Once the basic trust structure is in place, the Current Beneficiary & Terms and Remainder Beneficiary & Terms tabs work together to answer three questions: who benefits first, how long that interest is held, and where the property goes when it ends. Both tabs are limited to non-spouse beneficiaries.
Choose an Individual Beneficiary or a Class
On the Current Beneficiary & Terms tab, begin by deciding whether the trust is designed for one named individual or for a class of people held together in a pot trust. That choice determines which of the two paths below applies.
Scenario: A Class of Beneficiaries
If a class is selected, choose the class from a dropdown of options described in relation to the Trustor(s). The dropdown crosses four relationships, children, siblings, grandchildren, and nieces and nephews, with two timing rules:
- Living when the trust is created. The class is fixed to whoever is alive at that time.
- Living from time to time. The class stays open and includes afterborn members as they arrive.
The eight resulting options are: children living when the trust is created; children who are living from time to time; siblings living when the trust is created; siblings living from time to time; grandchildren living when the trust is created; grandchildren living from time to time; nieces and nephews living when the trust is created; and nieces and nephews living from time to time.
Selecting certain classes also gives the beneficiary’s descendants withdrawal rights, not just the named class members. See Withdrawal Powers Options in an Irrevocable Trust for how withdrawal rights operate and who holds them.
How the Pot Is Held
The class is held together in one pot trust until a triggering event divides it. Two pot structures are available, and they differ in both what triggers the division and what the division produces.
- Lifetime pot. The class is held as one trust during the Trustors’ lifetimes. At the Trustors’ death, the pot divides into a separate trust for each class member.
- Age-based pot. The class is held as one trust until the youngest beneficiary reaches an age you set. At that age, the pot divides into a separate share for each class member.
Separate trusts and separate shares are not the same. A separate trust, created when a lifetime pot divides at the Trustors’ death, is a new trust with its own governing instrument and its own EIN, administered independently. A separate share, created when an age-based pot divides at the set age, is an accounting division within the existing trust: each beneficiary’s portion is tracked separately, but it remains part of the one trust under the same taxpayer identification number.
While the class is held together, whether under a lifetime pot or an age-based pot, choose the standard governing distributions to the class:
- Health, education, maintenance, and support (HEMS). Distributions are measured against this ascertainable standard.
- Independent Trustee’s sole and absolute discretion. Distributions are left to the Independent Trustee’s judgment, with no fixed standard.
Once the Pot Divides: the Primary Beneficiary’s Trust or Share
Each class member who receives a separate trust or share is that trust or share’s Primary Beneficiary. Which structures are available depends on whether the pot produced a trust or a share:
- Distributes outright at one or more ages. Pays out to the Primary Beneficiary outright at up to three ages you select. If the Primary Beneficiary dies before the final age, the remaining property passes under the remainder provisions. Available to a separate trust or a share.
- For the Primary Beneficiary’s lifetime. The property remains in trust throughout the Primary Beneficiary’s life. At death, the remaining property passes under the remainder provisions. Available to a separate trust or a share.
- For the Primary Beneficiary’s lifetime, continuing in trusts for descendants until the end of the perpetuities period (dynasty trusts). The trust continues in separate lifelong trusts for the Primary Beneficiary’s descendants and defines its own continuing plan, so the remainder questions below do not apply. Available only to a separate trust, not to a share. See Dynasty and GST below.
Once the Primary Beneficiary has their own trust or share, choose the standard governing distributions to them:
- Mandatory income after age 25 and discretionary principal for HEMS
- Mandatory income after age 25 and discretionary principal as the Trustee decides
- Discretionary income and principal for HEMS
- Discretionary income and principal as the Trustee decides
For the outright-at-ages or lifetime structures, also decide whether to grant the Primary Beneficiary a testamentary power of appointment and, if so, the permissible class of appointees:
- Descendants only
- Descendants and charity
- Broadest class of limited power of appointees
The dynasty structure uses a different, GST-specific power of appointment mechanic. See Dynasty and GST below.
