We Can be the Beneficiaries of a Trust?

Beneficiaries of a trust receive income from trust assets and/or principals at the ages and under the terms specified in the trust document. They can (and often do) include the person who established the trust. The first people to receive distributions are called primary beneficiaries. The class of beneficiaries who receive what remains when a trust terminates are called remainderpersons.

Although beneficiaries do not have to be identified by name, or even all exist at the date the trust is created, they must be an identifiable and definite class or group and must be in existence within the period measured by the appropriate state’s rule against perpetuities. This makes it possible for a trust to be created for the children of the grantor even though all the members of that class of beneficiaries (the grantor’s children) may not be in existence at the moment the trust is created, since the grantor is presumed capable of having more children. As long as the class is limited and definite and all its members must be in existence within the period of the rule against perpetuities, the trust will be valid.

The rule against perpetuities is a state law restriction designed to limit the period during which a trust can withhold property or its income from outright ownership. The operation of the rule will vary from state to state, but typically provides that a restriction will fail if it ties up property longer than a length of time equal to “lives in being” plus twenty-one years. In other words, the right to outright ownership of property must “vest” (can’t be indefinitely restricted) within a given time frame.7

The Uniform Statutory Rule Against Perpetuities, which has now been adopted by a number of states, takes a slightly different approach. Rather than invalidating property interests at inception, this law adopts a flat period of ninety years from the creation of the interest (rather than a period measured by lives in being at the creation of the interest) and waits to see if the rule is violated before invalidating the interest.

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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