Rule in Saunders v Vautier

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The rule in Saunders v Vautier (1841) 4 Beav 115 is a rule of equity which provides that, if all of the beneficiaries a trust are of adult age and under no disability, the beneficiaries may require the trustee to transfer the legal estate to them and thereby terminate the trust. The rule has been repeatedly affirmed in common law jurisdictions.^[1]

Although the rule is most often exercised where there is a sole trustee holding the trust fund on a bare trust for a sole beneficiary (usually where the trusts were held for the benefit of a tenant for life, who has died, and the sole beneficiary is the remainderman), the rule is not limited to those circumstances. However, if there is more than one beneficiary, then all of them need to be adults and without any disability.

There are a number of reasons why the beneficiaries may elect to do this. In Saunders v Vautier, the accumulation trusts were to continue until the beneficiary was 25, and (at 21) the beneficiary wished to terminate the accumulation. Similarly, if the trusts are held for a tenant for life, and then for the benefit of a remainderman, both tenant for life and remainderman may decide to terminate the trusts and obtain the capital immediately, and agree a partition of the funds between them; this situation often occurs where changes in the revenue laws means that upon the death of the tenant for life the trust fund may be subject to inheritance tax in a way that was not envisaged when the trust fund was originally set up.

It has also been held that the rule in Saunders v Vautier also applies to discretionary trusts as well as fixed trusts.^[2] However, some caution is in order, as that decision was made at a time when the law was understood to require that a valid discretionary trust need to be able to draw up a complete list of the beneficiaries of the trust in order to be valid; subsequent to the decision of the House of Lords in McPhail v Doulton [1971] AC 424, this is no longer the appropriate test,^[3] and accordingly it may be that not all discretionary trusts are capable of being terminated by the beneficiaries under the rule.

[edit] Footnotes

1. ^ Re Chardon [1928] Ch 464; Re Smith [1928] Ch 915; Re Nelson [1928] Ch 920n; Re Becket's Settlement [1940] Ch 479; Re AEG Unit Trust [1957] Ch 415
2. ^ Re Smith [1928] Ch 15
3. ^ In summary, a discretionary trust is now valid if, of any person it can be said whether they are within the class or not. Clearly such a test would not ordinarily lend itself to termination of the trusts under the rule in Saunders v Vautier, but there seems no reason in principle where a discretionary trust with a specific list of named beneficiaries could not terminate the trust under the rule.