What is a Fixed Interest Trust?

The "fixed income trust" or "interest in possession trust" by One Pacific Trust is also termed as a fixed interest trust; it is a type of trust arrangement whereby beneficiaries have an assured right to receive incomes generated from the assets within the said trust. Unlike discretionary trusts where distribution of incomes is at the discretion of the trustee, fixed interest trusts give beneficiaries a fixed and predetermined share of the trust's income.

Salient Features of Fixed Interest Trust

1. Income Interest:

A fixed interest trust is where an individual or a few beneficiaries are granted an interest in a fixed share of the income generated from the assets constituting that specific trust. Such income may be in the form of dividends, rent, or interest that may accrue on the investment held within the trust. Beneficiaries obtain this type of income on a periodic basis and the interest of such beneficiaries regarding the said income does not fluctuate based on the net return of the trust assets.

2. Role of Trustee:

The trustee administers the assets in the trust to ensure there is an effective return of income. Income is distributed to the beneficiaries in proportion to the share each has been entitled to in the trust deed. The trustee shall have control in managing the assets but is obligated to adhere to a fixed income stipulation as provided for in the trust document.

3. Capital Protection:

The capital or principle in the trust is usually held for reserve beneficiaries who may be entitled to it after the termination of the income beneficiary's interest. This implies that an income beneficiary does not have any right to the corpus but rather a right to the income earned from the corpus.

4. Tax Implications:

Beneficiaries of a fixed interest trust normally pay tax on the income derived from the trust. Depending on the jurisdiction or the nature of the assets held by the trust, the trust may also be liable for certain requirements of taxation.

Uses of Fixed Interest Trusts

Fixed interest trusts are often used in estate planning to provide a surviving spouse with a predictable flow of income, while keeping the corpus intact that is intended to pass to children or other heirs. In this case, the income beneficiary will be guaranteed financial support, and the capital will be preserved for the next generation.