Cestui Que Trust Definition

Beneficiary (trust)
"Cestui que use" redirects here. See also, Cestui que.
In trust law, a beneficiary or cestui que use, a.k.a. cestui que trust, is the person or persons who
are entitled to the benefit of any trust arrangement. A beneficiary will normally be a natural
person, but it is perfectly possible to have a company as the beneficiary of a trust, and this often
happens in sophisticated commercial transaction structures.[1] With the exception of charitable
trusts, and some specific anomalous non-charitable purpose trusts, all trusts are required to have
ascertainable beneficiaries.
Generally speaking, there are no structures as to who may be a beneficiary of a trust; a

beneficiary can be a minor, or under a mental disability (in fact many trusts are created
specifically for persons with those legal disadvantages). It is also possible to have trusts for
unborn children, although the trusts must vest within the applicable perpetuity period.
Categorization
There are various ways in which beneficiaries of trusts can be categorized, depending upon the
nature and need of the categorization.
From the perspective of the trustees' duties, it is most common to differentiate between:
 fixed beneficiaries, who have a simple fixed entitlement to income and capital; and
 discretionary beneficiaries, whom the trustees must make decisions as to the respective
entitlements.
Where a trust gives rise to sequential interests, from a tax perspective (and also from the point of
view of trustee's duties), it is often necessary to differentiate beneficiaries sequentially, between:
 those with a vested interest, such as tenants for life; and

 those with a contingent interest, such as remaindermen
For the purposes of various exercise of beneficiaries' rights, it is often necessary to distinguish
between:
 beneficiaries under a bare trust (including a constructive or resulting trust), to whom the
trustee owes basic duties arising by law; and
 beneficiaries under an express trust (either an inter vivos trust or a testamentary trust),
where the trustee owes additional duties and has additional powers specified by the trust
instrument.
Rights and interest

The nature of a beneficiary's interest in the trust fund varies according to the type of trust.
In the case of a fixed trust, the beneficiary's interest is proprietary; they are the owners of an
equitable interest in the property held under the trust.
The position is slightly different in the case of a discretionary trust; in such cases the
beneficiaries are dependent upon the exercise by the trustees of their powers under the trust
instrument in their favour.[2]
Similarly, where a trust gives rise to successive interest, the title of a remainderman is a
prospective, or contingent, interest; although unlike a discretionary beneficiary, this is still a
species of property that can be dealt with, much in the same way as a contingent or prospective
debt.
Taxation
Tax planning usually plays a considerable role in relating to the use of trusts.[3]
Historically, whilst the courts have been fairly amenable to the use of trusts in tax planning,[4] as
tax planning schemes have become more aggressive, so the courts have increasingly taken a
restrictive view of the tax treatment of trusts.
Although individual countries tend to have very detailed rules about the taxation of trusts, the
three mechanisms whereby taxation is usually assessed is by either treating (i) the trust as a
separately taxable entity in its own right, (ii) treating the trust property as still the property of the
settlor, and (iii) treating the trust property as belonging absolutely to the beneficiaries. Some
jurisdictions apply different combinations of the rules in income tax, capital gains tax and
inheritance tax.
Beneficiaries' powers
Because an interest under a trust is a species of property, adult beneficiaries of sound mind are
able to deal with their rights under the trust fund as they could with any other species of
property. They can sell it, assign it, exchange it, release it,[5] mortgage it, and do most other
things that they could do with a chose in action.
If all of the beneficiaries of the trust are adults and of sound mind, then they can terminate the
trust under the rule in Saunders v Vautier, and require the trustees to transfer absolute legal title
to the trust assets to the beneficiaries.
See also
 Beneficiary (general)
 Trust law
 Trustee
 Settlor
 Cestui que
 Birth certificate
 Legal fiction
Footnotes
1. ^ See for example Quistclose trusts and orphan structures, both of which
commonly involve non-human beneficiaries of trusts.
2. ^ In Gartside v IRC [1968] AC 553 it was argued that because a beneficiary
might receive all the income, he should be treated as being entitled to all of the income,
however, the House of Lords held that it could not be said that any individual beneficiary
under a discretionary trust was entitled to any quantifiable share
3. ^ Although it is not the only role. Trusts have a variety of uses outside of the tax
sphere, notably for protecting minor and disabled beneficiaries. Although because the tax
treatment of trusts is usually complex in most countries, even when the trust is being used
for non-tax related purposes, tax planning considerations often come into play.
4. ^ In IRC v Duke of Westminster [1936] AC 1 the House of Lords asserted "Every
man is entitled to do what he can to order his affairs sothat the tax attaching under the
appropriate Acts is less than it otherwise would be" at page 19.
5. ^ Where the trust is a discretionary trust, the beneficiary may renounce his
position as a class member; see Re Gulbenkian's Settlement (No 2) [1970] Ch 408

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What are the different ways beneficiaries can be categorized?

What are the differences between the interests of beneficiaries under fixed trusts vs discretionary trusts?

Beneficiary (trust)

"Cestui que use" redirects here. See also, Cestui que.

Generally speaking, there are no structures as to who may be a beneficiary of a trust; a

 those with a vested interest, such as tenants for life; and

Rights and interest

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