Understanding Your Rights as Trust Beneficiary

As a trust beneficiary, you may have rights, depending on both the type of trust and the type of beneficiary you are, to ensure the trust is properly managed.

A trust is a written agreement whereby a person called a settlor or grantor designates someone called a trustee to be responsible for managing their assets or property. The trustee holds legal title to the assets for another person, called a beneficiary. The rights of a trust beneficiary depend on the type of trust and the type of beneficiary.

If the trust is a revocable trust, the person who set up the trust can change it or revoke it at any time so the trust beneficiaries other than the grantor have very few rights. Because the grantor can change the trust at any time, he can also change the beneficiaries at any time. Often a trust is revocable until the grantor dies and then it becomes irrevocable. An irrevocable trust is a trust that cannot be changed except in rare cases by court order.

Beneficiaries of an irrevocable trust have rights to information about the trust and to make sure the trustee is acting properly. The scope of those rights depends on the type of beneficiary. Current beneficiaries are beneficiaries who are currently entitled to income from the trust. Remainder or contingent beneficiaries have an interest in the trust after the current beneficiaries’ interest is over. For example, a wife may set up a trust that leaves income to her husband for life making him the current beneficiary, and then the remainder of the property to her children who are the remainder beneficiaries.

The terms of the trust determine exactly what rights a beneficiary has, but following five common rights given to beneficiaries of irrevocable trusts:

• 1. Payment. Current beneficiaries have the right to distributions as set forth in the trust document.
• 2. Right to information. Current and remainder beneficiaries have the right to be provided enough information about the trust and its administration to know how to enforce their rights. This usually means given access to the trust document and the year-end bank or brokerage statements.
• 3. Right to an accounting. Current beneficiaries are entitled to an accounting. An accounting is a detailed report of all income, expenses, and distributions from the trust. Usually trustees are required to provide an accounting annually, depending on the terms of the trust. Beneficiaries may waive the accounting if they are satisfied with the handling of the trust assets by the trustee.
• 4. Remove the trustee. Current and remainder beneficiaries have the right to petition the court for the removal of the trustee if they believe the trustee is not acting in their best interest. Trustees have an obligation to balance the needs of the current beneficiary with the needs of the remainder beneficiaries, which can be difficult to manage. For example if the trustee does not make necessary repairs to real estate that the current beneficiary has a life estate in, and that will pass to the remainder beneficiaries or not following the intent of the trust. If the reason for removing the trustee is because of large losses of principal, the Court may order the trustee to repay the trust.
• 5. Terminate the trust. In some circumstances, if all the current and remainder beneficiaries agree, they can petition the court to terminate the trust. Usually, the purpose of the trust or the intent of the grantor must have been fulfilled or it is impossible to fulfill.

If you need a trust or are a trust beneficiary with questions call Gregory J. Spadea of the Law Offices of Spadea & Associates, LLC at 610-521-0604.