 lJ HCA 26; 14 

1.T.E.L.R. 299 at [21]. 133 Trusts of Land and Appointment of Trustees Act 1996, s.6 which applies to bare trustees, see§ 37-

005. At common law a trustee of land for beneficiaries absolutely entitled did not have power to sell 

the land without their consent: Lee v Somes (l 886) 36 W.R. 884. 134 Printed in§ 34-070. 135 Trustee Act 2000, s.34. 

[21] 

1-040 

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DEFINITION AND CLASSIFICATION 

or beneficiaries otherwise direct.136 lt is equally clear that the trustee is under 

the statutory duty of care in section 1 of the 2000 Act 137 when exercising the 

statutory power of insurance. 138 The fact that bare trustees are intended to 

have the revised statutory power to insure conferred by the 2000 Act tends 

to indicate that they are also intended to have the general power of investment under section 3 of that Act. 139 The question then arises whether a 

bank's or stockbroker's trustee company, for instance, holding shares as 

nominee for a customer, has power to change the investments, and even a 

duty to do so when a banker or stockbroker would conclude that it was 

unwise to continue to hold them. It is hard to escape the conclusion that it 

does on the wording of the 2000 Act. Although the provision that trustees 

are under the statutory duty "when exercising" the general power appears 

to exclude the time when they are considering whether, or when, to exercise 

it 140 that does not help. The reason is that it leaves them under the statutory 

duty carefully to review their investments from time to time. 141 Conceivably such a nominee is to be considered something different from a trustee, 

considering the use of different words in section 16 of the 2000 Act, 142 but 

that would be a difficult interpretation. All that can be said until judicial light 

is thrown on the puzzles thrown up by the failure to define ''trustee" in the 

2000 Act is that, whenever the Act confers on bare trustees a power to which 

the statutory duty is applied, the bare trustees are bound to come up to the 

statutory standard of care when exercising the power. The reasoning which 

indicates that the statutory power of investment applies to bare trustees suggests that other powers in the 2000 Act do so as well, with a statutory duty 

of care under the 2000 Act when applicable,143 namely the power to acquire 

land under section 8 of the 2000 Act, 144 the power to delegate to agents 

under section 11 of the 2000 Act, 145 and powers concerning remuneration 

under sections 28 and 29 of the 2000 Act. 146 

(3) The position as to administrative powers under the Trustee Act 1925 (other 

than section 19 as substituted by the 2000 Act, 147 concerning insurance) is 

unclear. 148 The statutory powers of maintenance and advancement in sections 31 149 and 321511 of the Trustee Act 1925 are not mere administrative 

powers. The former cannot, in view of its terms, have any application in 

relation to an adult beneficiary with an absolute interest. The latter is 

expressed to apply to a beneficiary who is absolutely entitled, but it has 

1.1 6 Trustee Act 1925, s.19(2) and (3), as substituted by Trustee Act 2000, s.34. 

137 Printed in§ 34-007. 

m Trustee Act 2000, s.2 and Sch.!, para.5. See § 34-008. 

L3 9 Printed in§ 35-002. 

L40 See § 34-008. 

See§§ 34-008(1) and 35-076. 

142 See§ 34-085. 1-u See generally§ 34-008. 

144 P1inted in § 35-123. 

145 P1inted in § 36-013. 

146 See§§ 20-020 onwards. 

147 Trustee Act 2000, s.34. 148 Matthews [2005] P.C.B. 336 at 343 suggests that the power under Trustee Act 1925, s.22(4) to have 

accounts audited applies to a bare trustee. 

149 Printed in§§ 31-011 and 31-017. 

1so Printed in § 32-0 l l. 

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CLASSIHCATION 01-' EQUITABLE lNTEI,ESTS UNDER TRUSTS 

nonetheless been said that the power is destroyed when property vests 

absolutely in a beneficiary on attaining full age. 151 

(4) It is also unclear what, if any, powers a trustee for a beneficiary absolutely 

entitled has under the general law. There are authorities which suggest that 

a bare trustee has power to exercise his legal rights as owner of shares in a 

company in the interests of the beneficiary, 152 in default of directions by the 

beneficiary (to the extent that the beneficiary is entitled153 to give effective 

directions). 154 

Express powers conferred 011 trustee for absolute beneficiary 

A trustee for a beneficiary absolutely entitled may have express powers and duties 

confeITed or imposed upon him by the trust instrument or otherwise by agreement 

between him and the beneficiary, so that the relationship is, on any view, of an active nature. It may be argued that, in such a case, the express powers and duties 

necessarily derive from the law of contract, constituting an agency between the bare 

trustee and the beneficiary, so that the bare trustee remains a mere repository so far 

as the law of trusts is concerned. 155 Clearly an agency arrangement under the law 

of contract can be created, but we do not think that it should necessarily be assumed that this is the only way of conferring, at least, express administrative powers on a trustee for an absolute beneficiary. If the general law itself confers powers, to some extent, on such a trustee, 156 it is not obvious why it should not be 

possible to confer express powers under trust law to supplement or replace powers under the general law, or statutory powers. The point is not merely academic. 

If express powers ( or duties) for a bare trustee necessarily derive from an agency, 

they would, for instance, fail on the incapacity of the beneficiary, unless created 

under an enduring 117 or lasting158 power of attorney. 

Absolute trustfor minor 

Whatever is the position in relation to a bare trust created by a person of full age 

and capacity as a sole absolute beneficiary, it is clear, in our view, that an absolute 

trust can be created by a settlor for a minor beneficiary159 with extensive administrative powers available during minority consistent with the beneficial interest, and 

With the statutory powers of maintenance and advancement conferred by sections 

~1 160 and 32161 of the Trustee Act 1925 with modifications to those powers not altermg their substantive character, whether by way of declaration of trust by the settlor, 

151 Pilkington v l.R.C. [1964] A.C. 612 at 641, HL, refen"ing to the destruction of the power on absolute 

vesting in an adult. 152 Re Kirkpatrick, above. 153 As to whether an absolute beneficiary can give binding directions to the trustee pending transfer, see 

§§ 1-038 and 1-039. 154 Kirby v Wilkins [1929] 2 Ch. 444 al 454. But see Re Lashmar [1891] I Ch. 258 at 267, CA; l.R..C. v 

Siiverts Ltd [I 95 l] Ch. 521 at 530, CA. 155 See Matthews [2005] P.C.B. 266 at 267--268. 156 See§ 1-040. 157 lJnd~r Mental Capacity Act 2005, s.66(3) and Sch.4 (which replaced Enduring Powers of Attorney 

Act 1985). 

:

58 lJnder Mental Capacitv Act 2005, s. 9 and Sch. I. 

i'9 Nore Herdegen v Fede:,,! Commissioner of' Taxation ( 1988) 84 A.L.R.271 at 282, Aus. FC. 

