SAUNDERS v VAUTIER

General Principle:

Beneficiaries are entitled to terminate the trust if they have attained the age of majority (over 18), if they have full mental capacity and if they are absolutely entitled to the trust property.

Name:

Saunders v Vautier [1841] 41 E.R. 482, Ct of Chancery

Facts:

A testator, by his will, bequeathed to his executors and trustees all the East India stock upon trust to accumulate the dividends until the beneficiary should attain twenty-five. Once reached this age, the trustee was required to transfer capital and accumulated income to the beneficiary. At the age of 21, Vautier claimed the fund.

Ratio:

The issue for the court was whether the trustees should transfer trust. Wherever a beneficiary with an absolute interest under a trust is sui juris, i.e. of full age and not a lunatic, he may call for the trust property which represents that interest, and the trustees are obliged to transfer the legal title of it to him; if he is a sole beneficiary, this will result in the complete collapse of the trust. When the beneficiary has an absolute indefeasible interest in the legacy, it is not bound to wait until the expiration of the period.

Application:

The Defendant was held entitled to terminate the trust since he had the full beneficial interest. The rule in Saunders v Vautier [1841] 41 E.R. 482 represents a significant limitation upon the settlor’s ‘freedom of trust’, but it can be justified in two ways:

1) There might be something of an ‘anti-trust’ justification, as follows: while it is fine to empower owners to created structured gifts of property where this is essentially the only means of giving the benefits of property, as for example when money is provided for minor children, this power should not be used to allow an owner to control his beneficiaries when they are fully competent to look after themselves. If you give property to someone, you naturally take the risk that they will use that property in ways which are foolish or which otherwise might defeat your hopes. But that is the price of treating people, including donees of property, as autonomous individuals. The law of trusts should not, therefore, allow settlors to treat sane adults as children, and so the principle of Saunders v Vautier reflects the law’s desire that all individuals, once sui juris, should be treated as capable of running their own affairs, including their rights over property.

2) The second justification is related, and concerns the idea of equitable ownership. In the eyes of equity, the beneficiaries are the owners of the trust property, not the settlor. They have the rights against the trustee, and must enforce the trust themselves. When they reach full age, in essence the trust is in their hands. They can enforce their rights against the trustee or not, may consent to the trustees acting outside the terms of the trust, i.e. doing what would otherwise be a breach of trust, and may vary the terms of the trust as they wish. The settlor has no say in any of this. Thus they are (in theory) in full control of the property via the office of the trustee. But if that is so, why cannot they do with their property what they like, as can any other full owners, and in particular, take the property out of the trust completely if they so desire?

Analysis

The rule that was established in Saunders v. Vautier states that the beneficiary or beneficiaries of a trust have the ability to 'collapse' the trust by ordering the trustee to transfer legal ownership to either them or another person of their choosing. As a consequence of this, the equitable interest is converted into the legal interest, and the trust comes to an end as a result. In actuality, the level of difficulty involved in dissolving the trust in accordance with the precedent set by Saunders v. Vautier will determine how straightforward the process is; nonetheless, the right to do so will continue to exist in principle.