Back to: INHERITANCE, ESTATES, & TRUSTS
Beneficial Interest Definition
A beneficial interest refers to the right to get benefits on assets held by a different party. The beneficial interest often relates to issues addressing trust accounts. For instance, most beneficial interest arrangements take the form of trust accounts, in which an individual, the beneficiary, has vested interest in Trudy’s assets. The beneficiary gets revenue from the trust’s holdings but doesn’t own the account.
A Little More on What is a Beneficial Interest
A beneficiary interest would change based on the trust account type and the trust agreement rules.
A beneficiary usually has a future interest in the trust’s assets which means that they may access money at a fixed time, like when the recipient attains a certain age. For instance, a parent might establish a testamentary trust to benefit their 3 children once their parent dies. They trust creator is capable of stipulating the account’s access distribution to the children during their parent’s lifetime.
Parents might set up Crummey trusts, funded via yearly gifts, to capitalize on gift tax exclusions. With Crummey trusts, the beneficiary has an instant interest, as well as, access to the trust’s assets for a given period. For instance, the beneficiary might have access to the trust’s funds during the first thirty days after the gift transfer. Such assets are grouped within the distribution rules governing the trust.
Other Examples of Beneficiary Interest
Real estate is another instance of beneficial interest. A tenant who rents a property enjoys the benefits of having a roof over his/her head. However, the renter is not the owner of the asset. Beneficiary interests can be applied to employer-sponsored retirement plans like Roth 401(k)s and 401(k)s, and also in individual retirement accounts (IRA), as well as, Roth IRAs.
With the aforementioned employer-sponsored accounts, the account holder might assign a named beneficiary who’d benefit from the account funds supposing the account holder dies. The rules governing beneficiary interest in these situations differ greatly depending on the retirement account type, as well as, the beneficiary’s identity.
A spouse beneficiary to an individual retirement account is freer over the assets. The surviving spouse can use the account as theirs, rollover assets into a different plan, supposing the IRS permits, or choose themselves as the beneficiary.
A non-spouse beneficiary to an IRA, for instance, cannot treat the account as theirs. Therefore, the beneficiary cannot contribute to the account or even roll over assets in or out of the individual retirement account.
Reference for “Beneficial Interest”
Academics research on “Beneficial Interest”
Policy Considerations: Alienability of the Beneficial Interest in a Trust in New York, Sparks, B. M. (1959). Policy Considerations: Alienability of the Beneficial Interest in a Trust in New York. Buff. L. Rev., 9, 26.
Indian Claims to Groundwater: Reserved Rights or Beneficial Interest, Griffith, G. (1980). Indian Claims to Groundwater: Reserved Rights or Beneficial Interest. Stan. L. Rev., 33, 103.
Real Party in Interest, Clark, C. E. (1924). Real Party in Interest. Yale LJ, 34, 259.
Some Legal Aspects of Beneficial Interests Under Illinois Land Trusts, Turner, M. (1944). Some Legal Aspects of Beneficial Interests Under Illinois Land Trusts. Ill. L. Rev., 39, 216.
Beneficial Ownership of International Claims, Bederman, D. J. (1989). Beneficial Ownership of International Claims. International & Comparative Law Quarterly, 38(4), 935-946.