"

0 Re Kehr [1952] Ch. 26. If the minor dies during minmity, accumulations will form part of his estate 

since they will follow the destination of the capital, see§ 31-018. As to a revocable appointment of 

[23] 

1-041 

1-042 

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DEFINITION AND CLASS!HCATlON 

or by transfer to trustees to hold on trust for the beneficiary. Plainly, the law of 

contract and agency has no role to play in bare trusts of this nature. And the description of the trustee of such a trust as a mere repository is inept. An absolute trust for 

a minor may be varied under the Variation of Trusts Act 1958 •

162 

Trustee '.I' own interest-unsatisfied rights of indemnity 

1-043 A trustee who holds property for a beneficiary absolutely entitled is not, for some 

legal purposes, a "bare trustee" if the beneficiary's interest takes effect subject to 

any equitable interest or lien in the trust property to which the trustee is entitled (or 

any other beneficial interest of the trustee ). 163 In our view, there is an important 

distinction between a trustee who holds the trust property for a beneficiary 

absolutely entitled, and free from any unsatisfied rights of indemnity of the trustee, 

and a trustee who holds property for such a beneficiary subject to unsatisfied rights 

of indemnity (which confer an equitable interest or lien on the trustee 104). Though 

there are doubts about the extent of the trustee's powers and duties in the former 

case, there are none in the latter case. The express powers conferred on the trustee 

before the beneficiary became absolutely entitled survive pending satisfaction of the 

trustee's right of indemnity, 165 and the trustee has a right of retention and so is not 

bound to give effect to any direction by the beneficiary as to the transfer of the trust 

property, so far as the retention is proper to satisfy the rights of indemnity. 166 The 

trustee, in this latter case, is in no sense a mere repository and is in a similar (but 

not identical 167) position to a trustee of a special trust, save that he has personal 

rights of indemnity against the beneficiary as well as a proprietary indemnity. 168 

Custodian trustee 

1-044 A custodian trustee under the Public Trustee Act 1906 is not a bare trustee. 169 

an absolute interest Lo a minor, see Re Delmnel'e's Settlement Trusts [l 984] l W.L.R. 813, CA. 

1

01 Re Kehr, above; D (a chi/cl) v O [2004] EWHC l036 (Ch); [2004] 3 All E.R. 780 at [8]-[9]. See§ 

32-026. 

162 D (a child) v 0, above. See§ 53-0 l2. 

163 Morgan v Swansea Urban Sanitary Authority (l 878) 9 Ch.D. 582; Re Blandy Jenkins' Estate [1917] 

l Ch. 46. See too Lysaght v Ed1vords (1876) 2 Ch.D. 499 at 506; Schalit v Joseph Nadler Ltd [1933] 

2 K.B. 79 al 81-82 164 See § l 9-044. The rights of a bare trustee to indemnity were considered in Scoretz v Kensam 

Ente1pnses Inc. [2017] BCSC l356; 20 l.T.E.L.R. 5 ll at [51}-[60]; [2018] BCCA 66 at [38]--[40], 

where it was held at first instance that a bare trustee had a personal but no proprietary right of 

indemnity, and the appellate court was nol persuaded that there was a right to security for indemnity, 

though thought that a bare trustee had a right of reimbursement. It is clear, however, from Hardoon 

v Belilios [ 190 l] A.C. 118 at I 24, PC, that the personal right of indemnity (see §§ 19-057 to l 9-

060) is in addition to not in place of the proprietary iight of indemnity. Scoretz can be explained as 

a case where the trustee wrongly sought imlemnification before transferring the trust assets to the 

beneficial owner when there was no unsatisfied right ol'indemnity. 

:61 Xv A [2000] l All E.R. 490. 

w, See § 24-038. 167 He has a duty to notify the beneficiary of an intention to exercise his powers, see X v A above. 

10B See § § 19-057 onwards. 10'1 l.R. C. v Silverts Ltd [ 195 l] Ch. 521, CA Re Bl'ookc Bond & Co. Ltd's Trust Deed [ l 963] Ch. 357. 

As to custodian trustees, see §§ l 8-059 onwards. 

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CLASSJFJCATION Cl!' E()UJTAllLE INTERESTS UNDER TRUSTS 

Two or more persons absolutely entitled 

A trustee who holds property in trust for two or more persons absolutely is not in 

all respects in the same position as a trustee who holds prope1iy in trust for a single 

beneficiary absolutely. 170 

Sub-trusts of absolute trusts 

If A holds properly in trust for B absolutely and B declares that he holds his 

equitable interest in the property in trust for C absolutely, the declaration of trust 

is not tantamount in law to an assignment by B to C so that B drops out of the 

relationship. Rather A continues as a trustee for B who holds as sub-trustee for C. 171 

Since B is a mere bare trustee for C, A may account directly to C, but is not bound 

to do so, and C cannot complain if A continues to pay the income of the property 

to B who in turn is liable under the sub-trust to pay C. 172 If C wishes to assert a 

direct equitable right against A, then he may terminate the sub-trust under the rule 

in Saunders v Vautier 173 by requiring an assignment from B, and if C wishes to 

obtain a transfer of the property itself, he may obtain an order for a transfer in 

proceedings against A to which B is party, and the court may not, since B is before 

the court and bound by the order made, require B to be a party to the transfer. 174 

Liability for knowing receipt 

Distinctions may be drawn between the liability of beneficiaries for knowing receipt 

by their trustees, according to whether the trust is a nominee arrangement or a 

special trust. 175 

Vested interests 

A vested interest 176 is an interest which is not subject to any condition precedent. 177 

Thus a beneficiary may have a vested interest in trust assets even though he is not 

entitled to immediate enjoyment of those assets under the terms of the trust. An 

interest may be vested in interest or vested in possession. An interest vested in possession confers an immediate right to present enjoyment of the property while an 

no See generally §§ 22-006 lo 22-012. 

m Nelson v Greening & Sykes (Builders) Ltd [2007] EWCA Civ 1358; l O I.T.E.L.R. 689 at [56J--l57J; 

Sheffield v Sheffield [2013] EWHC 3927 (Ch); [2014] W.T.L.R. 1039 at [78] onwards; those cases 

considering and explaining earlier authorities which at first sight appear to be a contrary effect, 

namely Burpess v Wheate ( 1759) l Eden 177; Head v Lord Teynham (1783) l Cox Eq. 57; Graingc 

v Wilbe1:fim:e (1889) 5 T.L.R, 436 at 437; Re Lashnwr [1891] l Ch. 258 at 267, CA; Grey v. I.R.C. 

[1958] Ch. 690 at 715, CA. ln Re Charlotre Street Properties Ltd [2019] EWHC 1722 (Ch) at [59], 

Re Lashmar was cited as authority for the proposition that, where the sub-trustee has no active duties to perform the legal owner as head-trustee could act on the directions of the beneficiaries under 

the sub-trust. The more recent authorities were not referred to. On the nature of lhe proprietary interest under a sub-trust see too Re Lehman Brothers International (Europe) (in ocbnin.) [2010] EWHC 

2914 (Ch) al[226] (on appeal [201 l] EWCA Civ l 514; [2012] 2 B.C.L.C 15 l); SL Claimants v Tesco 

Pie [2019] EWHC 2858 (Ch) at [45]-[93]. 172 She 1

'1iefd v Sheffield, above. 173 JJ, •• 

1 - (1841) Cr. & Ph. 240. See§§ 22-014 onwards. 14 Head v Lord Teynhwn, above; Grainoe v Wilbe1ji1rce, above. 175 _ ,~ • 

1

; See§§ 42-053 and 42-06 l. 

