A proper estate plan has a number of important elements. For some parties, that may include a trust.
As with the estate plan itself, it is important to understand the terminology of a trust in order to utilize it properly. One of the most crucial terms in the trust is the beneficiary, and there are a few different types to consider.
Primary beneficiaries are the first named individuals to receive assets of a trust. This may be a person, a few different people or an organization, depending upon the type of trust and its purpose. For those looking to provide support to their children specifically, there are certain trusts that provide such flexibility. These parties may be the only beneficiaries to a trust, and have an active interest in the trust from its inception. However, if the primary beneficiary does not receive the trust and there are no additional designations, the trust's assets must go into the general estate.
Contingent beneficiaries are those parties that the estate holder denotes to receive the trust if the primary beneficiary is not able to receive it for any given reason. For example, if a primary beneficiary receives a trust and dies before the trust fulfills its purpose, the contingent beneficiary would then receive the trust. Therefore, a contingent beneficiary does not have an active interest unless the primary beneficiary loses interest in some way.
In the case that a trust completes its purpose and there are additional assets available, they may go to the contingent remainder beneficiary. In some cases, such beneficiaries may not receive a portion of the trust.
Understanding the different types of trust beneficiaries allows individuals to make clear and proper distinctions within their trust documentation. Whether someone already has an estate plan in place or is seeking to make revisions, it is a good idea to take some time to review the various components that comprise the plan.