Gifting assets out of an estate can be accomplished in several ways. Making gifts in a Last Will and Testament that are realized after the death of the Testator is one way to gift assets. Using a trust to make those gifts, however, is becoming an increasingly popular alternative to gifting in a Will. If you recently learned that you are named as a beneficiary in a trust agreement, you may have questions about your status as a beneficiary, starting with what your rights are. We will explain the rights you have as the beneficiary of a trust.
How a Trust Works
A trust is a legal relationship where property is held by one party for the benefit of another party. The person who creates a trust is referred to as the “Settlor”, “Trustor” or “Grantor.” The Settlor transfers property to a Trustee, appointed by the Settlor. The Trustee holds that property for the trust’s beneficiaries as well as invests trust assets and administers the trust terms according to the terms created by the Settlor. The beneficiary of a trust can be a person, an organization (such as a political party), a charity (such as a church), or even the family pet. There must be at least one beneficiary but may be an unlimited number. In addition, a trust may have both current and future beneficiaries.
What Are Your Rights?
If this is the first time you have been the beneficiary of a trust, you may not be completely clear about your position and about your rights. Keep in mind that even though you may not have received the assets held in the trust yet, you have a legal interest in those assets because the terms of the trust agreement name you as a beneficiary. As a beneficiary, you have rights that are inherent to any beneficiary in any trust agreement by law. In addition, you may also have rights that were specifically granted to you by the Settler in the trust agreement. Because the Settler of any trust creates the trust terms, the Settler can provide beneficiaries with rights that go above and beyond the rights that exist by law. For example, a Settlor often grants the beneficiaries the right to remove the Trustee by majority agreement. In addition to any rights that are granted by the Settlor within the terms of the trust agreement, as a beneficiary you have the following rights granted to you under the law:
- Right to distributions – if you are a current beneficiary, you have a right to receive any distributions due to you under the terms of the trust agreement.
- Right to communication/information – you have the right to be kept informed about trust business and to be able to communicate with the Trustee of the trust.
- Right to an accounting – you have the right to receive a full accounting showing things such as what assets the trust holds, how much interest has been earned by the trust, and what expenses have been paid by the trust. This is an especially important right to remember if you are concerned about the way in which the Trustee is administering the trust.
- Right to petition a court to remove a Trustee or terminate a trust – as mentioned above, the Settlor can specifically grant beneficiaries the authority to remove a Trustee; however, even if the Settlor did not expressly grant the beneficiaries the direct authority, a beneficiary always has the right to petition a court for the Trustee’s removal. The difference is that if you were not granted the direct authority by the Settlor, you will need to convince a judge that the Trustee should be removed. To prevail on such a petition, you will likely need to prove that the Trustee has done one (or more) of the following:
- Mismanaged trust assets
- Engaged in self-dealing
- Failed to follow the trust terms
- Created a conflict of interest
- “Good cause” (this is the “catch-all” for reasons that do not fit neatly into any of the common categories)
If you are the beneficiary of a trust and you are unclear what your specific rights are, either those granted to you by the terms of the trust or by law, consult with an experienced Sacramento trust attorney right away.
Contact Sacramento Trust Attorney
Please download our FREE estate planning checklist. If you have additional questions or concerns regarding your rights as a trust beneficiary, contact us at the Northern California Center for Estate Planning & Elder Law to find out today by calling (916)-437-3500 or by filling out our online contact form.
Timothy P. Murphy
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