: 6 For a history of vested interests see Hawkins, Construction of' Wills (5th edn), §§ 45-00 l onwards. 011 Skelton v Younghouse [1942] A.C. 571 at 575, HL. 

[25] 

1-045 

1-046 

1-047 

1-048 

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DEFIN[T[ON AND CLASS!r!CAl'lON 

interest that is merely vested in interest confers a present right to future enjoyment. 

Both are distinct from a contingent interest which will not vest unless and until 

some requirement ( other than merely the determination of a prior interest) is satis, 

fied, for instance attainment of some specified age, or survival to a particular ti inc, 

or the occurrence of some external event. Where property is held on trust for "A 

for life, then to B absolutely" both A and B have a vested interest in the property 

albeit A has the immediate right to enjoy the property. A's interest is vested in possession and B's interest is vested in interest. By contrast, a beneficiary with a 

contingent interest has no vested right until the contingency occurs. 178 A vested 

interest is transmissible and may be assigned by the beneficiary, and will form part 

of the beneficiary's estate upon his death. 179 

Indefeasible and de.feasible vested interests 

1-049 A vested interest, whether vested in possession or vested in interest, may be either 

indefeasible or defeasible. An interest is indefeasible if there is no prior or concurrent interest or power which is capable of defeating it in whole or in part. To take 

the simple case of a trust for A for life and then to B absolutely, the existence of 

A's life interest operates to postpone the vesting in possession of B's interest, but 

it cannot defeat it, and so B has an indefeasible interest. 

Vested interest de.feasible by prior or concurrent interest 

1-050 A vested interest may be wholly or partially defeasible by a prior interest or partially 

defeasible by a concurrent interest. For example, if there is a trust for A for life, then 

for such of A's children as attain the age of 18 years, and then for B absolutely, B's 

interest is defeasible since it will be destroyed if A has children who attain that age 

and who have a interest which takes priority over B's interest. If a fund is held in 

trust for such of A's children whenever born who attain the age of 18 years, and it 

is clear from the wording used that the class of beneficiaries does not close when 

the eldest child reaches the age of 18 years, 180 then during A's lifetime any child of 

A who is over the age of 18 years has an interest which is vested but liable to be 

partially divested by the birth of another child to A. 

Vested interest de.feasible by exercise of overriding power c~f appointm.ent 

1-051 Where a power of appointment over capital and income of trust property is exercisable in favour of a class of beneficiaries, and subject to and until and in default of 

appointment, the property is held on trust for A for life and then to B absolutely, 

both A and B have defeasible vested interests since their interests are capable of being brought to an end in whole or in part by an exercise of the power of 

appointment. "The effect of such an exercise of the power is to defeat wholly or pro 

tcmto the interests which up to then were vested in the persons entitled in default 

of appointment and to create new estates in those persons in whose favour the ap178 See § l-055. 179 This paragraph was cited with approval in 1\1,in Benefits Ltd v Barker [20 l 7] EWHC 1412 (Ch) at 

[77]. 180 See§§ 6-088 onwards on closing of a class of bencficia1ies. 

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CLASSIHCi\TJON Of EQUITABLE INTERESTS UNDER TRUSTS 

pointment had been made." 181 And so a beneficiary with a vested interest may lose 

some or all of that interest if the trustees choose to exercise a power of appointment in favour of a different beneficiary. 182 Alternatively, a trust may provide for a 

beneficiary to take in default of the trustees exercising a power of appointment, in 

which case the default beneficiary will take a vested but defeasible interest. 183 A 

vested interest in remainder which is liable to be divested by the exercise of a power 

to appointment the capital of the trust in favour of the life tenant may be treated as 

a financial resource of the remainderman under section 25(2)(a) of the Matrimonial 

Causes Act 1973, and thereby brought into ancillary relief proceedings. 184 

Terminable vested interests 

Closely similar to a defeasible vested interest is a terminable vested interest. A 1-052 

terminable vested interest is one that is subject to a condition subsequent (rather 

than precedent) which, if it occurs, has the effect of bringing the interest to an encl 

before the time of its natural termination, as for example where a testator leaves his 

estate upon trust for his widow for life or until her remarriage. A feature of a 

terminable interest is that it may sometimes be created so as to achieve some objective which is not permitted by law if sought to be achieved by direct prohibition. 

For instance, it is not permissible in English law to prohibit the assignment of 

interests under trusts, but it is permissible to create an interest which is for life or 

until an earlier assignment or attempted assignment of the interest by the holder of 

the interest. m 

Fine distinctions between contingent and vested defensible interests 

The distinction between a vested defeasible and contingent interest can often seem 1-053 

to be both muTow and technical. If property is given to A if he reaches a certain age, 

with a subsequent gift over to B if A fails to reach that age, then A's interest in the 

property is a vested interest subject to divestment, rather than a contingent 

interest. 186 That particular rule is founded on the principle that the condition 

subsequent of the prior gift to A and the condition precedent of the later gift to B 

are counterparts to one another and the court, when faced with the two gifts, reads 

them together to indicate that A's interest should vest subject to the subsequent 

contingency of the gift over being satisfied. 187 Similarly, if property is devised to 

A for life and then to B and C in equal shares, with a gift over in the event of either 

B or C dying without issue, then B and C will take vested interests in remainder 

subject to being divested if they die before A leaving any issue, but which will 

become absolute interests if they predecease A but do not leave any issue. 188 

isi Re Brook's Sertlement Trusts [1939] Ch. 993 at 997D-E. is, H 

18; owell v Lees-Millias (2009] EWHC 1754 (Ch); [2009] W.L.T.R. 1163. 

1

. Re Ware (1890) 45 Ch. D. 269 at 279; Re Peel [1964] l W.L.R. 1232. 84 C v C (Ancillary Relief Trust Fund) [2009] EWHC 1491 (Fam); [2010] W.T.L.R. 1419 al [64]. See 

§§ 51-0 I 1 and 5-046 onwards 

::5 s,ee §§ 6-179. - • 6 1 he rule in Phipps v Ackers (1842) 9 Cl. & Fin. 583. See further Brotherton v I.R.C. (1978) I W.L.R. 

is 610, CA. See§ 9-035 and§ 33-013. 7 /11 re Penton 's Settlemen/s [ I 968) I W.L.R. 248 at 256 per Ungoed-Thomas J; Re Mallinson'., 

188 Consolida1ed Trusts [1974) I W.L.R. 1120; see§§ 9-035 onwards. 

Browne v Moody [l 936) A.C. 635 at 649B-C, PC; Re Brooke [1953] l W.L.R. 439. 