If withdrawal rights are also included and this power of appointment is granted, consider whether the power avoids a beneficiary gift on lapse. See Withdrawal Powers Options in an Irrevocable Trust for the full lapse and power-of-appointment interaction.
Optional Extra Provisions are also available for the Primary Beneficiary’s trust or share:
- Discretionary distributions to help with a wedding, home purchase, or business. Available for a trust or a share.
- An annual lifetime power for the beneficiary to appoint trust income to a charity. Available for a trust; not available for a share.
- Authority for the Trustee to keep or buy a home to be held in the trust for the beneficiary to use. Available for a trust; not available for a share.
For a separate trust (not a share), you may also allow the Primary Beneficiary to serve as a Trustee of their own trust. Set separate ages for serving as Co-Trustee and as sole Trustee; leave either age blank to withhold that particular right.
The Remainder and Final Backup, for a Class
For any structure that does not already define its own continuing plan, identify who receives the property when the Primary Beneficiary’s interest ends. The remainder may pass to:
- The Primary Beneficiary’s descendants, by representation
- A named individual
- A charity
- A class defined by the Trustor
And that property is received:
- Outright
- Through a custodian under UTMA
- In a contingent trust that continues until a selected age
The tab also asks whether you want to name an ultimate beneficiary who takes if the entire line of beneficiaries named above is gone. This is a yes or no gate, not an automatic provision. If yes, the final backup may be:
- A named individual
- A charity
- A class defined by the Trustor
- The Trustors’ heirs-at-law
- Custom language you enter directly, used in place of the standard options
Scenario: An Individual Beneficiary
If one named individual is selected as the current beneficiary, there is no class, no pot, and no shares-versus-trusts question. The individual is the trust’s Primary Beneficiary from the outset.
You may also check a box to include the individual’s descendants as additional discretionary beneficiaries alongside the named individual. If withdrawal rights are included, those descendants also receive withdrawal rights.
All three trust structures are available without restriction:
- Distributes outright at one or more ages. The trust pays out to the Primary Beneficiary outright at up to three ages you select. If the Primary Beneficiary dies before the final age, the remaining property passes under the remainder provisions.
- For the Primary Beneficiary’s lifetime. The property remains in trust throughout the Primary Beneficiary’s life. At death, the remaining property passes under the remainder provisions.
- For the Primary Beneficiary’s lifetime, continuing in trusts for descendants until the end of the perpetuities period (dynasty trusts). The trust continues in separate lifelong trusts for the Primary Beneficiary’s descendants and defines its own continuing plan, so the remainder questions below do not apply. See Dynasty and GST below.
Choose the standard governing distributions to the Primary Beneficiary:
- Mandatory income after age 25 and discretionary principal for HEMS
- Mandatory income after age 25 and discretionary principal as the Trustee decides
- Discretionary income and principal for HEMS
- Discretionary income and principal as the Trustee decides
For the outright-at-ages or lifetime structures, also decide whether to grant the Primary Beneficiary a testamentary power of appointment and, if so, the permissible class of appointees:
- Descendants only
- Descendants and charity
- Broadest class of limited power of appointees
The dynasty structure uses a different, GST-specific power of appointment mechanic. See Dynasty and GST below.
If withdrawal rights are also included and this power of appointment is granted, consider whether the power avoids a beneficiary gift on lapse. See Withdrawal Powers Options in an Irrevocable Trust for the full lapse and power-of-appointment interaction.
Optional Extra Provisions are also available:
- Discretionary distributions to help with a wedding, home purchase, or business
- An annual lifetime power for the beneficiary to appoint trust income to a charity
- Authority for the Trustee to keep or buy a home to be held in the trust for the beneficiary to use
You may also allow the Primary Beneficiary to serve as a Trustee of their own trust. Set separate ages for serving as Co-Trustee and as sole Trustee; leave either age blank to withhold that particular right.
