A fixed income trust is a type of trust arrangement that provides specific instructions for how administrators and trustees may issue disbursements from the trustee funds. Unlike other types of trust arrangements, the discretionary powers for the trust are severely limited, allowing disbursements to only be made according to the schedule and instructions of the trust founder. With a trust of this kind, the function of the trustee is to follow those instructions to the letter, with no authority to deviate from those orders even if unforeseen circumstances should arise.
The structure of a fixed income trust is different from a discretionary trust arrangement mainly in regard to what the trustee can and cannot do. With a discretionary arrangement, the trustee is usually committed to managing certain transactions in a specific manner, but also has some authority to grant exceptions based on events that may occur to beneficiaries of the trust. For example, the trustee of a beneficiary trust may have the ability to temporarily increase disbursements to a beneficiary who is recuperating from a surgical procedure and is unable to work for several months. With a fixed income trust, this type of activity could only take place if the trust founder had provided specific instructions in how to address this type of issue.
There are a number of benefits associated with a fixed income trust. If the founder has very specific ideas of how to go about providing for loved ones and wishes to ensure that support will continue for a specific period of time, creating a fixed trust means that it is easier to ensure that the funds are disbursed in a way that achieves that goal. In addition, if the beneficiaries are perceived to be less than competent with money matters, the founder may choose a fixed income trust as the means of preventing beneficiaries from squandering the inheritance and having no source of income after a short period of time.
While a fixed income trust is an excellent choice at times, there are also some potential drawbacks. Over the years, circumstances may arise that were not envisioned by the trust founder. When this happens, the trustee will not be in a position to respond to those events in a manner that is in the best interests of the trust fund or the beneficiaries. For this reason, it is important to weigh the relative merits of different ways to structure the trust fund, consider the current and potential needs of the beneficiaries, and then settle on a trust fund structure that is most likely to honor the intent and wishes of the founder.