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DHINIT!ON AND CLASSIFTCA:rlON 

Practical significance of the distinction betvveen contingent and vested clefeasible 

interests 

1-054 The main reasons why the distinction between a contingent and vested defeasible 

interest is significant are as follows: 

1-055 

( 1) Vesting is at the heart of the application of the rule against perpetuities, and 

the rule against perpetuities applies in a quite different way to contingent 

interests on the one hand and defeasible or terminable vested interests on 

the other hand. If an interest is contingent upon occunence of an event 

which is too remote then the interest fails. If an interest is vested but 

defeasible by the occurrence of an event which is too remote tben the condition subsequent fails and the interest is indefeasible. 189 

(2) Similarly, the distinction between a contingent interest and defeasible interest is significant in determining whether the unlawful character of an event 

upon which an interest is dependent causes the interest to fail or causes the 

condition to fail. 190 

(3) The distinction is important to the operation of191 the doctrine of 

acceleration. 192 

(4) Though statute 193 has to a large extent assimilated the treatment of income 

arising in respect of contingent and vested defeasible interests, the distinction between the two kinds of interest remains important in that the starting point to any consideration of interests in income is that a vested interest, subject to any prior vested interest, carries the right to income unless 

and until the interest determines, while a contingent interest does not carry 

that right until the contingency occurs. 

interests 

A contingent interest is an interest which may become a vested interest but is 

dependent for that transformation upon a future event or occurrence. The difference between an estate vested in interest and a contingent interest is the difference 

between a "present right of future enjoyment" and "a right of enjoyment which is 

to accrue, on an event which is dubious or uncertain." 194 As we have seen, in the 

case of a trust for A for life, tben to B absolutely, both A and B have vested interests, 

and even if B predeceases A, then B's vested interest will pass to his estate. 195 In 

contrast, a trust for A for life, then to B provided that B shall outlive A creates a 

contingent interest in favour of B because B will obtain a vested interest only if he 

is still alive when A dies. 196 

w9 See§§ 6-037 onwards and§ 6-109. 

190 See§§ 6-025, 6-026. 

191 Sec § 9-035. 192 See§§ 9-031 onwards. 

1"3 Trustee Act I 925, s.31 on which see Chap.31. 

194 Fearne, Contingent Remainders and Executory Devises (I 0th edn, 1844), p.2. 

105 Browne 1• Moody [1936] A.C. 65 at 644H-647B, PC. 

106 This paragraph was cited with approval in Twin Benefits Ltd v Barker [2017] EWHC 1412 (Ch) at 

[77]. 

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CLASSJFICAT!ON OF EounABLE INTERESTS UNDER TRUSTS 

Trusts for children 

A trust for such children of the settlor as attain the age of 18 years does not confer 1-056 

a vested interest on any child until he reaches 18. The interest remains contingent, 197 

even if the trustees have the power to apply the income for the benefit of the 

beneficiaries before they reach 18.198 If, however, the trust provides for the minor 

beneficiaries to receive the income of the trust before reaching 18 then that is likely 

to create a vested interest liable to be divested if they fail to live to the requisite 

age. 199 A trust in favour of children who attain 18 and, if there is only one child, in 

nust for that child, does not require the only child to reach 18 for the gift to vest: 

the contingency is applicable only if there is more than one chilcl.200 

Gift to a class upon a contingency and a gift to a contingent class 

There is a distinction between a gift to a class upon a contingency, and a gift to a 1-057 

contingent class. 201 In the fo1mer case the rule is that the contingency is not imported 

by implication into the description of the class so as to confine the gift to those 

members of the class who survive the contingency. Where a testator created five life 

interests for his five children and after the death of the last survivor his trustees held 

the fund on trust for the issue of his children, the fact that some of the testator's 

grandchildren had predeceased him did not preclude their executors from claiming their share. The grandchildren as a class obtained a vested interest in the fund 

which was not dependent on surviving the last remaining child of the testator, and 

was not liable to divestment, i.e. an absolute vested interest.202 

Unascertained interests 

There is a distinction between a contingent interest and an unascertainecl interest. 1-058 

If prope1iy is held on trust for A for life, ;ubject thereto for B (who is A's eldest son) 

if he survives A, subject thereto for C (who is A's second son) if he survives B, both 

Band C have future contingent interests. But suppose that instead property is settled on trust for A for life and subject thereto for the person who on A's death is A's 

eldest surviving son, or, which is the same thing, the son of A who would be his 

heir under the law in force concerning succession to freehold land before 1926. In 

such a case, on the authorities, neither B nor Chas a contingent interest; each has 

a mere spes. The point has arisen in relation to trusts in favour of the person who 

will at a future elate succeed to a title. It has been held that the presumptive heir does 

not have a contingent interest, but rather a mere expectancy. As was said by Stamp 

J. in Re Midleton's Will Trusts: 203 

197 Leake v Robinson (1817) 2 Mer. 383;BullvPrirchard (]847) I Russ. 213;De1varv Bmoke (1880) 

14 Ch. D. 529; Thomas v Wilber/iHce (l 862) 31 Beav. 299; comp,u-e Bree v Pe,fect (1844) 1 Coll. 

128; Re Bevon'.; Trusts (1887) 34 Ch. D. 716. 19'

1 Re Hume [1912] 1 Ch. 693 at 699; Haworth v l.R.C. [1974] S.T.C. 378. 199 Re Hume, above, at 698. See§ I -049. 200 Johnson v Foulds ( 1867) L.R. 5 Eq. 268 at 276. Compare Judd v Judd ( 1830) 3 Sim. 525; Merry v 

2 

, Hill (1869) L. R. 8 Eq. 619 where the condition applied to the only surviving child as well. 

o. Bou/ion v Beord (1853) De G.M.&G. 608; Orlebar ·s Settlement Trusts (l 875) L.R. 20 Eq. 711; 

20

, Hickling v Fair [1899] A.C. 15, HL Sc; Re Walker [1917] I Ch. 38; Re Sutcliffe [1934] Ch. 219. 

20~ Re Sutcliffe [1934] Ch. 219 . 

•• [1969] l Ch, 600 at 607-608. 

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DEFIN!TlON AND CLASS!FlCAT!ON 

"A gift to A, if on the death of B he shall be the heir of B or one of the next-ofkin of B or shall then have some other specified characteristic, confers on A a 

present interest called contingent and which becomes vested if, on the death of 

B, A has the required characteristic. On the other hand, a gift to whomsoever shall 

at the death of B, a living person, be the heir of B or one of the next-of-kin of B 

or shall then have some other characteristic, in my judgment confers no interest 

upon anyone until the death of B, when you enquire who bas the required 

characteristic. A gift in equal shares to the persons who at the death of B shall 

be members of the Athenaeum club no more confers an interest, contingent or 

otherwise, on the present members of the club who may hope to remain members 

until the death ofB. Neither class has during the life ofB, even ifB be in articulo 

mortis, more than a hope of being or becoming one of the designated class, spes 

successionis ." 

