assignment of beneficial interest in trust

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Beneficial Interest: Different Types and Examples

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

What Is Beneficial Interest?

A beneficial interest is the right to receive benefits on assets held by another party and is often evident in matters concerning trusts.

Most beneficial interest arrangements are in the form of trust accounts, where an individual, the beneficiary receives income from the trust's holdings but does not own the account.

Key Takeaways

• A beneficial interest is the right to receive benefits from assets held by another party.
• A Crummey trust is often set up by parents for their children where the beneficiary has an immediate interest.
• A beneficiary receives income from a trust's holdings but does not own the account.

How Beneficial Interest Works

A beneficiary interest will change depending on the type of trust account and the rules of the trust agreement. 

A beneficiary typically has a future interest in the trust's assets meaning they might access funds at a determined time, such as when the recipient reaches a certain age.

Trusts for Children

For example, a parent may set up a testamentary trust to benefit their three children upon the parent's death. The trust creator can stipulate the distribution of the account's assets to the children during the parent's lifetime.

Additionally, a beneficial interest can be a house owned by a trust, where a child is a trust beneficiary and can use the house, both income tax and rent-free.

Beneficial interest will alter depending on the rules of a trust's arrangement and the type of trust account.

Parents may set up  Crummey trusts , funded through annual gifts, to take advantage of gift tax exclusions. With Crummey trusts, the beneficiary has an immediate interest and access to the trust's assets for a specified timeframe. For example, the beneficiary may be able to access the trust's funds within the first 30 or 60 days after the transfer of a gift. Those assets fall under the distribution rules governing the trust.

Other Examples of Beneficial Interest

Another example of beneficial interest is in real estate. A tenant renting a property is enjoying the benefits of having a roof over their head. However, the renter does not own the asset.

Beneficiary interests can also be applied to employer-sponsored retirement plans such as 401(k)s and Roth 401(k)s, as well as in individual retirement accounts (IRA) and Roth IRAs. 

With these employer-sponsored accounts, the account holder may designate a named beneficiary who can benefit from the account funds in the event of the account holder's death. The rules governing beneficiary interest in these cases vary widely depending on the type of retirement account and the identity of the beneficiary.

A spouse beneficiary to an IRA has more freedom over the assets than anyone else. The surviving spouse can treat the account as their own, rollover assets into another plan—if the IRS allows— or designate themselves as the beneficiary. 

A non-spouse beneficiary to an IRA, for example, can't treat the account as their own. Thus, the beneficiary can't make contributions to the account or roll over any assets in or out of the IRA.

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Land trust with assignment of beneficial Interests

• protects your privacy, avoids probate court costs after death,
• names beneficiaries and a trustee to uphold any income allocation to the beneficiaries as needed,
• transferable to new beneficiaries easily, without having public record,
• facilitates multiple ownerships for clear and easy division, and, helps you retain seniors’ exemptions.

More about Land Trusts:

• Why should I get a land trust for my estate?    
• How is having a land trust easier than just having a will?  

Table of Contents

When can i set up a land trust.

In most cases with multiple heirs, one or more of the heirs waives their rights to the property to avoid a disagreement. It is unfair that one of your children pays for the upkeep, taxes and other expenses associated with the property. Then when the property is sold, all your children expect to share the proceeds evenly. This usually makes tax payments go unpaid, and homes go into disrepair.

What are the benefits of doing a Land Trust?

Probate costs can range from several thousands of dollars to tens of thousands of dollars! It’s unfair to have one of your children pay this cost upfront, and then evenly divide the estate in it’s entirety. These types of disagreements can really split up family. With a trust, the trustee is obligated to distribute the proceeds from a sale evenly eliminating probate court costs.

There are a lot of benefits to having a land trust. One is anonymity. A lot of debt collectors and other interested parties such as business organizations interested in collecting on loans from a business etc. Cannot see who are the beneficiaries to the trust. It is not public information. Another reason is that after you pass, your heirs or beneficiaries will have to go through probate which is costly, from thousands to tens of thousands of dollars, and have waiting time during that process. With a land trust, your home is already transferred to them as owners upon your death, where they will avoid that costly probate process.

There is a trustee named, to carry out the details in the trust, and disburse assets along with other duties, and there are heirs which are further responsible for the property itself.

Debts are usually assigned to a person, an entity or placed as a lien or judgments on a home. No, debts are not usually assigned to land trusts, but some judgements can name the beneficiaries of a person as the parties being sued.

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Assignment and Transfer of Beneficial Interest In A Land Trust

I took your course some years back.  All the names below are just examples.  What goes in the ????? area?

