Discretionary beneficiary – What is it, definition and concept | 2022

The discretionary beneficiary is the person named in the trusts who does not have a direct right to receive the assets that make up the trust, but must be taken into account to make the distribution of the trust.

These discretionary beneficiaries have the right to be considered by the settlor for the distribution of the assets that make up the trust. However, they are not general or primary beneficiaries who have designated the percentage of assets that they own from the trust.

This is a way to protect the assets that make up the trust against a beneficiary due to reliability issues. For example, if a settlor sets up the trust, but the beneficiary is a person who is in debt, he may fear for the fate of his assets (which could be seized).

In cases such as the one mentioned, instead of constituting a general beneficiary, a discretionary beneficiary can be constituted. This, establishing the condition, for example, that the beneficiary can receive the trust’s assets (or the corresponding percentage thereof) only if he has no outstanding debts to pay.

Characteristics of the discretionary beneficiary

The main characteristics that define this figure are:

  • The discretionary beneficiary does not have the power to administer and distribute the assets.
  • It can be both a natural person and a legal person.
  • You will not receive ownership of the assets until certain conditions are met. For example, that the person reaches a certain age or pay certain debts.
  • These beneficiaries do not have the full confidence of the person who constitutes the group of patrimony from which they will transmit their property in the future.
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To better understand this figure of the beneficiary, we are going to see what trusts and the people involved consist of.

The person constitutes a trust through a contract that establishes the destination of a certain patrimony while he is alive to plan how his capital will be distributed in the future, usually at his death. In some cases, the estate may be accessible to the beneficiary before the settlor’s death.

Parties that make up the trust:

  • Trustor: is the person who creates the trust. That is to say, it is the person who is going to transmit his set of assets of his property.
  • Trust: he is the person in charge of managing the trust, but he is not the beneficiary of the estate he manages.
  • Trustee: is the last person who will receive ownership of the estate that constitutes the trust. Usually the figure of the trustee coincides with that of the beneficiary.
  • Beneficiary: is the person who receives the benefits provided by the estate.

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