Collapse of Gift: Saunders v Vautier

Termination of Trusts: Saunders v Vautier

The Rule of Saunders v Vautier

For various reasons parents often wish to delay any bequest to a child for many years, often to the point where the child would be a senior citizen before the child inherited. Very often these types of trusts provide that the child is maintained in a meagre sort of fashion with the income, and discretionary capital as the trustee in his or her absolute discretion considers necessary and advisable. If drafted correctly, these types of trusts can be upheld by the courts. However in a situation that recently came into our office, and is currently before the courts, is optimistic that the trust will be collapsed by reason of its failure to comply with the rule of Saunders v Vautier ( 1841) EWHC Ch J82. In our situation the deceased directed that the son’s share be held in trust until he attained the age of 65 years, and that he be paid the sum of $1000 per month until he attained the age of 65 years.

The trustee also had discretion to pay certain amounts of capital for education and advancement or benefit.. The important legal point was that the trust did not provide for a gift over to another beneficiary in the event that the offer said child failed to live to the age of 65 so that he could inherit out rightly. Furthermore, our client is over the age of majority and is legally mentally competent, and therefore according to the after said rule of law, our client is entitled to have the trust collapsed and be paid the entire inheritance right away.

The rule of Saunders v Vautier was briefly summarized by the Supreme Court of Canada in Buschau v. Rogers Communications Inc., 2006 SCC 28: 21 The common law rule of Saunders v Vautier can be concisely stated as allowing beneficiaries of a trust to depart from the settlor’s original intentions provided that they are of full legal capacity and are together entitled to all the rights of beneficial ownership in the trust property. More formally, the rule is stated as follows in UnderbillandHayton: Law of Trusts and Trustees (14th ed. 1987), at p. 628: If there is only one beneficiary, or if there are several (whether entitled concurrently or successively) and they are all of one mind, and he or they are not under any disability, the specific performance of the trust may be arrested, and the trust modified or extinguished by him or them without reference to the wishes of the settlor or trustees.

According to D.W.M. Waters, M.R. Gillen and L.D. Smith, eds., Waters Law of Trusts in Canada (3rd ed. 2005), at p. 1175, the rule was developed in the 19th century and originated as an implicit understanding of Chancery judges that the significance of property lay in the right of enjoyment. The idea was that, since the beneficiaries of a trust would eventually receive the property, they should decide how they intended to enjoy it. Waters et al., at 1177, set out three situations in which the rule of Saunders v. Vautier operates, the first of which is directly applicable to the Trust in this case: (1) A beneficiary who is adult, of sound mind, and entitled to the whole beneficial interest may require the trustees to transfer the trust property to him. For instance, to A $50,000 payable on his twenty-fifth birthday, the income to be payable to him annually until he attains that age.

In the first situation and the example given, A can call for the capital and any income withheld during minority on his coming of age, provided he is then of sound mind. As stated in Waters et al., at 117   There are two keys to a Saunders v. Vautier termination of the trust: first, that the beneficiary, or all the beneficiaries, when there is more than one, are fully capacitated, in the sense of being adult and of sound mind; second, that the person or persons seeking to terminate do indeed represent the full beneficial interests, actual and possible, in the trust property. Saunders v. Vautier has been applied in British Columbia to a trust set up by court order despite the Public Trustee’s argument that the objective of the structured settlement would be defeated if the beneficiary could determine the trust immediately on attaining the age of 19 years. As set out in Grieg v. National Trust Co. (1998), 20 E.T.R. (2d) 309 (B.C.S.C.):

The rule in Saunders v Vautier is founded on two principles,

The beneficiary is of full capacity.

The beneficiary has the full beneficial interest, both as to payments during the beneficiary’s lifetime and through the control of the reversionary interest. 8 Given both of these, there is no conflicting interest nor lack of capacity to a determination of the trust. In my view, the fact the trust was set up by court order gives it no special quality which would restrict the right to determine the trust in accordance with these principles. With the petitioner having attained majority, and having settled the reversionary interest in favour of her estate, she now has a right to determine the trust and receive the sum held on her behalf. Saunders v. Vautier was also applied in Frolek v. Frolek, [1986] B.C.J. No. 1869 (S.C.), at p. 7 (Q.L.), in a more difScult situation where the trust provided that the capital remaining in the trust fund on the death of the sole beneficiary of the trust would form part of the residue of her estate: I conclude on the authority of Re Johnston (supra), and Re Dawson (supra), and with the benefit of Professor Waters’ helpful discussion of the problem, that Winnifred is entitled to terminate the trust provision in her favour, and to call now for payment to her of the capital sum of $500,000.1 reach that conclusion because: no other person has any interest in the subject of the trust; the provision in Charlie’s will which makes any residue of the trust’s capital, part of the residue of Winnifred’s estate, gives her effective power to dispose of the remainder upon her death; and the trustee’s power to encroach on the capital for Winnifred’s benefit, and to treat her generously, makes it clear that the capital was to be used for her benefit during her life.

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