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Beneficiary

The Jersey trust law describes a beneficiary by entitlement or by a discretionary possibility of receiving trust property.

What the term means

In trust law a beneficiary is a person for whose benefit the trustee holds trust property. The interest can be a fixed entitlement or only a discretionary possibility of receiving distributions. For U.S. reporting, the Form 3520 instructions treat a U.S. person who could benefit directly or indirectly from a foreign trust at any time as a U.S. beneficiary, whether or not the trust instrument names that person.

Meaning in the Jersey law

The Jersey trust law defines a beneficiary as a person entitled to benefit under a trust or in whose favor a discretion to distribute trust property may be exercised.[3]

The definition covers both an existing entitlement and a possible distribution under discretion. The law requires a beneficiary to be identifiable by name or ascertainable by reference to a class or a relationship to another person. That other person may be living or not living when the trust is created, or when the relevant class is determined.[3]

The trust terms may allow a person to be added as a beneficiary or exclude a beneficiary from benefit. They may also make an obligation a condition of a beneficiary receiving a benefit. A settlor or trustee may themselves also be a beneficiary.[3]

How the term appears in trust descriptions

The Hague Trusts Convention describes a trust as an arrangement in which a settlor places assets under a trustee's control for a beneficiary or a specified purpose. It also says that the settlor's reservation of rights, and a trustee's own beneficiary role, do not necessarily conflict with a trust's existence.[1]

The IRS regulation describes beneficiaries as people for whose benefit trustees hold property under the ordinary trust concept in the Internal Revenue Code. It says beneficiaries usually accept benefits without creating the arrangement, though they may also be its creators when the arrangement meets the stated property-conservation purpose and beneficiary relationship conditions.[2]

The Jersey law uses settlor for the person who establishes the trust, and trustee for the person who holds and administers trust property. A beneficiary is identified through an entitlement or a discretionary route to benefit, while the trustee's legal role concerns management of assets under the trust terms.[1]

The Jersey law calls a beneficiary's position under the trust an interest. It treats that interest as movable property and, subject to the trust terms, permits the beneficiary to deal with it. The law also allows a written disclaimer of all or part of that interest, either permanently or for a specified period.[3]

The Convention describes the beneficiary within its trust definition, while the IRS regulation discusses beneficiaries as part of its distinction between ordinary trusts and business arrangements. In the regulation, the presence of named beneficiaries alone does not determine how an organization is classified.[1][2]

Questions and answers

Can a beneficiary be identified through a group?

Under the Jersey law, a beneficiary may be ascertainable by reference to a class or to a relationship with a person. The related person need not be living at the time specified by the trust terms.[3]

Can the settlor or trustee also be a beneficiary?

The Jersey law expressly permits a settlor or trustee of a trust also to be a beneficiary. The Convention likewise states that a trustee's beneficiary rights do not necessarily conflict with a trust's existence.[1][3]

Can a beneficiary's interest be transferred?

Under the Jersey law, the interest is movable property. Subject to the trust terms, a beneficiary may sell, pledge, charge, transfer, or otherwise deal with that interest.[3]

Can a beneficiary disclaim an interest?

The Jersey law allows a beneficiary to disclaim all or part of an interest in writing. The disclaimer may be permanent or for a period the beneficiary specifies, and its terms may provide for revocation.[3]

Does naming beneficiaries make an arrangement a trust for IRS purposes?

The IRS regulation says that conveying property to trustees for named beneficiaries does not by itself change an organization's real character. The arrangement may be classified as a business entity if it is more properly classified that way under the regulation.[2]

  • Trust: The Hague Convention describes a trust as a relationship in which a settlor places assets under a trustee's control for beneficiaries or a specified purpose.
  • Trustee: A trustee controls trust assets and manages, uses, or disposes of them for beneficiaries or a stated purpose under the trust terms and applicable law.
  • Discretionary trust: A discretionary trust leaves distribution decisions to the trustee. It differs from a fixed interest trust and from a protective trust in who controls payments.
Sources and data notes
  1. HCCH, 1985 Hague Trusts Convention. https://www.hcch.net/en/instruments/conventions/full-text/?cid=59. Retrieved .
  2. Internal Revenue Service, 26 CFR 301.7701-4. https://www.ecfr.gov/current/title-26/section-301.7701-4. Retrieved .
  3. Jersey Legal Information Board, Trusts (Jersey) Law 1984. https://jerseylaw.je/laws/current/l_11_1984. Retrieved .
  4. Cayman Islands Legislature, Trusts Act (2021 Revision). https://legislation.gov.ky/cms/images/LEGISLATION/PRINCIPAL/1967/1967-0006/1967-0006_2021%20Revision.pdf. Retrieved .
  5. Legislature of Bermuda, Trusts (Special Provisions) Act 1989. https://bermuda.fm/legislation/1591. Retrieved .

Dates in this block record when each source was read for this page.