And so in that case a trust in favour of the person who should on the death of the 

present bolder of a peerage become the holder of the peerage created no interest in 

favour of the presumptive heir.204 Thus, there is a great deal of difference between 

the treatment of a trust for A, who is the eldest son of Lord X, contingently upon 

his surviving Lord X, and a trust for the person who becomes Lord X upon the death 

of the present holder of that peerage. In the first case A has all the protection 

conferred by trust law on future contingent interests while in the second case, A has 

nothing but a spes successionis while Lord Xis alive, even though it is certain that 

A will take under the trust on his father's death if he survives his father. 

Practical importance of the distinction between contingent and unascertained 

interests 

1-059 The distinction between a contingent interest and an unascertained interest bas 

practical importance as follows: 

(1) Assignment. A future vested or contingent interest under a trust is capable 

of being settled without consideration since it is a present right or existing 

contingent right205 to future enjoyment. 206 In contrast, an unascertained interest cannot be assigned except for value. 207 Thus a line of cases208 decides that 

a presumptive taker under a gift to the next of kin of a Ii ving person as such 

has no contingent interest, but a mere expectancy that cannot be assigned 

except for value. 20

9 

(2) In.formation. A person with an unascertaincd interest is not, as the authorities stand, entitled to information or accounts from the trustees.210 

(3) Breach of trust. A person with an unascertainecl interest docs not, as the 

authorities stand, have locus standi to bring a claim for breach of trust.211 

204 cf Re Sr Albans Will Trusts [ 1963] Ch. 365. 

2115 See§ 2-037. 

,or, Lord Drll:,ley v Fitzlwrdinge (1801) 6 Yes. Jr. 251 at 260, per Lord Eldon L.C. 

207 See§§ 2-036, 2-037. 

208 Meek v Kettlewell (1842) I Hare 464 at 475-476 (affd ( 1843) 1 Ph. 342); Clowes v Hilliard (1876) 

4 Ch.D. 413; Re Parsons (1890) 45 Ch.D. 51; Molyneux v Fletcher [1898] I Q.B. 648 at 655-656; 

Re Mudge [1914] l Ch. 115, CA. 

209 See§§ 2-039 onwards. 

21° See§§ 21-009, 21-091. 

See§ 41-075. 

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CLASSIHCATION OF EQU11ABLE INTERESTS UNDER TRUSTS 

(4) Variation of Trusts Act 1958. The court may approve a variation of trust on 

behalf of persons with unascertained interests, if satisfied that the variation 

is beneficial to them, other than any person whose interest would have been 

ascertained had the date or event upon which the ascertainment of his interest depended occurred at the time of the application to the court. 212 By 

contrast the court has no jwisdiction to approve a variation of trust on behalf 

of a person with a future contingent interest unless he lacks capacity. 213 

Endurance of the distinction between contingent and unascertained interests 

The difference between the treatment of persons who have a future contingent interest and an unascertained interest to a large extent turns on the language used to describe the gift, rather than a difference of substance between the future contingent 

interest and the unascertained interest. We consider that the stark distinction between the treatment under the authorities as they now stand of a future contingent interest and an ascertained interest is open to reconsideration and perhaps restatement 

by the Supreme Court (though not any lower English court) or the Privy Council; 

and that the approach adopted by the Privy Council in Schmidt v Rosewood Trust Ltd 

to the question whether the distinction between a discretionary trust and a mere fiduciary power justified a totally different treatment of the rights of objects of them, 

might be influential to a re-consideration of the question whether the distinction between a future contingent interest and an unascertained interest justifies the totally 

different treatment in trust law of the persons who stand to take under them. 

Discretionary interests214 

1-060 

The term 'discretionary interest' is convenient to describe the interests of the object l-061 

of a discretionary trust. An object of a discretionary trust has no proprietary interest in the trust assets or capitaJ2 15 and no right to a definable part of the trust 

income. 216 In general, a discretionary trust has no one in whom the beneficial interest in the trust property can be said to be vested because vesting is contingent upon 

the selection of an object from a nominated class. 217 However, an object of a 

discretionary trust: 

" ... has a right to be considered as a potential recipient of benefit by the trustees 

and a right to have his interest protected by a court of equity. Certainly that is 

so, and when it is said that he has a right to have the trustees exercise their discretion "fairly" or "reasonably" or "properly" that indicates clearly enough that 

some objective consideration (not stated explicitly in declaring the discretionary trust, but latent in it) must be applied by the trustees and that the right is more 

than a mere spes."21 8 

112 See § § 43-051 and 43-052. 211 Knocker v Youle [1986] l W.L.R. 934. 214 For further discussion of discretionary trusts, see§§ 28-024 onwards. 

Gartside v l.R. C. [ I 968] A.C. 553, HL at 617; Re Tantular [2014] JRC 128; 20 l4 (2) JLR 25 at [30]; 

Grancu'./a Group Ltd v The law Debenture Trust Cmp. Pie [2016] EWCA Civ 1289; [2017] Bus. L.R. 

870 at [30]; Biema Holdings lrd v SC Hwnbros Bank (Channel Islands) Ltd [2017] JRC 122 at [61]. 216 Sainsburyvl.R.C. [1970] Ch. 712at723H. 217 Miuphy v Murphy [1999] l W.L.R. 282, 290. 218 Gartside v l.R.C. [1968] A.C. 553 at 605-606, HL per Lord Reid, at 617H-618B, per Lord 

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DEFtNITlON AND CLASSIFICATION 

A discretionary interest includes a right to be considered for the exercise of th 

trustees' discretion; 119 a right to compel the due administration of the trust;no: 

primafacie right to obtain informati_on an~ acco@ts from the trustces;221 and a right 

to bnng a claim for breach of trust, mcludmg a nght to compel a tlmd-party recipient of trust assets to restore them to the trustees.222 It has been suggested that an 

object of a discretionary trust may have a legitimate expectation of being consulted 

before a regular payment is stopped, or at least given the opportunity to persuade 

the trustees to continue the payments. 223 The question whether a discretionary interest counts as an interest under a trust for the purposes of a freezing injunction is 

considered elsewhere.224 

1-062 A discretionary interest can be surrenclered225 or assigned for value. 226 In certain 

circumstances all the objects of a closed class of discretionary beneficiaries may act 

together to bring the trust to an end.227 However, the objects of a discretionary trust 

have no interest in possession in the trust fund, and that is the case whether the trust 

is exhaustive228 or non-exhaustive. 229 

Employee benefit trusts 

1-063 An employee benefit trust (EBT) is a species of discretionary trust established for 

the benefit of a company's employees, and will often include as objects the relatives and dependants of the employees. EBTs are often established to save tax by 

taking advantage of section 86 of the Inheritance Tax Act 1984 (trusts for the benefit 

of employees) or section 1166 of the Companies Act 2006 ( employee share 

schemes). It should be noted that an attempt to use EBTs to avoid national insurance contributions or income tax is likely to be caught by the disguised remuneration provisions of Part 7 A of the Income Tax (Earnings and Pensions) Act 2003. 

