Beneficiary Trusts and Their Characteristics

A trust is a legal arrangement through which a person gives control of capital or property to a trustee for the benefit of a third person. A beneficiary is a person for whom the trust fund is created. A beneficiary can be a person like, a child, a grandchild or a spouse, and can also be organizations and entities. Beneficiaries can be minors or even unborn children.

Beneficiaries can be divided into two categories. First are the fixed beneficiaries who are entitled to receive a fixed amount from the trust. Second are the discretionary beneficiaries for whom the trustees must decide as to how much capital they will receive in what time period. In the case of the fixed trust, the beneficiaries can be considered the owners of the capital held under the trust. But in case of discretionary trusts, the trustees have control over the funds and can make decisions as they see fit.

Nowadays, beneficiary trust funds are an important part of any legal system. Most wealthy families create trust funds for their children that they get benefited from at a certain age, which is usually 21 years. One can say that it is an elite concept created for safeguarding wealth and passing it on through generations. Trust funds are created to ensure that the offspring will live a comfortable life, and can be created for many purposes such as education or living. Trusts can also ensure that property and funds are handled according to your wishes after your death. Trust property or capital can include land, buildings, money, investments or valuables.

The period of time for the trust is different across countries. There are some countries that have laws against perpetual trusts. The time period has to be specified in the wording of the trust document. For example, beneficiaries can receive regular income from bank accounts over a certain period of time, or they can become owners of a particular sum of money or property when they are of the specified age.

The taxation of beneficiary trusts can be a complex issue. According to the UK tax law regarding trusts, the beneficiaries pay tax on the income they receive at the usual tax rates. The trustees are not liable for any tax payments.

Beneficiary trusts should be irrevocable, because the grantor of the trust gives up possession of the property or capital under the trust. In this way, the grantor also gains tax advantages as he/she does not have to be liable for taxation on the property under the trust. If the trust is revocable, it can be subject to court discretion.

Trust funds can also be handed down to generations, and this can lead to the creation of a perpetual trust. The beneficiaries may, through a process, decide to hand down the trust to another individual or business entity. Since the trust contains a property or capital, beneficiaries can sell it, re-assign it, exchange it, release it, or even mortgage it just like other items of property.