Hybrid trust
A trust that pays a fixed, pre-decided amount to beneficiaries out of part of the trust property, while the trustee has full discretion over how the remainder is distributed.
In plain language
A trust deed usually picks one of two approaches to paying beneficiaries: a fixed, determinate share laid down in advance, or full discretion left to the trustee. A hybrid trust is the workbook's name for a structure that uses both at once.
How it works
In a hybrid trust, the settlor's trust document fixes a specific amount of the trust property that the trustee must pay to a named beneficiary or beneficiaries — the determinate portion. On whatever property is left over, the trustee has full discretion to decide how much goes to which beneficiary, and when — the same freedom a purely discretionary trust would give.
The workbook does not attach a rupee figure or a fixed proportion to either portion; the split between the fixed part and the discretionary part is whatever the settlor's own trust document specifies.
A worked example
Illustrative figures — the workbook describes the concept without rupee values, so these numbers are for illustration.
Mr Chandra settles a trust worth Rs 2,00,00,000 for the benefit of his two children. The trust deed fixes Rs 50,00,000 to be paid to his elder child on reaching age 25, a determinate, non-negotiable amount. On the remaining Rs 1,50,00,000, the trustee is free to decide, at his own discretion, how much each child receives and when, based on their needs at the time.
This is a hybrid trust: part of the corpus, the Rs 50,00,000, behaves like a determinate trust with a fixed entitlement, while the rest behaves like a discretionary trust, entirely subject to the trustee's judgement.
Why NISM asks about it
Chapter 15 (Tools for Estate Planning), section 15.6.7, "Hybrid Trust," defines the structure immediately after describing the parties to a trust — settlor, trustee and beneficiary. Expect a conceptual question distinguishing a hybrid trust from a purely determinate or purely discretionary trust.
Common exam traps
- A hybrid trust is not simply "a flexible trust" — it specifically combines a fixed, determinate payment with a separately discretionary remainder, both within the same trust deed.
- The trustee's discretion applies only to the non-fixed portion — the determinate amount must be paid regardless of the trustee's own view.
- This is distinct from a public cum private trust, which mixes a charitable purpose with a private one — a hybrid trust mixes a payment method, not a purpose.
Where this is taught
Free preparation for NISM Series X-BRelated terms
- Trust deedThe registered instrument, executed by the sponsor in favour of the trustees, that constitutes a mutual fund as a trust, names its first trustees and governs its operations under clauses SEBI prescribes.
- Determinate trustA trust whose beneficiaries and their beneficial interests are ascertainable from the trust deed throughout its life — the structure that lets a Category III AIF avoid MMR on non-business income.
- Indeterminate TrustA trust whose beneficiaries and their beneficial interests cannot be ascertained from the trust deed. For an AIF, the trustee is taxed on the whole income at the maximum marginal rate under Section 164.
- SettlorThe party who brings an AIF trust into existence — executing the trust deed with the trustee and conveying the initial sum that becomes the trust's first asset.
- Testamentary trustA trust created through a Will, which takes effect on the death of the settlor - it is subject to the rulings under the Will and therefore goes through probate, but attracts no stamp duty and no capital gains.