Civil Law Basics

Trusts – Separation of income from principal

§1801. Beneficiary defined. A beneficiary is a person for whose benefit the trust is created and may be a natural person, corporation, partnership, or other legal entity having the capacity to receive property. A trustee of a trust, in his capacity of trustee, can be the beneficiary of another trust. Neither the heir, legatee, or assignee of a designated beneficiary, nor a beneficiary by reason of a substitution under Sub part B of Part III of this Chapter, is considered a beneficiary for the purpose of fixing the maximum allowable term of the trust.

§1802. Sufficiency of designation. A beneficiary must be designated in the trust instrument, except as otherwise provided in this Code. The designation is sufficient if the identity of the beneficiary is objectively ascertainable solely from standards stated in the trust instrument.

§1803. Requirement that beneficiary be in being and ascertainable. A beneficiary must be in being and ascertainable on the date of the creation of the trust, except as otherwise provided in this Code. An unborn child is deemed a person in being and ascertainable, if he is born alive.

§1804. Settlor as beneficiary. A settlor may be the sole beneficiary of income or principal or both, or one of several beneficiaries of income or principal or both.

§1805. One or several beneficiaries; separate beneficiaries. There may be one beneficiary or two or more beneficiaries as to income or principal or both. There may be separate beneficiaries of income and principal, or the same person may be a beneficiary of both income and principal, in whole or in part.

§1806. Concurrent beneficiaries. There may be several concurrent beneficiaries of income or principal or both.

§1807. Successive income beneficiaries. Several beneficiaries may be designated to enjoy income successively.

§1965. Effect of termination of interest. Unless the trust instrument provides otherwise:

1) Termination of the interest of the sole income beneficiary prior to the termination of the trust causes each principal beneficiary to become a beneficiary of income in an amount proportionate to his interest in the principal.

(2)(a) Termination of an ·interest in i come of one of several income beneficiaries causes the other income beneficiaries or their successors to become beneficiaries of that interest in income in proportion to their interests in the balance of trust income.

(b) If however, termination of the income interest is by death, and if descendants of the deceased income beneficiary are the beneficiaries of an interest in trust principal or succeed to such an interest upon the death of the income beneficiary, such descendants shall become beneficiaries of the deceased beneficiary’s interest in trust income in proportion to the descendants’ interests in their portion of trust principal. Income not distributed at the time of the termination of the trust is allocated to principal unless the trust instrument provides otherwise.

§1961. Nature of the interest. A. An interest in income may be given absolutely or conditionally. It may be given for the life of a beneficiary or for a term, certain or uncertain, not exceeding the life of a beneficiary.

B. A settlor may allocate to a beneficiary of income a portion of income. Any income not allocated to an income beneficiary shall be allocated to principal.

C. Except as otherwise provided with respect to the legitime in trust, a settlor may give a trustee who is not a beneficiary of the trust discretion to allocate income in different amounts among the income beneficiaries or to allocate some or all of the income to principal. The settlor may allow income that is not allocated by the end of the year in which it is received to remain unallocated by the trustee until a future year. Any income unallocated when the trust terminates shall be allocated to principal.

§1963. Permissible stipulations regulating distribution of income. Except as otherwise provided with respect to class trusts and the legitime in trust, a settlor may stipulate when the income allocated to a beneficiary shall be distributed to him, or may stipulate that the trustee has discretion to determine the time and frequency of distribution. If the trust instrument allows the trust to retain income received in a year of the trust and distribute it in a later year, the income retained at the end of the year is deemed to be accumulated, unless the trust instrument requires the undistributed income to be added to principal. Objective standards are not required for the accumulation of income or for the distribution of accumulated income.

§1809. Representation upon predecease of named principal beneficiary “When a testamentary trust designates as principal beneficiary a person who is a descendant, a sibling, or a descendant of a sibling of the settlor, and that person does not survive the settlor, the descendants by roots of that person will be principal beneficiaries in his place, unless the trust instrument provides otherwise.

§2082. Administration in interest of beneficiary; duty of impartialty. A. A trustee shall administer the trust solely in the interest of the beneficiary.

B. When there is more than one beneficiary, a trustee shall administer the trust impartially, based on what is fair and reasonable to all of the beneficiaries, except to the extent that the trust instrument manifests an intention that the trustee shall or may favor one or more of the beneficiaries.