What is an immediate beneficiary?
An immediate beneficiary, commonly referred to as a main beneficiaryrefers to any person or organization that receives immediate benefits from the assets of a trust.
Likewise, it also describes the parties that derive immediate benefit from any charitable donation. The most basic type of immediate beneficiary in this case is a charity that receives an outright gift from a donor.
Key points to remember
- An immediate beneficiary is a person or entity named to claim the benefits of a trust.
- If a trust is for the benefit of a minor child, an immediate beneficiary cannot be designated until the children have reached a specified age.
- In the case of a charitable trust, the immediate beneficiary is a charity.
- An immediate beneficiary is usually the main beneficiary, as opposed to auxiliary or quota beneficiaries.
Understanding immediate beneficiaries
An immediate beneficiary of a trust is often a family member who has immediate cash needs. For example, let’s say a parent has children from a first marriage, and no children from their second marriage, and a sizable estate. The domain sets up a trust to help protect these beneficiaries from creditors and to ensure that the assets will go to the parent’s intended recipients upon their death.
The children from the first marriage are each in college, with tuition coming next month. Naming them immediate beneficiaries of a portion of the trust ensures that the children will have money to pay for their respective school fees.
Similarly, it is sometimes important to name charities as immediate beneficiaries. Suppose the parent above does not want his second spouse to receive proceeds from a certain brokerage account. Instead, the parent wants to donate those funds to his city to build a new playground to replace the current one, which is shabby and in disrepair. To do this, the parent designates the city’s recreation department as the immediate beneficiary. Upon their death, the ministry receives the proceeds to fund the project directly from the trust.
Disadvantages of Naming an Immediate Beneficiary
In some situations, it’s probably best not to name an immediate beneficiary. For example, a parent sets up a trust fund knowing that their children are not ready to manage real wealth. The donor establishes this fund to provide an annual allowance to children until they reach the age of 24, at which time they receive their full inheritance. In this case, the children are not the immediate beneficiaries of their full inheritance.
The trusts also help ongoing charitable initiatives. For example, suppose the parent also wants to pay for periodic maintenance of the playground. Instead of giving it all to the city in one lump sum, they will hold some of the money in a trust, which will give periodic payments to the city for the next 15 years so that the trustees can carry out the wishes of the parents, without divert the donation. In this case, the city is an immediate beneficiary of the funding for the construction of the playground, but not for the funding of the ongoing maintenance.
A notable downside to naming immediate beneficiaries is the cost and labor involved in creating and managing a trust in the first place. Also, it is important to know that the trustee controls a trust, not the person who established the trust. For this reason, it is best to specify who gets which particular assets well in advance.
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