Introduction

Every so often, in the planning for the distribution of assets via a testamentary trust, testators (for the purposes of this article, the term “testator” is used interchangeably with the term “settlor” because the testator of the will is effectively also the settlor of the testamentary trust created by the testator’s will) would request for their assets to be distributed to their beneficiaries at an age well beyond the beneficiary’s legal age of majority for multiple reasons: where the testator deems twenty-one (21) years of age (the age of majority in Singapore) to be still too young and hence, is of the opinion that the beneficiary will not be able to manage assets of such significance wisely; or where the testator feels that the beneficiary will need more years beyond the age of 21 to appreciate the value of the inheritance such as to reduce the risk of the beneficiary squandering the assets away; or simply, to avoid overwhelming the beneficiary with the sheer magnitude of the inheritance (and hence, to have the inheritance distributed the beneficiary at intervals/stages/milestones after the age of majority). Indeed, the list of reasons are non-exhaustive and the testator’s main goal is usually to ensure that the assets are utilised and enjoyed in the way his/she had intended for the beneficiaries.

Therein, a recurrent query emerges – Can a trust, designed to delay the distribution of assets to a beneficiary well beyond his/her age of maturity, be terminated at the beneficiary’s behest? In such a case, whose interest should the Court prioritise – The intent of the testator or the preference of the beneficiary? This month’s FLP article embarks on an explorative journey on this subject, immediately addressing the above questions with references to rule established in the seminal case of Saunders v Vautier [1841] EWHC J82, (1841) 4 Beav 115 (“Saunders v Vautier”) and its relevance and applicability to Singapore. We will then dive deeper into the implications of the Saunders v Vautier judgement and consider if the powers to terminate a trust by a beneficiary of sound mind, is truly unfettered or whether, certainly limitations or structures could be put in place, to create a balance between the intent of the Testator and the interest of the Beneficiary.

The Unilateral Termination of Trust by its Beneficiaries

Saunders v Vautier laid down the rule/principle that beneficiaries holding vested interests in a trust possess the authority to bring about the termination of the trust. This legal milestone empowers beneficiaries to demand the prompt distribution of trust property, regardless of any contrary provisions outlined in the trust’s terms. The case firmly established that when all beneficiaries in the trust have attained adulthood and are free from any legal disabilities, they are entitled to compel the trustee to convey the legal estate to them, thereby effecting the termination of the trust, with the court stating that “…if there is only one beneficiary under a trust who is sui juris…[she] can bring the trust to an end irrespective of the wishes of the trustees or of the creator of the trust.“

Indeed, this rule was accepted by the Singapore High Court in Re Symphonia Co Ltd & others [2013] SGHC 261, where it was stated that “It is trite that the beneficiaries of the trust, if together entitled to the whole beneficial interest, can if sui juris put an end to the trust and direct the trustees to hand over the trust property as they direct.”

In the later case of [2015] SGHC 173, the High Court once again, upheld this proposition and held that “Under the rule of Saunders v Vautier (184) Ch 82, persons who are together entitled to the entire beneficial interest in trust property and who are of adult age and under no disability have a right to require the trustee to transfer the legal estate in that trust property to them and thereby terminate the trust. The defendants are therefore obliged unconditionally to transfer all the shares … to the plaintiffs or as the plaintiffs direct”.

It is therefore evidently clear that the Singapore Courts recognise the rule of Saunders v Vautier, which emphasises that the rights of the beneficiary supersede the wishes of the testator/settlor as expressed in a trust instrument.

The Immediate Implications of the Rule in Saunders v Vautier

The ability of the beneficiary to terminate a trust instantly and request for distribution of the assets to such beneficiary poses as an immediate challenge to many testators seeking to structure meaningful trust arrangements – the biggest fear of such testators concerning their estate is having it squandered by a beneficiary who does not appreciate, value nor posses the required skills to manage it.

However, does the rule effectively mean that it is impossible for a testator to rely on a trust to plan the distribution of his estate to beneficiaries who are beyond the minimum age of majority? Thankfully, a more detailed reading into Saunders v Vautier reveals the following:

“… it was immaterial whether the occasion of it was an immediate gift of the produce of the funds to the legatee, or a gift of a fund to a trustee to improve for his benefit. In either case, it was the separation of the fund that destroyed the contingent nature of the bequest, and raised a presumption that an immediate and absolute gift was intended, unless that presumption were rebutted by a gift over in the event of the legatee dying under the prescribed age. That principle was recognised and it would be found to be the principle of all those cases in which a gift of this kind had been held to confer a vested interest.”

The Court highlighted that where the sole beneficiary (or all the existing beneficiaries) of a trust is bequeathed the gift, there is a presumption that the intention is for such gift to be immediate and absolute for that sole beneficiary (or all those existing beneficiaries). More importantly, the Court then went on to clearly state that such presumption would be rebutted with a provision of a “gift-over” to a new beneficiary in the event the sole beneficiary dies before the prescribed age.

The inclusion of the gift-over to a new beneficiary in such an arrangement would rebut the presumption of the immediate gift as the interests of this new beneficiary would also need to be accounted for. The original sole beneficiary/ existing beneficiaries ceases to be the only party that needs to agree to terminate the trust and hence, one could say that this new beneficiary could play the role as a “gatekeeper” to the assets or at the very least, pose as a huge inconvenience to the original beneficiary towards dissolving the trust arrangement immediately.

Simply put, if a will provides that assets are to be held on trust until the beneficiary attains a certain age before distribution can occur, and such assets are to be paid to a different party if the former passes on before the requisite age, then the said beneficiary is unable to unilaterally terminate the trust.  Of course, while this method is not absolutely water tight (as the original beneficiary could nevertheless induce the new beneficiary into agreeing to collectively terminate the trust), it provides an additional condition which could substantially discourage the original beneficiary from causing the trust to be terminated prematurely.

Our Concluding Thoughts

The rule in Saunders v Vautier is indeed recognised and has been applied in Singapore, setting the default position that if a sole beneficiary of a trust has reached the age of maturity, that beneficiary may opt to dissolve the trust and gain immediate access to the assets. However, this does not mean that trusts are completely at the mercy of such sole beneficiaries. The Court in Saunders v Vautier also specifically provided that if a gift-over to a new beneficiary was included (in the event of the death of the original beneficiary before the requisite age had been reach), then the new beneficiary’s consent would also be required. By structuring the gift correctly (which include the manner of distribution and the conditions involved, and picking a suitable ‘gift-over’ beneficiary) testators would still be able to achieve some level of control over how their estate can be distributed to the beneficiaries.

How can SMTP Help?

Having an experienced hand guiding you through the intricacies of the law is always helpful regarding matters of legacy planning. Being specialists in the area of Estate Planning and tapping on our combined decades of experience and very own Wealth Legacy Screening process, our lawyers will be able to assist you in a very systematic and detailed manner on your Family Legacy Planning journey, ensuring certainty and clarity in the management and distribution of your estate.

We also believe in close engagement with our clients, paying close attention to their individual facts and circumstances, and tailoring our advice and courses of action to cater to their specific needs and requirements. SMTP’s core philosophy is to provide bespoke legal advice based on our private clients’ specific needs and requirements, as cases always differ on their fine details. Our team of dedicated staff are ever eager and prepared to assist interested parties. Should you or your clients require any assistance in trust or real estate matters, please feel free to contact our Business Development Team to schedule a consultation. We look forward to working with you.