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.

Helpful Advice About Beneficiary Trusts

Human beings are mortal; God has created a life cycle for all beings. As a child, you tend to take things for granted, like your parents, money, and necessities of life, but when you enter into your practical life, things change. It is good to operate with an optimistic state of mind, but one cannot altogether ignore the negative, or rather dangerous aspects of life. Cliché, as it may sound, this proverb rings true, "You may hope for the best, but prepare for the worst."

You cannot stay young forever, so when you are of age, take control of your life, and plan! Consider the well-being of the people in your life, like your parents, wife, or children. Realistically, sit and think about the way they will make it in the world if something untoward was to happen to you.

Once you start thinking along these lines, you will automatically realise that a beneficiary trust is the best way to protect your loved ones when you yourself no longer can. There are various types of trusts that you can look into, generally speaking, such a trust will ensure that your beneficiary (in this case your family members) will have the right to enjoy whatever property or money you have left for them in a trust fund under the guidance of an appointed trustee.

They will not be able to abuse the trust, or misguidedly go through the assets without any future care, as the trustee will be there to grant their reasonable demands for money, while detaining them from making bad investments.

While choosing a trustee: You can select a lawyer or a trusted friend with financial know how to be such a guardian for your family. Please note that the person you are choosing to trust with the welfare of your family should be someone that you yourself can trust infallibly! Research a lot over the Internet, and go for consultations with different lawyers belonging to prominent law firms in this area of legal system before coming to any final decisions about who to trust.

Choosing a beneficiary trust best suited to your needs: You need to consult with your estate-planning attorney to go over different options for the various types of beneficiary trusts available, in order to make an informed decision about which one to select. You need to set up a trust that will be appropriate for you and your beneficiaries.

Clearly describe the heir of the trust and the amount of power a trustee can exercise: Laws of the United Kingdom demand that such terms should be laid out in a clear and precise manner with a little room allowing for loopholes, which can later result in the beneficiary being short charged.

Update the beneficiaries on regular intervals: You may have been single, or earning a lesser amount of money when you originally made the trust for your parents, but after getting married or earning a promotion, you will need to make take into account the new circumstances of your affairs.

The Concerns With Family Trusts - End of Relationships and the Start of a Legal Battle

Nothing in this world is perfect, especially with relationships. It is a widely known fact that separation of couples happen in all parts of the world. When the relationship ends, the legal battle begins. Both parties fight for their rights over their children, their properties, their assets, and their Trusts. While this can be a good thing for lawyers as they get to collect fees from these legal battles, this can be a real pain in the neck for the couple who just separated.

There are times when a couple would fight over a Trust that is worth $500,000. The sad thing about this battle is that both parties end up paying up to $100,000 for their lawyer's fee. If you come to think of it, they don't battle over the property, it's just an ego thing and they do it merely because they are hurt. It's a losing battle for both parties and the lawyer end up with a good amount in their pockets.

As an expert in this field, I have two important tips for people in order to avoid the situation that is mentioned earlier. Mind you, this article is not some kind of a relation advice so if you expecting a solution to your personal dilemma, another expert can probably help you with that. My tips are simply to help one avoid risky situations where one ends up in a losing battle over a Trust the moment separation or end of relationship occurs.

Get a legal advice. This is the most obvious and most sensible solution that I can ever give. Before setting up a trust, ask for an expert's opinion. Most of the time, they will require both you and your partner into a property relationship agreement. Remember than prevention is better than cure and what better way to do it than by consulting an expert. Be careful though as there are times that this agreement becomes null, especially if the relationship ends right after the assets have been legally transferred via the Trust.

Having two Trusts is an open secret that everybody knows. The moment you have two Trusts, you have the power to deal with the assets that was your own. You can put personal properties that were your own, like long before the relationship started. You can put family heirlooms and inheritances in your own personal Trust.

The two steps that I mentioned are fairly easy. Remember that an ounce of prevention such as getting an agreement or setting up another Trust is better than paying for the cure which will benefit nobody but your lawyers.

Estate Planning - Living Trusts - Post Mortem Administration

Initial Considerations

The Trustee is obligated to administer the trust assets in accordance with the terms of the written trust documents. You should obtain a copy of the trust documents, including any amendments, and study them carefully.

You should identify exactly who is the trustee of the Living Trust. It is the prerogative of the person named as trustee to accept or reject the nomination. If he accepts, the Trustee should certify this by signing certificates before a public notary. See the forms posted below. Copies may then be provided to any party needing proof of the trustee's authority.

If it becomes necessary to admit the decedent's will to probate, confirm that it nominates you as the first choice to serve as personal representative (i.e. executor). It is common in estate planning to name the same person as trustee and personal representative. Of course, there will be no personal representative if there is no need for probate.

Overview of Trustee Responsibilities

Under the terms of the trust, generally the trustee is to: 1) account for trust property, 2) ensure the payment of the debts and taxes of the decedent's estate, and 3) separate and administer the assets of the trust in accordance with the terms of the trust. Most trusts provide for compensation for services rendered as trustee, unless you voluntarily waive such compensation. Such compensation is paid from the assets of the trust. If you are the sole beneficiary of the trust, you should waive any compensation for serving as trustee.

You should identify what is held by the trust. The assets of the trust consist of only those assets which either (i) were transferred to the trust before the decedent's death, or (ii) go through probate after decedent's death. Any assets in the decedent's name alone, or which were otherwise left out of the trust, may pass into the trust only by going through probate. There are some exceptions to this, such as life insurance proceeds, and jointly owned bank accounts.