The Remainder and Final Backup, for an Individual
For any structure that does not already define its own continuing plan, identify who receives the property when the Primary Beneficiary’s interest ends. The remainder may pass to:
- The Primary Beneficiary’s descendants, by representation. At the Primary Beneficiary’s death, the trust divides into separate shares for their then-living descendants, by representation.
- A named individual
- A charity
- A class defined by the Trustor. At the Primary Beneficiary’s death, the trust divides into equal shares among the then-living members of the class, except for a children class, which includes its own by-representation provisions.
And that property is received:
- Outright
- Through a custodian under UTMA
- In a contingent trust that continues until a selected age
The tab also asks whether you want to name an ultimate beneficiary who takes if the entire line of beneficiaries named above is gone. This is a yes or no gate, not an automatic provision. If yes, the final backup may be:
- A named individual
- A charity
- A class defined by the Trustor
- The Trustors’ heirs-at-law
- Custom language you enter directly, used in place of the standard options
Dynasty and GST
The dynasty structure, continuing in trusts for descendants until the end of the perpetuities period, is available to an individual beneficiary and to a separate trust created when a lifetime pot divides at the Trustors’ death. It is not available to a share created when an age-based pot divides, because a share is an accounting division within the existing trust, not a new trust capable of continuing for another generation.
By default, at the Primary Beneficiary’s death, the trust assets divide into separate dynasty trusts for the Primary Beneficiary’s then-living descendants, by representation.
Choosing the dynasty structure replaces the ordinary remainder and final backup questions above with two different sets of choices: the power of appointment over the Primary Beneficiary’s own dynasty trust, and the terms of each descendant’s own continuing trust.
Power of Appointment Over the Primary Beneficiary’s Dynasty Trust
A dynasty trust holds GST-exempt and GST-non-exempt assets in separate shares, and the power of appointment mechanic differs between them:
- GST non-exempt assets. The Primary Beneficiary holds a testamentary general power of appointment by default. This can be changed to a limited power instead, in which case choose the permissible class of appointees for that non-exempt limited power: descendants only, descendants and charity, or the broadest class of limited power of appointees.
- GST exempt assets. Whether the Primary Beneficiary holds a testamentary limited power of appointment is a separate yes or no choice. If yes, choose the permissible class of appointees for that exempt limited power, from the same three options.
These are two independent choices. A non-exempt limited power and an exempt limited power can have different appointee classes from each other.
For a dynasty trust, there is no separate yes-or-no gate for naming an ultimate beneficiary. The default divide-by-representation among descendants, described above, always applies.
Descendants’ Trust Terms
Each descendant who receives their own continuing trust under the dynasty structure has that trust configured almost as fully as the Primary Beneficiary’s own trust was. For each descendant’s trust, choose:
- The distribution standard. The same four options as the Primary Beneficiary’s trust: mandatory income after age 25 and discretionary principal for HEMS; mandatory income after age 25 and discretionary principal as the Trustee decides; discretionary income and principal for HEMS; or discretionary income and principal as the Trustee decides.
- The power of appointment over GST non-exempt assets. Each descendant holds a testamentary general power of appointment by default, which can be changed to a limited power with its own appointee-class choice (descendants only, descendants and charity, or the broadest class).
- The power of appointment over GST exempt assets. A separate yes or no choice for a testamentary limited power, with its own appointee-class choice if yes.
- Extra Provisions. Discretionary distributions to help with a wedding, home purchase, or business; authority for the descendant to direct trust income to a charity; and authority for the Trustee to keep or buy a home to be held in the trust for the descendant to use.
- Election to serve as Trustee. Each descendant may be allowed to serve as a Trustee of their own trust, with separate ages for Co-Trustee and sole Trustee, either of which may be left blank.
This article covers the Current Beneficiary & Terms and Remainder Beneficiary & Terms tabs. For the trust’s overall design and feature gates, see How do I draft an Irrevocable Gift Trust? [[link]]