The "Fixed-Income," "Annuity" and "Modernized" Types of Trust

Abstract

Discussions of the problem of the investment of trust funds are usually, and quite naturally, premised on the assumption that the trusts giving rise to the problem are of the conventional type. However, recent years have witnessed a significant departure from the customary trust in the development of the Fixed-Income, Annuity, and Modernized types of trust. Since resort to any of these trust forms presents for the trustee an investment problem quite different from that confronting him under a trust of the usual type, a comprehensive treatment of the trust investment problem calls for a consideration of these newer trust forms in relation to that problem. The Fixed-Income, Annuity and Modernized types of trust differ slightly from each other. That difference will be explained near the end of this paper. The three of them join, however, in a common dissimilarity to the conventional trust in that the latter provides that earned income only shall go to the life tenant, the entire corpus supposedly to be conserved for the remaindermen. The Fixed-Income, Annuity and Modernized types provide for stipulated payments to the life regardless of what income may actually be earned. In treating the subject of the Fixed-Income, Annuity and Modernized types of trust, the author assumes that this article may be read by both trustees and trustors, or at least by the latter's legal representatives. It shall be his aim, therefore, to discuss this type of trust from the point of view of its advantages both to trustees and to trust beneficiaries. The plan seems to harbor no disadvantage for either. Whence came the conventional, earned-income-only to the life tenant trust form, and how it could possibly have achieved such almost universal usage, it is apparently futile to speculate. Probably the first trusts were employed by wealthy testators whose estates were of adequate size to warrant this conventional form-that is, their earnings, even at low rates of interest, were ample to support the life on the scale to which she was accustomed. When, however, this conventional form is employed for estates whose size is so small that earnings of 6%, 5% or even 4%