As trustee, you are entitled to engage an attorney to advise and assist you with trust administration. The fees charged by such attorney are paid from the assets of the trust.

Unless there is a legal challenge to the validity or interpretation of the trust, the trust is not subject to the review of the probate court. The trustee must, however, make sure that all of the debts and taxes of the estate are paid. The trustee may be personally liable for any failure to pay debts or taxes.

Some Common Trustee Duties

The trustee's duties typically include the following:

a. Power of Attorney. Obtain and hold the original of any Power of Attorney forms signed by the decedent. By law, a Power of Attorney is no longer valid after the death of the party granting the power. Thus, you are no longer entitled to rely on any Power of Attorney granted by the decedent.

b. Death Certificate. Verify all information contained on the decedent's death certificate, including social security number, date of birth, date of death, and address.

c. Life Insurance. Evaluate all possible life insurance, and assert claims for death benefits where applicable.

d. Assets. Prepare a comprehensive inventory, listing all assets in which the decedent or the decedent's trust owned an interest, including approximate values as of date of death, and indicating whether or not such assets were placed in the Trust. Jointly owned assets should be listed separately. Be careful to not overlook anything of value. Even if a probate is not necessary, a complete list of all assets will be critical, for income tax reporting (including basis calculations), and estate tax reporting. Assets which have a readily ascertainable value, such as bank accounts, marketable securities, etc., need not be appraised. However, all material assets not having a readily ascertainable value should be appraised right away, to establish values as of date of death.

e. Safe Deposit Box. Promptly inventory the contents of the safe deposit box, if any, noting the approximate value of each item as of the date of death.

f. Benefit Payments to Decedent. Promptly give written notice of decedent's death to all parties from whom the decedent received benefit payments such as social security, annuities, pensions, etc. Payments received for post-death periods must be returned to the payor.

g. Decedent's Debts. Promptly list and pay all debts and expenses which are uncontested, including expenses of last illness and burial/funeral expenses. You should also pay all legitimate charges on credit cards and credit accounts, all of which should be promptly closed. The trustee should also ascertain whether there are any disputed claims against the estate, and engage an attorney to help resolve the disputed amounts.

h. Personal Income Taxes. The final state and federal joint income tax returns for the decedent and the decedent's spouse are due by April 15 of the year after the year of decedent's death. You should coordinate with decedent's accountant, for preparation of these returns. Such tax returns will be the final joint returns, and the surviving spouse will file under "single" status for future years.

i. Trust Income Taxes. There is often a requirement to file separate income tax returns for the trust itself, for the period of post-mortem trust administration. If the trust will have material income between the date of death and final distribution of trust assets, income tax returns are usually required. In order to file such tax returns, a federal tax identification number must be obtained. To obtain one, your attorney or accountant should prepare IRS Form SS-4, to apply for a federal tax identification number. You should sign and submit this form as soon as possible. Quarterly estimated income tax payments by the trust may also be required. Again, you may need to coordinate with your accountant for preparation of such returns.

j. Death Tax Returns. A federal estate tax return, and state inheritance tax return, must be prepared and filed within nine (9) months from the date of death. All state and federal death taxes owing by the estate must be paid within nine (9) months from the date of death. Return preparation should begin right away, even though no taxes may be owing. In many cases, there are numerous complicated steps which must be taken prior to the filing of such returns, including elections, disclaimers, and asset allocations. For more information on these issues, see the author's separate article: State and Federal Death Taxes.

k. Notice to Beneficiaries. Under the Uniform Trust Code, the Trustee is required to give notice of certain information to all qualified beneficiaries. See the sample Notice to Beneficiaries in our law resources section on our Web site (see link below).

l. Beneficiary Information. The Trustee must identify all beneficiaries, and obtain all pertinent information regarding each beneficiary including address, Tax ID number, and date of birth.

m. Prudent Manager. As Trustee, it is your obligation to manage all assets of the trust. You should immediately secure all tangible property. Residential property owned by the trust should be protected by functioning locks on all doors and a functioning alarm system if available. Property taxes, monetary encumbrances, and insurance premiums should be kept current. Personal items of significant value (jewelry, artwork, antiques, guns, tools, etc.) should be moved to a secure location pending distribution or other disposition. All financial resources must be prudently managed, and you should confer with qualified professional advisors regarding necessary adjustments to existing investments. You are legally obligated to do more than just maintain the status quo, whether or not the decedent or decedent's advisors engaged in active financial management in the past.

n. Record Keeping. You must be able to provide a detailed accounting of all income and expenses of the trust, and all financial resources of the trust. It is critical that you maintain one or more separate bank accounts in the name of the trust for receipt of income, and payment of expenses. You must never co-mingle trust monies with your own personal resources. It is often advisable to establish financial bookkeeping systems using popular computer software (i.e. Quicken, Quick Books, Peachtree, etc.). In any event, well-organized, detailed record-keeping is critical.

o. Preliminary Distributions. Early in the trust administrative process, the Trustee may begin distribution of specific trust assets. In particular, personal property items mentioned in the trust may usually be distributed right away. Be sure to check the trust for any mandatory waiting periods, as most trusts impose a 30 day survival requirement, or other time period beyond which a beneficiary must live in order to receive a trust distribution.

Additional Resources

The foregoing comments will address the majority of issues that initially arise in trust administration. However, there is no uniform procedure for trust administration because each trust is different, and holds different assets. Numerous other rules and procedures may come into play in the administration of a specific trust. For additional information on these issues and other rules and procedures, numerous articles and other information are available at various websites. For the most reliable advice, you should confer with an experienced estate planning attorney.