Understanding Your Rights as a Trust Beneficiary
People sometimes assume that a trust beneficiary doesn’t have any real rights and that a beneficiary will always be beholden to any decisions made by the trustee of the trust.
However, trust beneficiaries usually have a few rights concerning the trust as well. The exact rights of a trust beneficiary will depend on the type of trust, the category of beneficiary, added provisions within the trust bylaws, in addition to your state laws.
If your trust happens to be the kind that is revocable — which is another way of saying that the individual(s) who created the trust can modify or revoke it whenever they’d like – you’ll likely find that the trust beneficiaries (other than the settlor) have very limited if any rights. This is because the settlor can alter the trust terms at their leisure, so subsequently – he or she will also be able to change the beneficiaries list as well. Note that in most cases a trust will be revocable up to the time the settlor passes away, at which point it may become irrevocable.
An irrevocable trust is one that cannot be changed except in rare cases by a court order. Any beneficiaries of this type of trust should have rights to
details about the trust, as well as information pertaining to ensuring the trustee is acting in good faith with trust funds and property. The scope of these rights will be dependent on which kind of beneficiary it is, any added provisions contained within the trust, and again the state you live in will often also have laws regarding estate planning.
Current beneficiaries are individuals who are currently permitted to access income and principal from the trust. Any “remainder” or “contingent beneficiaries” will maintain an interest in the trust after the current beneficiaries’ interest is over. So let’s say that for an example, a wife wants to create a trust to leave assets to her husband for life (who is the current trust beneficiary) and then will then leave the remainder of her property to her surviving children (in this example these are the remainder beneficiaries).
Often there will be general provisions corresponding to a trust which indicate which beneficiaries should be entitled to the financial records of trust activities, in addition to which conditions would enable these abilities.
Your revocable trust may contain provisions which require a full accounting showing the current beneficiaries of a trust only (though this usually only pertains to the grantors), though there may be cases where an accounting to contingent beneficiaries is required as well.
State laws and the terms of the trust also determine exactly which rights a beneficiary has. The Washington State legislature passed a law in 2012 which now explicitly requires trustees to provide much more informational reporting to beneficiaries than they were required to in the past so you should be aware of these new rules.
If you have any questions, please don’t hesitate to visit our contact page to get in touch with our experienced Estate Planning Attorneys.
Five of the most common rights granted to a trust beneficiary (of irrevocable trusts) within the US:
- Payment –Any current beneficiary will usually have the right to distribution payments as established by trust documents.
- Information –Often, both current and remainder beneficiaries will have some rights to be given pertinent information regarding the trust and it’s administration.
- Accounting – A current trust beneficiary should be entitled to a thorough accounting of any financial accounts named by the trust. An accounting is a detailed report of all income, expenses, and distributions from the trust. Usually, trustees will be required to provide this accounting on an annual basis, but that may vary depending on the terms of your trust. In some cases, beneficiaries may also be able to waive the accounting.
- Removing Trustees – Current and remainder beneficiaries often have the right to petition the court to remove a trustee when there is reason to believe the trustee isn’t acting in good faith or for their best interests. Trustees have an obligation to maintain the needs of a current beneficiary but also for the needs of any remainder beneficiaries, and this can be a difficult prospect for many without some assistance from an attorney.
- Termination – In some cases, when all current and remainder beneficiaries agree, you can petition the court for the purpose of dissolving the trust. State laws do vary quite a bit in terms of when this is allowed so check with an attorney in your state. Commonly, this will be more probable when the original purpose of the trust has either been fulfilled or has become impossible for whatever reason.