PROBATE Corner
Who Is A Beneficiary / Qualified Beneficiary Of A Trust ?
PROBATE Corner
Who Is A Beneficiary / Qualified Beneficiary Of A Trust ?
DAVID M . GARTEN
The best way to understand a statute is by example . In Rachins v . Minassian , 2018 Fla . App . LEXIS 9819 ; 2018 WL 3387236 ( Fla . 4th DCA July 11 , 2018 ), we finally have a workable example to assist us in determining who are the beneficiaries / qualified beneficiaries of a trust !
Florida Trust Code : The Florida Trust Code defines a “ beneficiary ” and “ qualified beneficiary ” as follows :
“ Beneficiary ” means a person who has a present or future beneficial interest in a trust , vested or contingent , or who holds a power of appointment over trust property in a capacity other than that of trustee …. See § 736.0103 ( 4 ), F . S .
“ Qualified beneficiary ” means a living beneficiary who , on the date the beneficiary ’ s qualification is determined : ( a ) Is a distributee or permissible distributee of trust income or principal ; ( b ) Would be a distributee or permissible distributee of trust income or principal if the interests of the distributees described in paragraph ( a ) terminated on that date without causing the trust to terminate ; or ( c ) Would be a distributee or permissible distributee of trust income or principal if the trust terminated in accordance with its terms on that date . See § 736.0103 ( 16 ), F . S .
Rachins v . Minassian : In Rachins , the husband (“ H ”) created a revocable trust ( the “ original trust ”) which became irrevocable upon his death . H and his wife (“ W ”) were the sole trustees of the trust . H died and the original trust directed that all remaining trust property be distributed to the family sub-trust (“ trust ”). Pursuant to the terms of the trust , W , as trustee , was authorized to distribute income and principal to herself , in her sole and absolute discretion , for her health , education , and maintenance . Upon the death of W , the trust terminates and the remainder is divided into separate trust shares for their two children . The children filed a complaint against W alleging that she had a substantial gambling problem and was improperly administering the trust . W moved to dismiss the complaint , arguing that her children lacked standing because they were not beneficiaries of the trust . In response , the children argued that they are qualified beneficiaries and therefore have standing to question whether the wife is properly administering the trust .
Who Are The Beneficiaries Of The Trust ? The court found that the children are beneficiaries of the trust because they have a future beneficial interest in the trust . More specifically , the children have a future beneficial interest in any property remaining in the trust after W ’ s death since any remaining property in the trust will be disbursed to a new trust for the children ’ s benefit under the terms of the original trust . Stated another way , because any remaining property in the trust would be distributed to a new trust created for the benefit of the children upon W ’ s death , the children will , at a minimum , have an equitable interest in any property in the trust at that time .
The fact that any remaining principal of the trust would flow into a new trust created for the children , as opposed to being distributed to the children outright , does not preclude the children from being beneficiaries of the trust under the statutory definition . See Brown-Thill v . Brown , 929 F . Supp . 2d 887 ( W . D . Mo . 2013 ) ( finding that grandchildren were qualified beneficiaries , even though they were not currently entitled to trust income or principal , “ since the principal of [ their deceased grandmother ’ s ] trusts will eventually flow into their father ’ s trust , and finally to them ”); see also Mesler v . Holly , 318 So . 2d 530 ( Fla . 2nd DCA 1975 ) ( treating great grandchildren as remaindermen of a Florida Trust even though the remainder of the Florida Trust would not be distributed to them outright , but instead would flow to a Massachusetts Trust for their benefit ).
Likewise , the fact that the trust terminates upon W ’ s death does not preclude the children from having a beneficial interest in the trust . Indeed , by definition , a remainder interest in a trust refers to the right to receive trust property upon the termination of the trust . [ Citations omitted ].
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Who Are The Qualified Beneficiaries Of The Trust ? A qualified beneficiary is a limited subset of all trust beneficiaries . In effect , the class is limited to living persons who are ( a ) current beneficiaries , ( b ) intermediate beneficiaries , and ( c ) first line remainder beneficiaries , whether vested or contingent . See John G . Grimsley , Florida Law of Trusts , 18 Fla . Prac . § 16:1 ( 2016-2017 ed .). For example , contingent remainder beneficiaries of a trust are qualified beneficiaries under § 736.0103 ( 16 ), F . S . because of their interest in the distribution of any principal remaining after the death of a lifetime beneficiary . See Harrell v . Badger , 171 So . 3d 764 ( Fla . 5th DCA 2015 ).
The court found that the children are qualified beneficiaries of the trust . As noted above , the term “ qualified beneficiary ” includes a living beneficiary who “[ w ] ould be a distributee or permissible distributee of trust income or principal if the trust terminated in accordance with its terms on that date .” § 736.0103 ( 16 )( c ) F . S . Here , the children are qualified beneficiaries because they would be distributees of trust principal if the trust terminated in accordance with its terms ( i . e ., W died ). The definition of “ qualified beneficiary ” under subsection ( 16 ) ( c ) includes the children in this situation , even though the trust terminates at the wife ’ s death and even though the children would be distributees of any remaining trust principal in the trust only through a newlycreated trust for their benefit . Alternatively , even assuming that the relevant trust is the original trust , the children would be qualified beneficiaries under § 736.0103 ( 16 )( b ) since the original trust would not terminate when W dies . See Rachins , footnote 3 . In support of its finding , the court cited to Brown-Thill v . Brown , 929 F . Supp . 2d 887 ( W . D . Mo . 2013 ), wherein the Missouri court considered whether the settlor ’ s grandchildren were qualified beneficiaries of his trust under Florida law .
Brown-Thill v . Brown : In Brown-Thill , H created a revocable trust . H later died , survived by his wife , Saurine (“ W ”) and their two children , Brown and Brown-Thill .