What is a fixed trust?

The term “fixed trust”commonly refers to two different types of trusts. The first type of fixed trust is an actual form of trust with very specific instructions for the trustee. The second type of fixed trust can also be referred to as a “fixed investment trust,” which is a type of mutual fund. Both types of trusts are investment options, however they each act differently with regard to the trustee, beneficiaries, investments, and distributions.

Fixed trusts are an established form of living trust available for estate planning purposes. Unlike a regular discretionary trust which offers the trustee guidelines as to how money should be distributed, a fixed trust gives specific instructions for the distribution of funds for each individual beneficiary. As with any trust, the trustor has the discretion to name any beneficiaries they desire and can place multiple beneficiaries into the trust. When using a financial institution as the trustee instead of a trusted friend or family member, a fixed trust is a good option because it limits the discretion of the trustee and ensures that they follow your precise wishes.

Advantages and Disadvantages of a Fixed Trust

A fixed trust is useful for estate planning when you are unable to find a trustworthy trustee, and must use a financial institution instead. A fixed trust ensures less conflict among beneficiaries because their percentage payment amounts are specified in the trust document. For instance, you could assign your wife and two children as beneficiaries and state that your wife receives 60 percent of the trust’s income and your children each receive 20 percent.

On the other hand, a fixed trust is less flexible than other trusts and may neglect an actual need of a beneficiary. With a discretionary trust, the trustor will typically specify that the trust is for the health, education, and welfare of the beneficiaries, allowing the trustee the freedom to provide for those needs. With a fixed trust, each beneficiary only receives their specified amount regardless of their need.

Fixed Investment Trust

A fixed investment trust is a type of mutual fund or unit investment company that purchases a fixed portfolio of securities for the benefit of the investors. The company sells and distributes shares out of the trust’s securities. This form of mutual fund is not actively managed and the investments never change. The beneficiaries who invest in this trust are shareholders. These shareholders are paid through dividends, interest, and occasional capital gains within the invested companies. The investments are always considered low risk. This means that they are a safe investment but they will also generally offer low returns. The only people allowed to invest in the fixed investment trust are the people who were listed at the time the trust was organized. This requirement makes the fixed investment trust a closed investing form. In short, a fixed investment trust is not an actual trust, but a form of mutual fund that people invest in while living.

Case Studies: Fixed Trusts and Fixed Investment Trusts

Case Study 1: Preserving Family Harmony With a Fixed Trust

The Smith family is a wealthy family with multiple assets and investments. Mr. Smith, the patriarch, is concerned about ensuring fair and harmonious distribution of his estate among his three children – Alice, Bob, and Claire. However, he worries that appointing one of his children as the trustee might lead to conflicts and disputes among them.

Mr. Smith consults with an estate planning attorney who suggests setting up a fixed trust. He appoints a reputable financial institution as the trustee, providing clear instructions in the trust document. The trust stipulates that Alice will receive 40% of the trust’s income, Bob will receive 30%, and Claire will receive 30%.

By opting for a fixed trust, Mr. Smith ensures an impartial and professional trustee oversees the estate’s distribution. The specific allocation for each child minimizes potential conflicts and promotes family harmony, allowing Mr. Smith to secure his family’s financial future with confidence.

Case Study 2: Steady Retirement Income Through Fixed Investment Trusts

Emma, a retiree, has worked hard to accumulate savings for her retirement. She is risk-averse and seeks a stable investment option that will provide a consistent income stream throughout her retirement years. Emma is concerned about relying solely on Social Security benefits, as they may not be sufficient to cover her living expenses.

Emma meets with a financial advisor who introduces her to fixed investment trusts. These trusts offer a conservative investment approach, with a fixed portfolio of securities that provide steady returns over time.

Emma decides to allocate a portion of her retirement savings to a fixed investment trust. This investment choice helps her generate a reliable income stream, providing peace of mind during her retirement. The fixed investment trust’s low-risk nature aligns well with Emma’s financial goals, allowing her to enjoy her retirement without worrying about market fluctuations.

Case Study 3: Balancing Flexibility and Control With Discretionary Trusts

The Johnson family, comprising grandparents, parents, and grandchildren, has substantial wealth and assets. They desire an estate plan that accommodates future family needs and allows them to support various life events, such as education, health expenses, and other special occasions. However, they also value flexibility in the distribution of their assets.

After consulting with an estate planning attorney, the Johnson family decides on a discretionary trust. Unlike fixed trusts, this type of trust provides broader guidelines to the trustee, allowing them to exercise discretion in distributing funds based on beneficiaries’ individual needs.

With a discretionary trust, the Johnson family can adapt their estate plan to evolving family circumstances. The trustee has the flexibility to allocate funds as required, ensuring that each family member’s unique needs are addressed. This balance between flexibility and control empowers the Johnson family to support their loved ones in a personalized and meaningful way.

Getting Legal Help

To learn more about fixed trusts or fixed investment trusts and to use these tools for your portfolio, contact an estate planning attorney or wealth management specialist for a consultation.