ASSIGNMENT AND TRANSFER OF BENEFICIAL INTEREST IN LAND TRUST

Joseph A. Seller, the undersigned, being the owner(s) of 100% of the beneficial interest in a Land Trust created pursuant to a Trust Agreement dated December 18, 2019 and known as Palm Trust which names Marcos Helper as the Trustee, hereby assign, transfer, and convey 100%  of our interest of the beneficial interest in said Land Trust over and unto Dream Properties LLC., and hereafter, subject Land Trust and _____????????_____________shall be entitled to all of the rights of the beneficial owner and shall be required to perform all of the duties and meet all of the obligations of the beneficial owner of said Land Trust.

It is also acknowledged that the power of direction is held as follows:

Joseph A. Seller   –                       100%

Hereafter the power of direction shall be held as follows:

Dream Properties LLC.   –   100%

Dated this 18th day of December, 2019.

____________________________

Joseph A. Seller, Beneficiary

Marcos Helper, Trustee

ACCEPTANCE OF ASSIGNMENT

The undersigned, Marcos Helper, hereby accepts the above assignment, and agrees to be bound by the terms, covenants and conditions of said Trust Agreement.

Dated this 18th day of December, 2019

__________??????????______________________

THIS DOCUMENT IS NOT REQUIRED TO BE RECORDED IN ANY COUNTY RECORDER’S OFFICE

Joe, the first blank is for the name of the new beneficiary

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Michigan Law Review

Home > Journals > Michigan Law Review > MLR > Volume 52 > Issue 4 (1954)

Trusts - Validity and Effect of Assignment of Beneficial Interest in Trust for Support - Claims of Beneficiary's Divorced Wife and Children

William E. Parmenter Jr. , University of Michigan Law School

A testamentary trust required the trustee to apply income in such amounts as might be necessary for the education, support and maintenance of H until he attained the age of 35 years; then to hand over the corpus and accrued interest. Contingent interests were created for children of H who might survive his death before the age of 35. After the death of testatrix, H married W and had two children. In an agreement subsequently incorporated in a California decree of divorce obtained by W, H promised to make monthly payments to W for her own support and for the support of his children until distribution of the trust, and purported to assign to her his interest in the trust income to secure this obligation. Upon W 's request for payment, plaintiff trustee sought a judgment declaratory of the effect of the assignment and the claims of H 's wife and children. On appeal, held : (1) Trustee had no right or duty to comply with the purported assignment of income to W . The trust was one for support from income and H could not alienate his income interest. (2) The will of testatrix evidenced her expectation that H might marry and her intent that reasonable support be provided not only for H individually, but for his family as well. Accordingly, trustee was instructed to pay from surplus income, after providing support for H , amounts which it should consider reasonably necessary for the education, support and maintenance of his children. (3) Trustee had no right to honor W' s claim for support from the trust. Under the terms of the divorce decree she became a mere creditor unconnected with H 's family and her needs for support were not to be considered in determining the amount necessary for H 's support. Seattle First Nat. Bank v. Crosby , (Wash. 1953) 254 P. (2d) 732.

Recommended Citation

William E. Parmenter Jr., Trusts - Validity and Effect of Assignment of Beneficial Interest in Trust for Support - Claims of Beneficiary's Divorced Wife and Children , 52 M ich. L. R ev. 622 (1954). Available at: https://repository.law.umich.edu/mlr/vol52/iss4/20

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ISSN: 1939-8557 (online)

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Q&A: Lender Considerations In Perfecting Security Interests in Illinois Land Trusts

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Q:  What steps should a lender take to properly perfect lender’s security interest where the collateral for the loan is held in an Illinois land trust?

A:  In order to properly perfect a lender’s security interest in collateral held in an Illinois land trust, a lender should take a “collateral assignment” of the beneficial interest in the land trust (“ABI”). Since the beneficial interest in an Illinois land trust is personal property, the Illinois Uniform Commercial Code (“UCC”), 810 ILCS 5/9-314, provides that a security interest in the beneficial interest in an Illinois land trust may be perfected by control of the collateral pursuant to 810 ILCS 5/9-107.1, which control is accomplished by service of a Notice of Collateral Assignment on the land trustee and obtaining a written receipt from the land trustee. Many trustees of Illinois land trusts have a standard form for lender’s use in securing the collateral assignment of the beneficial interest in the land trust, and the land trustee will sign the completed collateral assignment form to acknowledge lender’s collateral assignment of the beneficial interest in the land trust.

Q: Should a lender file a UCC-1 financing statement to perfect its security interest in an ABI?

A: 810 ILCS 5/9-312 provides that perfection of a security interest in an ABI may be perfected by filing a UCC-1 financing statement, but filing a UCC-1 financing statement is not necessary to perfect a security interest in a collateral assignment of a beneficial interest in a land trust. Although 810 ILCS 5/9-312 does not require a lender to file a UCC-1 financing statement in order to perfect the lender’s security interest in the beneficial interest in an Illinois land trust, by filing a UCC-1 financing statement, a lender puts third parties on notice of lender’s security interest and better protects lender’s security interest against other parties which may claim a security interest down the road.

