When assets are placed into a trust, the property is no longer owned by an individual or organization. The trust, a legal entity, is the owner, but the trust is managed for those who will benefit from it, the beneficiaries. Trusts are generally set up as part of the estate planning process, with the proceeds going to beneficiaries when the trust owner dies. Parents may set up a trust to care for a child with a severe physical disability. The trust involves both a beneficiary and one or more trustees.
The beneficiary refers to whoever receives the property that is part of a trust, while the trustee is whoever controls that property and distributes it according to the trust deed.
Beneficiary and Grantor Definition
A beneficiary is a person or other legal entity, such as a charity or business, who receives an asset, property or other advantage from another person. The person who provides the asset, property or other advantage is known as the grantor. The grantor usually indicates what the beneficiary is supposed to get and when, in a written document. In the instance of a trust, the trust deed is the document that outlines the terms for distribution.
Beneficiaries are people or entities the grantor knows and wants to support. If the beneficiary is a person, the beneficiary typically is a family member or close friend. If the beneficiary is a business or other organization, the vision of the organization usually aligns with the philosophies of the grantor. Different types of beneficiaries exist, such as primary and principal. These labels indicate the order of distribution if there are multiple beneficiaries named to the trust or various circumstances under which they receive benefits.
Definition of a Trustee
A trustee is an individual or legal entity, such as a business or charity, responsible for controlling the assets, property or other advantages held within a trust a grantor wants a beneficiary to receive. The trustee's job is to distribute the assets, property or other advantages the way the grantor wanted as stipulated in the trust deed. He must act in the beneficiary's interests at all times, although the trust deed may allow the trustee to get some compensation for the time and effort taken to administer the trust. A grantor names one or more trustees to the trust when the trust is legally set up. Trustees are people or organizations the grantor feels will carry out the grantor's wishes and who have strong ethics, legal, organizational and financial skills.
Duties of the Beneficiary
The primary job of the beneficiary is simply to receive whatever the grantor wants the beneficiary to get. However, to do this, the beneficiary has to familiarize himself with the trust deed terms. The beneficiary also must coordinate with the trustee to receive the benefits. He may need to give the trustee some documentation that he received the assets, property or advantages from the trust. Depending on what the grantor provides through the trust, the beneficiary may have to pay taxes on the trust items.
Duties of the Trustee
A trustee is a fiduciary of the grantor and beneficiary. He must know the terms of the trust and alert beneficiaries of their entitlement. The trustee may have to file paperwork in court or with other government agencies to transfer legal ownership of trust items to the beneficiary. He also has to keep records of what is happening with the trust, as he has to prove he is following the trust terms and acting in the best interest of the beneficiary. If the beneficiary challenges the trust terms or wants to dissolve the trust, the trustee may have to defend the trust in court, as well -- beneficiaries do not always like the terms of trusts and often have conflicts with the trustees who control them.