Beneficiary of a Trust

Rocco Beatrice
 


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The beneficiary is the reason for your trust (contract). Your beneficiary is the person who will enjoy the benefits of your trust assets. They include, wives, children, grandchildren, charitable organizations of every color and variety.

The length of your beneficiary is unlimited. The beneficiary could include the original grantor, but that would be self-defeating. Trusts should be irrevocable. The grantor gives-up his assets to gain asset protection, elimination of probate, elimination of estate taxes and gain certain uncommon tax advantages. Any degree of control by the grantor will render the trust revocable and subject to court discretion.

The period of time of the trust depends on the selection of your trust’s legal jurisdiction. Most states and countries have rules against “perpetuities. " That’s to say, that your trust must have an end. Selection of your trust's jurisdiction in the United States or outside the United States depends on the degree of risk to be assumed by you. Foreign Asset Protection Trusts (FAPT) are significantly stronger than domestic trusts. Judgments are generally not enforceable outside the United States.

CATEGORIES OF THE BENEFICIARY OF A TRUST

There are two basic trusts with regards to the exercises of the beneficiaries’ rights:

1. Beneficiaries of a bare trust (aka as a simple trust) is where the beneficiary is entitled to take actual ownership and control of the trust and has the right to the income and capital. The trustees, in this case, act in accordance with the beneficiaries’ wishes.

2. Beneficiaries of an express trust are trusts whereby the trustee is given additional duties and powers assigned in the trust deed. The express trust can be either an inter vivos trust, which is a trust created during the life of the grantor, or the express trust can be a testamentary trust, which is a trust enacted after the death of the grantor (aka as the will trust).

When there are issues of sequential interests involved such as tax implications, it's important to note the two main sequential beneficiary categories:

1. Beneficiaries with a vested interest such as tenants for life. The tenant for life is where the beneficiary owns the property or asset for the duration of that person's life. However, upon the death of the beneficiary the ownership ends. Because the property ends upon the death of the beneficiary, he cannot leave it to heirs nor can the property be inherited from the beneficiary.

2. Beneficiaries with a contingent interest such as remaindermen. A remainderman is entitled to a future interest called a remainder in the property. So a remainderman is a person who will inherit property upon the death of the former owner which, in this case, be a tenant for life owner. For example, the grantor states in the trust deed the property will be granted to “Joe for life then to Susan. " Susan is the remainderman.

Where the trustee is concerned, there are two main types of beneficiaries:

1. Fixed beneficiaries who simply have a fixed entitlement to the income and capital from the grantor. 2. Discretionary beneficiaries to whom the trustees have discretionary and decision-making powers to the entitlements.

THE TRUST CONTRACT

The trust document (contract) can be as little as three pages and as long as fifty pounds of paper. The more complicated you make the trust, the more complicated it is to administer. Simplicity is the key.

Trust assets may include, your personal residence, your investment account, other real estate or your business limited only by your valuable assets you wish to contribute to your trust.

The trust generally obtains a federal identification number and files it’s own tax return. Distributions to beneficiaries may or may not be taxable depending on the nature of the underlying assets.

Finally, a trust may be a business, however it’s difficult for others to do business with you, since the trust is really a “private contract" between the grantor, the trustee and your beneficiaries. Your business partners would more likely ask for a complete copy of the trust agreement and they would have their attorney look it over. As a consequence, most will not do business with a trust, but they will do business with other recognized legal entities such as a Limited Liability Company, Corporation, Partnership, etc. for which the trust may own.

UNDERSTAND THESE IMPORTANT FACTS ON TRUSTS:

A trust is a form of ownership, which is controlled and managed by your designated “independent" trustee, that completely separates responsibility and control of trust assets from your benefits of ownership; in other words, you no longer own or control your assets. The IRS recognizes numerous types of trusts and other legal arrangements commonly used for wealth preservation and legal protection against potential lawsuits, elimination of probate and elimination of estate.

Author bio - Rocco Beatrice, CPA, MST, MBA
Award-winning estate planning & trust expert
MS - Taxation, Master of Science Taxation
MBA - Management / Taxation
BSBA - Management / Accounting
CPA - Certified Public Accountant
-
Irrevocable Trust Asset Protection, Estate Planning
Trust Protector
71 Commercial Street #150, Boston, MA 02109
tel: +1.508.429.0011 fax: +1.508.429.3034

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