Immediate Beneficiary

What Is an Immediate Beneficiary?

An immediate beneficiary, commonly referred to as a primary beneficiary, refers to any individual or organization that receives immediate benefits from a trust's assets.

Similarly, it also describes which parties get an immediate benefit from any charitable gift-giving. The most basic type of immediate beneficiary in this case is a charity that receives an outright gift from a donor.

Key Takeaways

  • An immediate beneficiary is a person or entity named to claim the benefits of a trust.
  • If a trust is for the benefit of a minor child, an immediate beneficiary may not be named until the children reach a specified age.
  • In the case of a charitable trust, the immediate beneficiary is a charitable organization.
  • An immediate beneficiary is commonly the primary beneficiary, as opposed to ancillary or contingent beneficiaries.

Understanding Immediate Beneficiaries

An immediate beneficiary from a trust often is a family member that has immediate liquidity needs. For example, say a parent has children from a first marriage, and no children from their second marriage, and a fairly sizable estate. The estate sets up a trust to help protect these beneficiaries from creditors, and to be sure assets go to the parent's intended recipients upon their death.

The children from the first marriage each are in college, with tuition bills coming next month. Naming them immediate beneficiaries for part of the trust ensures the kids will have money to pay their respective tuition bills.

Similarly, it's sometimes important to name charities as immediate beneficiaries. Say the above parent doesn't want their second spouse to have the proceeds from a certain brokerage account. Instead, the parent wants to donate those funds to their town to build a new playground to replace the current one, which is shabby and in disrepair. To do this, the parent designates the town's recreation department as an immediate beneficiary. Upon their death, the department receives the proceeds to fund the project directly from the trust.

Drawbacks of Naming an Immediate Beneficiary

In certain situations, it's probably preferable to not name an immediate beneficiary. For example, a parent sets up a trust fund knowing their children are not prepared to manage any real wealth. The grantor establishes this fund to provide an annual allowance for the children until they turn 24, at which time, they receive their full inheritance. In this instance, the children are not immediate beneficiaries of their full inheritance.

Trusts also help ongoing charity initiatives. For example, let's say the parent also wants to pay for periodic maintenance of the playground. Instead of giving it all to the town in one lump sum, they’ll hold back part of the money in a trust, which will grant periodic payments to the town for the next 15 years so administrators can carry out the parent's wishes, without misappropriating the donation. In this case, the town is an immediate beneficiary of funding to build the playground, but not for ongoing maintenance funding.

One notable downside to naming immediate beneficiaries is the cost and work involved in setting up and running a trust in the first place. Also, it’s important to know the trustee is in control of a trust, not the person who established the trust. For this reason, spelling out who gets which particular assets well in advance is preferable.

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