trust law A trust is a legal relationship in which the owner of property, or any transferable right, gives it to another to manage and use solely for the benefit of a designated person. In the English common law, the party who entrusts the property is k ...

, a beneficiary (also known by the

Law French Law French () is an archaic language originally based on Anglo-Norman, but increasingly influenced by Parisian French and, later, English. It was used in the law courts of England from the 13th century. Its use continued for several centur ...

terms and trust), is the person or persons who are entitled to the benefit of any trust arrangement. A beneficiary will normally be a

natural person In jurisprudence, a natural person (also physical person in some Commonwealth countries, or natural entity) is a person (in legal meaning, i.e., one who has its own legal personality) that is an individual human being, distinguished from the br ...

, but it is perfectly possible to have a

company A company, abbreviated as co., is a Legal personality, legal entity representing an association of legal people, whether Natural person, natural, Juridical person, juridical or a mixture of both, with a specific objective. Company members ...

as the beneficiary of a trust, and this often happens in sophisticated commercial transaction structures. With the exception of charitable trusts, and some specific anomalous non-charitable purpose trusts, all trusts are required to have ascertainable beneficiaries. 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.

Categorization

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: *those with a vested interest, such as tenants for life; and *those with a contingent interest, such as remaindermen. For the purposes of various exercise of beneficiaries' rights, it is often necessary to distinguish between: *beneficiaries under a bare trust (including a constructive or

resulting trust A resulting trust is an implied trust that comes into existence by operation of law, where property is transferred to someone who pays nothing for it; and then is implied to hold the property for the benefit of another person. The trust property ...

), to whom the trustee owes basic duties arising by law; and *beneficiaries under an express trust (either an ''inter vivos'' trust or a testamentary trust), where the trustee owes additional duties and has additional powers specified by the trust instrument.

Rights and interest

The nature of a beneficiary's interest in the trust fund varies according to the type of trust. In the case of a fixed trust, the beneficiary's 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 dependent upon the exercise by the trustees of their powers under the trust instrument in their favour. 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 way as a contingent or prospective debt.

Taxation

Tax planning usually plays a considerable role relative to the use of trusts. Historically, whilst the courts have been fairly amenable to the use of trusts in tax planning, as tax planning schemes have become more aggressive, so the courts have increasingly taken a restrictive view of their tax treatment. 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 An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...

capital gains tax A capital gains tax (CGT) is the tax on profits realized on the sale of a non-inventory asset. The most common capital gains are realized from the sale of stocks, bonds, precious metals, real estate, and property. In South Africa, capital g ...

and

inheritance tax International tax law distinguishes between an estate tax and an inheritance tax. An inheritance tax is a tax paid by a person who inherits money or property of a person who has died, whereas an estate tax is a levy on the estate (money and pro ...

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,

mortgage A mortgage loan or simply mortgage (), in civil law (legal system), civil law jurisdictions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners t ...

it, and do most other things that they could do with a ''

chose in action ''Chose'' (pronounced: , French for "thing") is a term used in common law tradition to refer to rights in property, specifically a combined bundle of rights. A chose is the enforcement right which a party possesses in an object. The use of ''chose' ...

''. 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. Bryson AJ in ''McDonald v Ellis'' states that beneficiaries are entitled to see trust documents and have information about trust property. This entitlement is a proprietary right..

Explanatory notes

Footnotes