Generally, the trustee of the EBT is entirely separate from the company, which usually acts as the settlor, and from the senior management. Jt was a breach of trust for 

the trustees of an EBT established for the benefit of employees to transfer shares 

in the company to a second EBT established for the benefit of the company's senior 

management, and the director who instigated the transfer was liable for assisting 

in the breach of trust.230 The trustees owe fiduciary duties in the same way as other 

Wilberforce; Re Munro'.~ Settlement 1h1sts [1963] 1 W.L.R. l45 al 149A; f.R. C. v Eversden [2002] 

EWHC 1360 (Ch); [2002] W.T.L.R. 1013 at [13]-[14] (affd [2003] EWCA Civ 668; [2003] W.T.L.R. 

893); JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2015] EWCA Civ 139; [2016] 1 

W.L.R. 160 at [13]. 

219 Re Hoy's Settlement Trusts [l982] l W.L.R. 202 al 209A-C. See§ 29-007. 

22tJ Wholey v Whaley [2011] EWCACiv 6l7; [20l2] 1 F.L.R. 735 at [112]. 

221 Schmidt v Rosewood Tntst Ltd [2003] 2 A.C. 709 at [5l], [66]-[67]. PC. See§§ 21-020, 21-078 

onwards. 

See § 41-073. 

Scott v National Trust.for Pl{lces ofBistoric Interest or Notural Beauty [1998] 2 All E.R. 705 at 

71 SC-H per Robert Walter .J.; cited with approval in Maciejewski v Telstra Super Pty Ltd ( 1998) 

44 NS WLR 60 l at 605; doubted in Re Y Trust [201 l] JRC I 35; 14 I.TE.LR. 687. 

22-, See§21-118. 

Re Gulbenkio11 's Se1tlement Trusts (No.2) [ l 970] Ch. 408. 

226 See§§ 26-010 and 26-011. 

See§§ 22-022. 

Sainsbury v I.R.C. [1970] Ch. 712; Re Weir's Settlement Trusts [1971] Ch. 145. 

220 Gartside v J.R. C. [ l 968] A.C. 553, HL. 

210 Roadchef(Employee Benefit Trustees) Ltd v Hill [20l4] EWHC l09 (Ch). 

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CLASS]FICATION OF EounABLE INTERESTS UNUER TRUSTS 

trustees of discretionary trusts, 231 and the beneficiaries have the same rights, including the right to compel the due administration of the trust; to be considered by the 

tTUstees; and if necessary to bring an action for breach of trust. 

An EBT, as a discretionary trust, must comply with the rule against perpetuities. In 1-064 

certain circumstances an EBT may be drafted sufficiently widely to qualify as a 

charitable trust, for example for the relief of poverty among members of a class of 

beneficiaries, and capable of validation under the Charitable Trusts (Validation) Act 

1954.232 

Interests in possession 

An interest in possession is a present right to present enjoyment, a vested and 1-065 

indefeasible interest in the net trust income. In Pearson v l.R.C. 233 the House of 

Lords held that no interest in possession arises if the beneficiary's interest is subject 

to the trustees' power to accumulate the income thus depriving the beneficiary of 

access to any of the income from the trust assets, and that this is the case whether 

or not the trustees have in fact exercised the power to accumulate. 234 The principle 

applies whether there is a power to accumulate or a trust to accumulate. 235 The question is whether the beneficiary is entitled to call for the net income as soon as it 

arises. If the answer to that question depends on whether the trustees choose to 

exercise a power to accumulate the income, then the beneficiary has no interest in 

possession. The trustees' power must be a dispositive power-a power to dispose 

of the net income-rather than an administrative power exercisable, for example, 

to maintain the trust property. 236 An administrative power to apply the trust income 

would not deprive the beneficiary of an interest in possession because the present 

right to present enjoyment subsists, albeit that the entire income may be consumed 

by the trustees' application of the income in the preservation of the trust estate. 237 

For the same reasons, a beneficiary will have an interest in possession even if the 

trust assets do not produce any income. The interest in possession is not created and 

extinguished according lo whether or not there is any income; the beneficiary has 

an interest in possession if, in accordance with the terms of the trust, he is able lo 

call for the income if there is any. For example, if the trustees have the power to 

make an interest free loan to the beneficiaries, and they exercise that power in such 

a way that the trust no lornrer has any income, the beneficiaries may still have an 

interest in possession provided they would be entitled to any (hypothetical) income 

the trust assets might generate. 

1:"- power of investment that expressly authorises investment in non-income produc- 1-066 

ing assets does not preclude an interest in possession. 238 A trust which confers a right 

to occupy property, even if the right is not exercised, creates an interest in possession in the beneficiary of that right. Such a right may be shared between beneficiar211 Vigeland 1· E1111is11wrc Fund Management Lrd [20 I 2] EWHC 3099 (Ch) at [ 191]--[201 ]. 

, Ulrich v Treaswy Soliciror [2005] EWHC 67 (Ch); [2006] l WLR. 33. 

•

13 [1981] AC. 753, HL. 134 Peurson v l,R, C, above, at 772A-773H per Viscount Dilhome, 780B-782A per Lord Keith, 235 [1981] AC. 753 at 773H-774A, HL. 236 [1981] A.C. 753 at 774G--775B, 784H-785C. HL); R, v Wallcer[20ll] EWCACrim 103; [2012] 1 

, WL.R. 173 at [16]-[27]. 

•

37 MillervU?,C [1987JSTC.108. 238 R v Wulkei- [2011] EWCA Crim 103; [2012] I W.L.R. 173. 

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Case 2:24-cv-00021-JRG Document 54-32 Filed 07/18/24 Page 17 of 22 PageID #: 3534
DEFINITION AND CLASSIF!CAT!ON 

ies jointly entitled to occupy a property,239 and the right may be "dressed up" as 

administrative directions to the trustees which prohibit them from selling the 

property while the beneficiaries desire to occupy it. Such a clause is still likely to 

amount in substance to a dispositive provision creating an interest in possession.240 

In contrast, a beneficiary with a life interest in a residuary estate which includes real 

estate has no interest in possession in the land in circumstances in which the testator has directed that the land can be occupied rent free by a third party.241 The direction in the will allowing rent free occupation was dispositive and acted to abate pro 

tanto the life interest of the beneficiary. The beneficiary of a trust of property who 

was given the right to occupy the property only had an interest in possession of that 

part which he was capable of occupying, and not that part which was subject to a 

lease, in circumstances in which the trust gave him no right to receive the rental 

income.242 

1-067 A separate question arises when the trust deed includes an overriding power of appointment, as it did in Pearson v J.R.C. 243 The existence of a power of appointment or revocation does not prevent a beneficiary having a present right to present 

enjoyment of the income from the trust, although if it is exercised then the 

beneficiary will of course lose that interest. Unless and until it is exercised, however, 

the beneficiary has an interest in possession.244 Forfeiture provisions, including 

those governing protective trusts under section 33 of the Trustee Act 1925, will also 

deprive a beneficiary of his interest in possession. Under section 33 if the principle 

beneficiary is absolutely entitled to receive the income from the trust (i.e. has a 

vested interest in possession) but something happens, for example his bankruptcy, 

which deprives him of the right to receive that income, then the trust in favour of 

the principal beneficiary is dctermined245 and replaced by a discretionary trust of 

the income in favour of a class which includes the principal beneficiary. 246 

1-068 The sole beneficiary of a discretionary trust has no interest in possession in 

circumstances in which the discretionary class is not closed, even if the possibility 

of further entrants to the class is exceptionally remote. 247 If the discretionary class 

was closed then the sole beneficiary would have an interest in possession.248 A 

discretionary trust which compels the trustees to distribute the income does not create an interest in possession in any one object of the trust because even if there is 

only one object of the exhaustive trust, the object has no interest in the income, only 

a right to have the trust properly adrninistered. 249 

Reversionary interests 

1-069 The term 'reversionary interest' is sometimes used to describe an interest that 

reverts to the settlor upon the death of a life tenant (e.g. A settles property on trust 

