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Encyclopedia > Beneficiary (trust)

In trust law, a beneficiary or cestui que use, is the person or persons who are entitled to the benefit of any trust arrangement. A beneficiary will normally be a natural person, but it is perfectly possible to have a company as the beneficiary of a trust, and this often happens in sophisticated commercial transaction structures.[1] With the exception of charitable trusts, and some specific anomalous non-charitable purpose trusts, all trusts are required to have ascertainable beneficiaries. Image File history File links Gnome-globe. ... This article or section does not cite its references or sources. ... Look up trust in Wiktionary, the free dictionary. ... In jurisprudence, a natural person is a human being perceptible through the senses and subject to physical laws, as opposed to an artificial person, i. ... The term company may refer to a seperate legal entity, as in English law, or may simply refer to a business, as is the common use in the United States. ... A charitable trust (or charity) is a trust organized to serve private or public charitable purposes. ... A purpose trust is a kind of trust which has no beneficiaries, but instead exists for advancing some non-charitable purpose of some kind. ...


Generally speaking, there are no strictures as to who may be a beneficiary of a trust; a beneficiary can be a minor, or under a mental disability (in fact many trusts are created specifically for persons with those legal disadvantages). It is also possible to have trusts for unborn children, although the trusts must vest within the applicable perpetuity period. The rule against perpetuities is a rule in property law which prohibits a contingent grant or will from vesting outside a certain period of time. ...

Contents

Categorisation

There are various ways in which beneficiaries of trusts can be categorised, depending upon the nature and need of the categorisation.


From the perspective of the trustees' duties, it is most common to differentiate between:

  • fixed beneficiaries, who have a simple fixed entitlement to income and capital; and
  • discretionary beneficiaries, whom the trustees must make decisions as to the respective entitlements.

Where a trust gives rise to sequential interests, from a tax perspective (and also from the point of view of trustee's duties), it is often necessary to differentiate beneficiaries sequentially, between:

For the purposes of various exercise of beneficiaries' rights, it is often necessary to distinguish between: It has been suggested that this article or section be merged into life estate. ... A remainderman is person who inherits property upon the termination of the estate of the former owner. ...

A bare trust is one in which the beneficiary has a right to both income and capital and may call for both to be remitted into their own name, they are also entitled to take actual ownership and control of the trust property. ... To meet Wikipedias quality standards, this article or section may require cleanup. ... A resulting trust is a type of implied trust created through implication of law where the actions of the parties involved and the nature of the transaction implies an intention to create a trust. ... An inter vivos trust is an express trust created by the settlor during his lifetime, as distinguished from a testamentary trust which arises upon the testators death, usually under his will. ... A testamentary trust is trust which arises upon the death of the testator, usually under his will. ... A trust instrument (also sometimes called a deed of trust, where executed by way of deed) is an instrument in writing executed by a settlor used to constitute a trust. ...

Rights and interest

The nature of a beneficiaries' interest in the trust fund varies according to the type of trust.


In the case of a fixed trust, the beneficiaries' interest is proprietary; they are the owners of an equitable interest in the property held under the trust.


The position is slightly different in the case of a discretionary trust; in such cases the beneficiaries are dependant upon the exercise by the trustees of their powers under the trust instrument in their favour.[2] A discretionary trust[1] is a trust where the beneficiaries and/or their entitlements to the trust fund are not fixed, but are determined by the criteria set out in the trust instrument by the settlor. ... A trust instrument (also sometimes called a deed of trust, where executed by way of deed) is an instrument in writing executed by a settlor used to constitute a trust. ...


Similarly, where a trust gives rise to successive interest, the title of a remainderman is a prospective, or contingent, interest; although unlike a discretionary beneficiary, this is still a species of property that can be dealt with, much in the same was as a contingent or prospective debt.


Taxation

Main article: Taxation of trusts

Tax planning usually plays a considerable role in relating to the use of trusts.[3] The taxation of trusts in the United Kingdom is governed by a different set of principles to those tax laws which apply to individuals or companies. ...


Historically, whilst the courts have been fairly amenable to the use of trusts in tax planning,[4] as tax planning schemes have become more aggressive, so the courts have increasingly taken a restrictive view of the tax treatment of trusts.


Although individual countries tend to have very detailed rules about the taxation of trusts, the three mechanisms whereby taxation is usually assessed is by either treating (i) the trust as a separately taxable entity in its own right, (ii) treating the trust property as still the property of the settlor, and (iii) treating the trust property as belonging absolutely to the beneficiaries. Some jurisdictions apply different combinations of the rules in income tax, capital gains tax and inheritance tax. In law a settlor is a person who settles property on express trust for the benefit of beneficiaries. ... An income tax is a tax levied on the financial income of persons, corporations, or other legal entities. ... A capital gains tax (abbreviated: CGT) is a tax charged on capital gains, the profit realized on the sale of an asset that was purchased at a lower price. ... The examples and perspective in this article or section may not represent a worldwide view. ...


Beneficiaries' powers

Because an interest under a trust is a species of property, adult beneficiaries of sound mind are able to deal with their rights under the trust fund as they could with any other species of property. They can sell it, assign it, exchange it, release it,[5] mortgage it, and do most other things that they could do with a chose in action. An assignment is a term used with similar meanings in the law of contracts and in the law of real estate. ... A mortgage is a method of using property (real or personal) as security for the payment of a debt. ... A chose in action is an intangible personal property right recognised and protected by the law, which has no existence apart from the recognition given by the law, or which confers no present possession of a tangible object. ...


If all of the beneficiaries of the trust are adults and of sound mind, then they can terminate the trust under the rule in Saunders v Vautier, and require the trustees to transfer absolute legal title to the trust assets to the beneficiaries. The rule in Saunders v Vautier (1841) 4 Beav 115 is a rule of equity which provides that, if all of the beneficiaries a trust are of adult age and under no disability, the beneficiaries may require the trustee to transfer the legal estate to them and thereby terminate the...


See also

A beneficiary in the broadest sense is a natural person or other legal entity who receives money or other benefits from a benefactor. ... This article or section does not cite its references or sources. ... The word trustee is a legal term that refers to a holder of property on behalf of some other beneficiary. ... In law a settlor is a person who settles property on express trust for the benefit of beneficiaries. ...

Footnotes

  1. ^ See for example Quistclose trusts and orphan structures, both of which commonly involve non-human beneficiaries of trusts.
  2. ^ In Gartside v IRC [1968] AC 553 it was argued that because a beneficiary might receive all the income, he should be treated as being entitled to all of the income, however, the House of Lords held that it could not be said that any individual beneficiary under a discretionary trust was entitled to any quantifiable share
  3. ^ Although it is not the only role. Trusts have a variety of uses outside of the tax sphere, notably for protecting minor and disabled beneficiaries. Although because the tax treatment of trusts is usually complex in most countries, even when the trust is being used for non-tax related purposes, tax planning considerations often come into play.
  4. ^ In IRC v Duke of Westminster [1936] AC 1 the House of Lords asserted "Every man is entitled to do what he can to order his affairs sothat the tax attaching under the appropriate Acts is less than it otherwise would be" at page 19.
  5. ^ Where the trust is a discretionary trust, the beneficiary may renounce his position as a class member; see Re Gulbenkian's Settlement (No 2) [1970] Ch 408

 
 

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