Many people rightfully wonder who may be a beneficiary of a trust?
Fortunately, the answer is relatively straight forward. In most jurisdictions, virtually anyone can be a beneficiary (family, friends, charities, corporations). Pets and animals may even be beneficiaries in some jurisdictions. Additionally, most jurisdictions allow you to add and remove beneficiaries over time (assuming the trust instrument permits it).
Each country or jurisdiction has its own separate rules regarding who may and may not be a beneficiary and to what degree certain beneficiaries may benefit.
Your advisor should confirm that your intended beneficiaries are permitted by the laws of the country in which you intend to form a trust. It’s wise to also confirm that your intended beneficiaries may benefit to the extent you desire. This is not always a guarantee. In Malta, for example, direct bloodline descendants may benefit to an infinite degree whereas “collateral line” descendants may not.
But figuring out how and when trust assets will be distributed to your beneficiaries is typically the more difficult aspect of setting up a trust or foundation.
The trust instrument (or trust agreement) establishes the rules for distributions and the type of trust being established.
Fixed trusts define, Who is going to receive what, how much, and when. For example, the trust instrument could stipulate that all trust income be split equally amongst the beneficiaries each year.
Discretionary trusts, on the other hand, leave the trustee with sole discretion over how its assets should be distributed. For example, discretionary trusts allow trustees to make no distributions in a given year. Or, for example, for one beneficiary to receive a distribution while others receive nothing.
Your trust can be a combination of the two – partially fixed, partially discretionary. For example, it may stipulate that all income must be distributed each year, but the trustee has discretion to decide which beneficiary receives a distribution and how much.
Status as a beneficiary can be contingent – for example, you cannot be a beneficiary unless you’ve graduated from university.
Distributions can also be fixed or discretionary – a beneficiary must receive a distribution of $100,000 upon graduating university (fixed) – a beneficiary must receive a distribution of no less than $100,000 upon graduation university (discretionary to a degree with respect to the amount being distributed).
In my experience, determining how beneficiaries will benefit demands the most time and effort when setting either one of them up. Plus, there are also methods for non-beneficiaries to benefit from a trust.
It’s my job as an advisor to first select the appropriate jurisdiction given a client’s unique circumstances and desires, then craft a custom trust or foundation to make sure the right people benefit (and receive the desired level of benefits) while securing the appropriate level of asset protection.
Click here to watch my latest video where I discuss these issues in greater detail.