Trusts typically have three parties. The grantor, or trustor, is the original owner of the assets. He's the one that "trusts" the trust to hold his stuff according to his wishes. Trustees take care of the trust. Beneficiaries are the people that ultimately get what is in the trust. A trust isn't restricted to one beneficiary. It can have as many beneficiaries as the trustor wishes, and the beneficiaries can have different levels of claim on the trust.
The Primary Beneficiary
A trust's primary beneficiary is the first party to benefit from the trust. For example, if a trust names the trustor's spouse as the primary beneficiary, the assets in the trust would go to her when the trustor dies or otherwise loses his rights to the trust's holdings. There can be more than one primary beneficiary. For example, you could divide your assets equally between a spouse and a sibling, giving each a claim to 50 percent of the trust.
The Secondary Beneficiary
If something happens to the primary beneficiary, the secondary beneficiary steps forward and gets what is in the trust. For instance, your trust might name your spouse or significant other as the primary beneficiary. When you have children, you can add them as secondary beneficiaries. That way, if something happens to both of you, your children will automatically inherit what is in the trust.
As long as you structure your trust as a revocable living trust, changing beneficiaries is a relatively simple process. You can revise the trust documents whenever you want, as long as you designate yourself as the trustee for as long as you're alive. However, if you set up an irrevocable trust, changing your beneficiaries is much harder. If you can't get everyone -- including every beneficiary and your third-party trustee -- to agree on a change, you may need to get court approval. Some states also allow the trustee to transfer the trust's assets into a new trust with different rules through a process called decanting.
Trusts as Beneficiaries
A trust can have a beneficiary, but it can also be a beneficiary. Your life insurance, individual retirement account and other types of savings also have beneficiaries that specify where their balances go after you die. You might normally name your spouse or significant other as the primary beneficiary on these accounts. However, if you name your trust as the secondary beneficiary, the proceeds will be paid into your trust instead of into your estate if your primary beneficiary isn't around. This setup saves you from having to update all of your accounts as your life changes. As long as you and your companion stay together, the only record that you'll need to update is that of your trust.
- Randall W. McKee, RFC: What Everyone Should Know About Trusts
- Archie Richards: Make Your Living Trust the Secondary Beneficiary of Your IRA
- Prudential: What is the Difference Between Primary and Secondary Beneficiaries?
- Department of the Treasury: Question and Answers About Trusts
- Robinson, Bradshaw and Hinson, P.A.: Trust Me, Your Irrevocable Trust is Modifiable
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