What Is A Hybrid Trust?
By: mgordon | Posted: 05th June 2009
Trusts can be divided into any number of different kinds, but in many cases people divide them into two types; the fixed trust and the discretionary trust. In a fixed trust, the beneficiaries and the amounts to be paid to them are decided in advance and specified by the testator as part of the text of the agreement. The trustee appointed to distribute the assets is limited in their scope to simply fulfilling the wishes of the testator. In a discretionary trust, the beneficiaries are not named, but criteria for their eligibility is laid down. Equally, the amounts are generally not assigned – at least not at a fixed level – thus allowing for potential beneficiaries to become eligible or ineligible, and for their entitlement to change as and when the trustee sees fit or is instructed to change things by the testator. A hybrid trust is, therefore, and as the name suggests, a mix between the two.
Typically, in a hybrid trust, there will be certain provisions set in stone. People who the testator sees as irrevocably entitled to a certain part of their assets will be retained as fixed beneficiaries. The testator will specify their identity and their entitlement as they would in a fixed trust, and this must be paid out in the event of the trust maturing, regardless of the trustee's preference. However, certain assets will be held back for discretionary award either to people already named in the fixed trust, or to other potential beneficiaries who meet the agreed criteria. As the word “fixed” suggests, that part of the trust makes very clear what is going to whom. There is room for considerable discretion in the rest of the trust, however.
For practical purposes, the way that a fixed trust works is to allow a testator to make allowances for changes in circumstances while making sure that their closest dependents and loved ones are provided for as a matter of overriding priority. In such cases it will be possible to make allowances for – hypothetically speaking – the testator’s spouse, children, grandchildren and long-term friends. By assigning specific assets to specific beneficiaries, the testator is guaranteeing that their needs are served before concerning themselves with anything over and above the necessary.
The rest of the assets held in trust then essentially become somewhat negotiable gifts given not on the basis of need or preference, but because the people concerned have shown themselves to be deserving under the criteria laid down. This may see additional assets given to a primary beneficiary, or a potential beneficiary who did not gain from the fixed trust to benefit in some way having proved their entitlement in the meantime.
By dividing assets in such a way, it is possible for a testator who has family and friends who have shown varying degrees of reliability, goodwill and good nature to reward those who have done well with a fixed amount, while neither closing the door on nor making any guarantees to those who have yet to prove they should be included or excluded.
Disclaimer: This article is for informational and entertainment purposes only, and should not be construed as legal advice on any subject matter.
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Tags: preference, scope, priority, circumstances, discretion, set in stone, provisions, assets, different kinds, dependents, trustee, beneficiaries, trusts, testator