A fixed income trust limits the trustee’s authority to only disburse funds according to the founder’s instructions, while a discretionary trust allows for some flexibility. Fixed trusts ensure specific support for loved ones and prevent beneficiaries from wasting the estate, but may not account for unforeseen circumstances. It’s important to consider the needs of beneficiaries when choosing a trust structure.
A fixed income trust is a type of trust agreement that provides specific instructions on how administrators and trustees can issue disbursements from trustee funds. Unlike other types of trust arrangements, the discretionary powers for the trust are very limited, allowing disbursements to only be made according to the schedule and instructions of the trust founder. With such a trust, the role of the trustee is to follow those instructions to the letter, with no authority to deviate from those orders, even if unforeseen circumstances should arise.
The structure of a fixed income trust is different from a discretionary trust arrangement primarily with respect to what the trustee can and cannot do. With a discretionary agreement, the trustee typically agrees to manage certain transactions in a specific way, but also has some authority to grant exceptions based on events that may occur to the beneficiaries of the trust. For example, the administrator of a beneficiary trust may have the ability to temporarily increase disbursements to a beneficiary who is recovering from a surgical procedure and is unable to work for several months. With a fixed income trust, this type of activity could only take place if the founder of the trust had provided specific instructions on how to address this type of problem.
There are a number of benefits associated with a fixed income trust. If the founder has very specific ideas about how to provide for loved ones and wants to ensure that support continues for a specific period of time, creating a fixed trust means it’s easier to ensure funds are disbursed in a way that achieves that goal. aim. Also, if the beneficiaries are perceived to be less than money-wise, the founder may choose a fixed-income trust as a means of preventing the beneficiaries from wasting the estate and not having a source of income after a short period of time. .
While a fixed income trust is a great option at times, there are also some potential drawbacks. Over the years, circumstances may arise that were not foreseen by the founder of the trust. When this happens, the trustee will not be in a position to respond to those events in a way that is in the best interest of the trust fund or the beneficiaries. For this reason, it is important to weigh the relative merits of different ways to structure the trust fund, consider the current and potential needs of the beneficiaries, and then settle on a trust fund structure that is most likely to meet the intent and wishes of the founder.
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