Beneficiaries' Rights

Trusts > Beneficiaries' Rights

Candidates frequently lose marks because they confuse the right to information (which is limited by exceptions) with the right to know of the trust's existence (which is absolute), and they overlook the power of beneficiaries to terminate the trust under the rule in Saunders v Vautier.

What Is Beneficiaries' Rights in SQE1?

Beneficiaries have a number of enforceable rights against trustees. They have the right to know of the trust's existence, the right to receive trust distributions, the right to inspect trust documents (subject to exceptions), the right to sue for breach of trust, and in some cases, the power to terminate the trust. These rights are defined by equity and are enforceable in court.

Understanding beneficiaries' rights is the counterpart to understanding trustee duties and powers: what the trustee must not do, the beneficiary can enforce.

This topic connects closely to breach of trust and is a key part of the Trusts syllabus for SQE1.

Key Principles for SQE1

• Right to Know of the Trust's Existence: A fundamental beneficiary right is to be told that a trust has been created for them. This is an absolute right; the trustee cannot withhold information about the existence of the trust or the beneficiary's status as beneficiary. A beneficiary has the right to know their beneficial interest exists.

• Right to Information about the Trust: A beneficiary has the right to inspect trust documents and to obtain information about the trust's administration. However, this right has important exceptions. A beneficiary does not have the right to inspect documents that are held on a strictly confidential basis (e.g., solicitor's advice to the trustee) or documents concerning the exercise of discretion (letters of wishes setting out the settlor's non-binding preferences are sometimes withheld). The right extends to the beneficiary learning the basis on which the trustee exercised discretion but not to the trustees' reasoning about whether to exercise discretion.

• Right to Accounts: Beneficiaries have the right to receive regular accounts from the trustees showing the state of the trust fund, receipts, payments, and investments. Accounts must be rendered within a reasonable time and must be accurate. A beneficiary can require the trustees to file accounts in court.

• Right to Income and Capital: The beneficiary's entitlement to income and capital is determined by the trust terms. In a fixed trust, the beneficiary has a right to a predetermined share. In a discretionary trust, the beneficiary has no right to any distribution until the trustee exercises discretion; however, once a distribution is made, the beneficiary is entitled to it. The beneficiary's right is to have their share set aside and administered according to the trust terms.

• Power to Collapse the Trust (Saunders v Vautier): A beneficiary who is of full age and capacity and is solely entitled to the whole beneficial interest can demand the trust property and collapse (terminate) the trust. This rule applies even if the trust deed prohibits termination. The principle is that beneficiaries are the true owners in equity; if the beneficial interest is entirely vested in one person with no conditions, that person can take the property.

• Right to Sue for Breach of Trust: Beneficiaries can bring an action against the trustee for breach of trust and can claim equitable compensation or other remedies. The beneficiary must prove the breach and any loss caused by it. Multiple beneficiaries can sue; the suit is maintained in the name of the beneficiary or group of beneficiaries.

• Beneficiaries' Power to Vary the Trust: All beneficiaries together, if of full age and capacity and in agreement, can vary the terms of the trust or terminate it. Additionally, the court has power under the Variation of Trusts Act 1958 to approve variations on behalf of beneficiaries who cannot consent (minors, unborn persons, or uncertain beneficiaries).

Exam tip

A common mistake is assuming that a beneficiary's right to information is absolute. The right is qualified: beneficiaries can inspect trust documents unless they are held confidentially or concern the trustees' reasoning about discretion. Similarly, a discretionary beneficiary has no right to distribution until the trustee's discretion is exercised; the beneficiary's right is to have the discretion considered in good faith.

How This Appears in SQE1 Questions

A scenario might be: "B is a beneficiary under a trust. B demands to see all correspondence between the trustees and their lawyers. The trustees refuse, claiming the correspondence is privileged and confidential. Does B have the right to see it?" The answer requires understanding that while beneficiaries have a right to information about the trust, solicitor-client privilege is maintained and confidential documents may be withheld.

This is a classic SQE1 trap.

Common Mistakes Students Make

• Confusing the absolute right to know of the trust's existence with the qualified right to inspect documents
• Assuming a discretionary beneficiary has a right to distribution; the beneficiary's right is to have the discretion considered
• Treating the power in Saunders v Vautier as applying whenever multiple beneficiaries agree; it applies only if all beneficiaries are of full age and capacity and together entitled to the whole beneficial interest
• Overlooking the exceptions to the right of information; the trustees can withhold privileged documents and, in some cases, documents concerning discretion
• Misidentifying who can sue for breach of trust; it is the beneficiary, not the settlor or other third parties

Quick Summary

• Beneficiaries have the absolute right to know of the trust's existence and their status as beneficiaries.
• Beneficiaries have the right to information about the trust's administration and to inspect trust documents, subject to exceptions for privilege and confidential materials.
• Beneficiaries have the right to regular accounts showing the state of the trust fund.
• A beneficiary solely entitled to the whole beneficial interest (of full age and capacity) can terminate the trust under Saunders v Vautier.
• Beneficiaries have the right to sue for breach of trust and to claim compensation for loss caused by the breach.
• All beneficiaries together (of full age and capacity, in agreement) can vary the trust terms or terminate the trust.

Want to test this now? Try a few SQE1-style questions below before moving on.

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Related Topics

• SQE1 Trusts: Complete Guide
• Trustee Duties and Powers
• Breach of Trust and Remedies
• Types of Trusts

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