A trust is an official setting which is used by a person in order to give authority of his assets or property to a trustee to give advantage to a third person. A beneficiary is the individual for whom the trust fund is being generated. A beneficiary can be any individual like, a young person, a spouse, or a grandchild, and can also include businesses and entities. Even an infant or unborn child can be a beneficiary.
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 system of trust is not similar in various countries. In some countries, they have laws which are not in the favour of everlasting trusts. According to their system of law the specified period of time has to be limited in the trust document. Hence, beneficiaries can receive a preset amount of money from the bank accounts for a limited period of time, or the beneficiaries can become possessor of a particular amount of money or land when they reach the specified age.
The taxation of beneficiary trusts has turn out to be a multifaceted issue. In the UK, according to the system of law regarding taxation of trusts, the beneficiaries need to pay tax on the amount of money they receive at a normal tax rate. And, the trustees are not legally responsible to pay tax.
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 over 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.
Leave a comment