239 Woodhall v T.R.C. [2000] S.T.C. (S.C.D.) 558; [200 I] W.T.L.R. 475. 

240 T.R.C. v Lloyds Private Banking Ltd [ 1998] S.T.C. 559 at 566A, per Lightman J. 

241 Oakley v l.R.C. [2005] S.T.C (S.C.D.) 243; [2005] W.T.L.R. 18 l. 

Cook v l.R.C. [2002] S.T.C (S.C.D.) 318; [2002] W.T.L.R. !003. 

[1981] A.C. 753, HL. 

244 [1981] A.C. 753 at 774C-D. 

m Trustee Act l 925, s.33(1 )(i). 

246 Trustee Act ] 925, s.33( I )(ii). For forfeiture, see§§ 6-185 onwards. 

Re Trafford~· Settlement [1985] Ch. 32. 

248 [1985] Ch. 32 at 38E-39E. 

24 9 Sainsbury v T.R.C. [1970] Ch. 712 at 724-725; Re Weir's Settlement 1h1sts [1971] Ch. 145 at 166Dl67B. 

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CLASSlFlCATlON OF EQUITAllLR INTERESTS UNDER TRUSTS 

for B for life, then back to A), but it can be used to refer to any interest in remainder, 

being an interest under a trust which is postponed until the termination of a preceding interest. Section 47 of the Inheritance Tax Act 1984 defines a revcrsionary interest as: 

"a future interest under a settlement, whether vested or contingent (including an 

interest expectant on the termination of an interest in possession which, by virtue 

of section 50 below, is treated as subsisting in part of any property) ... ". 

A reversionary interest is excluded property if the relevant conditions in section 48 

of the Act apply, and the reversionary beneficiary can gift his interest inter vivas 

or by will without inheritance tax being chargeable in respect of the transfer. 250 

Areversionary interest may be vested and not subject to any condition, or it may 1-070 

be vested subject to divestment, or it may be a contingent reversion or "contingent 

remainder". If property is held on trust "for A for life, then to B" then B has a vested 

and indefeasible reversionary interest in the trust; if the trust is held "for A for life, 

then to B, but if B should predecease A then to C" then B has an vested interest in 

remainder, subject to divestment if he should predecease A; or if property is held 

on trust "for A for life, then to B if he should attain 21" then B's rcversionary interest is contingent on him reaching 21. Any contingent reversionary interest must 

comply with the rule against perpetuities, i.e. the interest must vest within the 

perpetuity period. 25 1 

Ordinarily, a reversionary interest is one which is postponed behind that of a life 1-071 

interest. In such cases, the reversionary beneficiaries may have a vested interest liable to be divested either partially or entirely, for example where property is left 

to A for life and then to A's children in equal shares such that the birth of further 

children will reduce the existing children's shares. It is possible, if the remainder 

beneficiaries and the life tenant(s) unanimously consent, for the trust to be brought 

to an end wholly or partially under the rule in Saunders v Vautier. 252 While the 

antecedent interests remain the beneficiary with a reversionary interest has no right 

to the income. The interaction between the rights or a life tenant to the income and 

the right of a beneficiary with a reversionary interest in the capital, including the 

rule in Howe v Lord Dartm.outh and Re Earl of Chesterfield's Trusts, is explained 

elsewhere_2s, 

Entailed interests 

General characteristics of an entail before I 926 

Until 1926 an entail, also called an estate tail or fee tail, 254 was a form of freehold 1-072 

estate in land, the others being a fee simple, which was equivalent to full ownership, and a life estate. An entail was created by a settlement or will which limited 

2511 See Dymond'.1· Capital Taxes al§§ I 8.I00·-18.600. 251 See § 6-060. 252 Berry v Geen [ 1938] A.C. 575 (HL) at 582F-G; C v C (Ancillary Relief Trust Fund) [2009] EWHC 

1491 (Fam); [2010] 1 F.L.R. 337 at [14]. 253 See Chap.23, especially §§ 23-113 lo 23-185. 254 See generally Megarry and Wade, Law of'Rea/ Property (9th edn) §§ 3-046 to 3-059. 

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DEF!NlTION AND CLASSIFICATION 

land to a person in tail with remainders over.255 Under the entail the descendants of 

that person, who was called a tenant in tail, stood to take the land in order of seniority after his death, themselves becoming tenants in tail so that their own interests 

endured only during their respective lifetimes. A common form of entail was one 

under which tbe descendants who could take were restricted to male descendants 

in the male line of descent in order of seniority, called a limitation in tail male 

which was often followed in remainder subject to the limitation in tail male, by ~ 

limitation in tail under which all descendants could take in order of seniority. A settlement of land normally created a series of successive entails, for example for the 

first and every other son of the settlor in order of seniority, and then for the first any 

every other daughter of the settlor in order of seniority. 

1-073 Save for a entail created by statute which was made unbarrable by statute,256 a tenant in tail was entitled to bar his entail by a disentailing assurance executed as a 

deed.257 If he was a tenant in tail in possession of the land, the effect of a disentailing assurance was to defeat all estates and interests under the settlement which took 

effect subject to his entail and to convert his entail into a fee simple,258 so that the 

tenant in tail became the absolute owner and the settlement came to an end. If he 

was not a tenant in tail in possession, a disentailing assurance executed with the 

consent of the protector of the settlement had a similar effect, though did not 

prejudice limitations under the settlement having priority to his entail.259 The protector of the settlement was n01mally the person who under the settlement was entitled 

in possession to an estate in the land. 260 The power of a protector to give consent 

was not subject to any fiduciary or other constraints and the protector was entitled 

to serve his own personal interests in deciding whether or not to give consent. If 

the tenant in tail was not entitled in possession, a disentailing assurance executed 

by him without the consent of the protector operated to create a base fee, that is an 

estate which did not destroy limitations under the settlement taking effect in 

remainder after his entail, and which lasted only for so long as his entail would have 

lasted had there been no disentailing assurance.

