Remainder beneficiary definition
/What is a Remainder Beneficiary?
A remainder beneficiary is a person who is entitled to receive principal when the income interest in a trust ends. This typically means that the income from a trust goes to one or more income beneficiaries, either for a fixed period of time or until a future event (such as their deaths). At that time, the remaining amount in the trust is transferred to the remainder beneficiaries. in short, the remainder beneficiary is second in line to inherit after the primary beneficiaries.
Remainder Beneficiary in a Trust
When a trust is created, the grantor identifies which assets will be set aside for the primary beneficiary. This party will receive either income or principal distributions from the trust, typically for a period of time. One that time period is over, or some other condition has been completed, the remainder beneficiary is entitled to receive the remaining assets still held within the trust.
Conflicts Between Income and Remainder Beneficiaries
There may be conflicts between income and remainder beneficiaries, because the income beneficiaries want the trustee to invest in investment vehicles that generate a larger short-term return (which they will receive), while the remainder beneficiaries want the trustee to invest in longer-term investments, which are more likely to benefit them. There can also be conflicts over how receipts and disbursements are allocated between the income and principal portions of a trust. Depending on how these matters are settled, the amounts received by residual beneficiaries can vary greatly.