Q: What is the benefit of having a collateral assignment?

A:   With a collateral assignment in place, the trustee of the land trust is not able to transfer title to the property held in the land trust or otherwise mortgage or encumber the property held in the land trust without the written consent of lender, as collateral assignee.

In addition, the Illinois Mortgage Foreclosure Law (“IMFL”), 735 ILCS 5/15-1106(a)(3) provides that any collateral ABI may be foreclosed under the provisions of the IMFL; and 735 ILCS 5/15-1106(b) provides that a secured party under Article 9 of the UCC may elect to enforce its security interest in a foreclosure under the IMFL if the security interest was created by a collateral assignment of a beneficial interest in a land trust.

Q: What can a lender do to enhance security?

A:  As belt and suspenders, lenders should also require the land trustee to execute and deliver an original signed and notarized mortgage to be recorded against the real property in the county where the real property is located in order to put third parties on notice of lender’s security interest and to allow lender to foreclose out any subsequent liens on the real property.

This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

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beneficial interest

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Beneficial interest refers to a right to income or use of assets in a trust . People with a beneficial interest do not own title to the property, but they have some right to benefit from the property. This is to be contrasted with trustees and other agents of the trust who only have managing duties. 

[Last updated in June of 2021 by the Wex Definitions Team ]

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Assignments, Disclaimers and Powers of Appointment

          Assignments, Disclaimers and Powers of Appointment can alter the distribution of a decedent’s estate.    

          First what is and who can make an assignment? A person who has a vested — legally enforceable — interest in a decedent’s estate can “assign” – i.e., transfer – part or all of their interest to another. Generally, an inheritance vests upon the decedent’s death.  An assignment is a gift by the assignor making the assignment to the assignee receiving the assigned interest.    Assignments create tax issues for both the assignor and assignee.   

          For example, consider an unmarried father who dies intestate — without a will or trust – and is survived by a son and a daughter — his heirs.  Prior to settling dad’s estate, the son decides to give his one-half share to his sister and signs and notarizes an assignment of inheritance rights.  The assignment is then filed with the Court.  Dad’s estate, less expenses and debts, is distributed entirely to the daughter. 

          If an interest in real property inherited from a parent is assigned then the parent child exclusion from reassessment — for local real property taxes — only applies to the interest(s) belonging to the child(ren) who do not assign their interest(s).  There is no reassessment exclusion for any transfers between siblings.

          Assignments, however, almost never apply to a beneficiary’s interests in a trust.  Usually, a trust prohibits beneficiaries from assigning their interest in the trust before distribution.  The anti-assignment provision protects undistributed trust assets from claims by a beneficiary’s creditors. 

          Next, disclaimers are used when a beneficiary, or heir, refuses to accept a gift or inheritance.  You cannot force someone to receive a gift or an inheritance.  To be valid disclaimers must satisfy the following requirements: be unconditional, be in writing, and be timely (i.e., generally, within nine months of the transfer), and, when real property is involved, also be filed with the county recorder where the real property lies.  Unlike assignments, the person disclaiming their interest cannot say who receives the disclaimed interest.  A disclaimer is not a gift by the person disclaiming.  Lastly, one cannot have accepted any benefits from the property being disclaimed, such as the income from an income producing asset. 

          The person disclaiming their gift or inheritance is treated as if they had predeceased the person who made the gift.  We see who is then entitled to inherit. 

          For example, a decedent’s trust leaves a share of the decedent’s trust estate to a named beneficiary and otherwise, if he does not survive to inherit, to the beneficiary’s descendants by right of representation.  The beneficiary survives and timely disclaims.  The beneficiary’s living descendants would then inherit by right of representation. 

          Unlike assignments and disclaimers, powers of appointment are created within a person’s estate planning, e.g., a trust or will, for future use.  A power of appointment allows the power holder to say who receives a gift/distribution from a trust or an estate.  The power of appointment is either a limited power that allows gifting to certain persons or is a general power that allows gifting to anyone at all, including the power holder, the power holder’s estate and the power holder’s creditors.  Powers of appointment are used for a variety of estate planning reasons. 

          For example, a husband’s and wife’s joint estate planning may give the spouse who survives a limited power of appointment over the deceased spouse’s separate trust estate.  The limited power of appointment might allow the deceased spouse’s estate to be divided equally or unequally amongst the deceased spouse’s children as the surviving spouse sees fit after the deceased spouse’s death.

          Anyone who wants to proceed with making an assignment, a disclaimer or exercise of a power of appointment should consult a qualified attorney.  There are tax and other issues to discuss and drafting requirements to these legal instruments that benefit from the expertise of a qualified attorney. 

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New standard document on deed of assignment of beneficial interest in land

Practical law uk legal update 4-591-5405  (approx. 2 pages).