261 It was possible for the holder of 

a base fee to enlarge it into a fee simple estate in a similar way to the way in which 

land could be disentailed,

262 with the consent of the protector if the base fee holder 

was not entitled to an estate in the land in possession under the settlement. 263 

Effect of the 1925 property legislation 

1-074 The 1925 property legislation had important effects on entails though did not alter 

the general characteristics of an entail described in the two previous paragraphs: 

255 As to the wording needed to create an entail, see § 7-087. 256 See Fines and Recove1ies Act 1833, s.18; Robinson. v Giffard [1903] I Ch. 865. The terms of an 

unbam1ble entail may, neve1theless, be varied under Settled Land Act 1925, s.64, see Hambro v Duke 

of Marlborough [1994] Ch. 158; and on s.64, see §§ 52-025 onwards. 257 Fines and Recoveries Act 1833 which replaced a procedure for barring entails by cowt process, see 

Megany and Wade, work cited, §§ 3-048 to 3-052. 2ss Fines and Recoveries Act 1833, s.15. 2s9 Fines and Recoveries Act 1833, s.34. 260 Fines and Recoveries Act 1833, s.22. 261 Fines and Recoveries Act 1833, s.34. 262 Fines and Recove1ies Act 1833, s.19. 263 Fines and Recoveries Act 1833, s.35. 

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CLASSIFICATION OF EQUrIABLf' INTERESTS UNDER TRUSTS 

(l) Since 1926 entails have not existed as legal estates and can take effect only 

as equitable interests which must be given effect to by the estate owner. 26"

1 

All entails existing at law on January 1, 1926 were on that date converted 

by statute into equitable interests,265 which are referred to in the 1925 

property legislation as "entailed interests". 266 

(2) When the 1925 property legislation came into force on January l, 1926, 

entailed interests could be created by way of trust in any property, real or 

personal, but only by the like expressions as those by which before 1926 a 

similar estate tail could have been created by deed (not being an executory267 instrument) in freehold land, and with the like results, including the 

right to bar the entail either absolutely or so as to create an interest 

equivalent to a base fee, and accordingly all statutory provisions relating to 

estates tail in real property applied to entailed interests in personal 

property. 268 

(3) Since 1926260 it has been possible for a tenant in taiJ270 of full age to dispose 

by will or codicil of all property or money subject to an entailed interest of 

which he is tenant in tail in possession at his death by means of a devise of 

bequest referring specifically either to the property or to the instrument 

under which it was acquired, in like manner as though he had a fee simple 

or absolute interest. 271 Such a disposal can apply to an entailed interest created under the Law of Property Act 1925271 and to an estate tail created 

before the commencement of that Act, not to entailed interests made unbarrable by statute. 273 

( 4) In default of and subject to the execution of a disentailing assurance274 or 

the exercise of the testamentary power conferred by section 176 of the Law 

of Property Act 1925,275 an entailed interest (to the extent of the property 

affected) devolves as an equitable interest, from time to time, upon the 

persons who would have been successively entitled thereto if the entailed 

interest had, before 1926, been limited in respect of freehold land governed 

by the general law in force immediately before 1926 and such law had 

remained unaffected.276 

Law of Property Act 1925, ss.1(3), 3. 265 Law of Property Act 1925, ss. l, 39 and Sch. I. Pt l. 266 Law of Property Act 1925, s.130(7). 267 This is explained at § 7-002. 268 Law of Property Acl 1925, s .130( 1). Proceeds of personal estate so entailed (not being chattels settled as heirlooms) may be invested, etc., as if they were capital money arising under Settled Land 

Act 1925, from land settled on the like trusts: see Settled Land Act 1925, ss.67(2), 73. 269 Law of Property Act l 925, s.176(4). 270 Which includes the owner of a base fee in possession who has power to enlarge the base fee into a 

fee simple without the concurrence of any other person, see Law of Property Act 1925, s.176(3). 271 Law of Property Act 1925, s.176([). 

See Law of Property Act 1925, s.130 and§ 1-075. 

Law of Property Act l 925, s. l 76(2). 274 See§ l-073. 275 See§ l-073. 

Law of Property Act 1925, s. l 30(4); Re Price [ l 928] Ch. 579, and Re Hope '.I- Will Trust [ l 929] 2 

Ch. 136. 

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DEHNITION AND CLASSIHCAITON 

h1fect of the Trusts of Land and Appointment of Trustees Act 1996 

1-075 The Trusts of Land and Appointment of Trustees Act 1996, which came into force 

on January 1, 1997,277 prohibited the creation of new entailed interests. Where a 

person purports by an instrument coming into operation after January 1, 1997, to 

grant to another person an entailed interest in real or personal property, the instrument is not effective to grant an entailed interest, but operates instead as a declaration that the property is held in trust absolutely for the person to whom an entailed 

interest in the property was purportedly granted. 278 If an instrument purports to grant 

successive entailed interests, then the first one would, in our view, confer an 

absolute interest and the subsequent interests would not take effect at all since they 

would be repugnant to the prior absolute interest. Where a person purports by an 

instrument coming into operation after the beginning of 1997 to declare himself tenant in tail of real or personal property, the instrument is ineffective. 279 We consider 

that an "instrument coming into operation" from the beginning of 1997 will include 

a post-1996 appointment made under a pre-1997 power, 280 and a pre-1997 will or 

codicil of a testator who dies in 1997 or later. The 1996 Act also repealed the statutory provision which after 1925 permitted entailed interests to he created, 281 but 

provided that the repeals and amendments made by the 1996 Act do not affect any 

entailed interests created before the 1996 Act came into force. 282 

1-076 There is no reason why a settlor or testator who wishes to create an entailed interest should not substantially achieve his objective, within the constraints of the rule 

against perpetuities, by creating trusts which have a similar effect. It would not, 

however, be safe for the settlor or testator simply to direct (subject to perpetuity 

restrictions) that the property is to be held successively for his first and other 

children for the like interests that they would have taken had they been granted 

interests in tail and had the 1996 Act never been enacted, for such wording might 

well be caught by the 1996 Act. The safer course would he to write out the trusts 

in foll. We consider that it would be permissible, for example, for the settlor or testator to direct that property is during some perpetuity period to be held in trust for A 

for life, subject thereto in trust for A's eldest son for life with power for the eldest 

son by deed to enlarge his life interest into an absolute interest but only with the 

consent of A during A's lifetime, subject thereto on trust for the eldest son of the 

eldest son for life with a similar power, and so on. Done this way, daughters could 

of course be substituted for sons as required. In practice, there arc few settlors and 

testators who would now wish to produce trusts that would come as close as this 

to entailed interests. 

Trusts of Land and Appointment of Trustees Act 1996 (Commencement) Order 1996 (Sl l 996/ 

2974). 278 Trusts of Land and Appointment of Trustees Act 1996. s.2(6) and Sch. I, para.5(1). 270 Trusts of Land and Appointment of Trustees Act 1996, s.2(6) and Sch. I, para.5(2). 28° Compare Begg-McBreorty v Sri/well [ l 996] l W.L.R. 951 (effect of statutory reduction of age of 

majority on Trustee Act 1925). see§ 31-007. 281 Trusts of Land and Appointment of Trustees Act 1996, s.25(2) and Sch.4 (repeal of Law of Property 

Act 1925, s.130(1)-(3) and (6)). 282 Trusts of Land and Appointment of Trustees Act J 996, s.25(4). 

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