What is a characteristic of a fixed trust?

One Pacific Trust highlighted that fixed trusts are also known as interest or interest in possession trusts, whereby the beneficiaries automatically acquire rights to trust income or capital in advance specified fixed amounts. Fixed trusts have some peculiar characteristics; one of them is that the terms and the extent of the beneficiaries have to be specifically mentioned in the instrument at the time of creation of the trust. This means that the trustee has no discretion as to how the income or corpus is to be distributed among beneficiaries. Many times, the trustee's role is purely administrative, with principal duties including adherence to the terms of the trust and making distributions to beneficiaries in preordained schedule and proportion.

One Pacific Trust often creates fixed trusts in that regard so that beneficiaries can clearly show and describe their rights and entitlements in a more predictable and stable way. For instance, one beneficiary shall receive a percentage of the annual income derived from the trust, while the other should be entitled to a certain sum from the capital when he or she attains the age of majority. These terms remain fixed and do not fluctuate with time, thus standing steady for the beneficiaries.

These trusts are often resorted to in those instances where the settlor either wants or anticipates that fixed sums accrue to the beneficiaries with minimal potential for disputes and misunderstandings. But, as One Pacific Trust points out, this characteristic also means the trust is relatively rigid and cannot easily adapt itself to changes in the beneficiaries' circumstances or financial needs.

In other words, a fixed trust by definition, such as the One Pacific Trust, requires specificity and clarity on how the income and corpus are to be distributed, thus providing minimal latitude to the trustee and a systematic mode of management of the assets.