If you’ve recently been listed as a beneficiary for a trust, then you may have a couple of questions.
Many beneficiaries know that they are entitled to assets within a trust, but aren’t exactly sure of their rights.
In helping to ensure that you know what your role is as a beneficiary and what you can and cannot do, here are some basic rights that most beneficiaries have. Keep in mind, many of the rights you have will be based on the trust itself, as well as what state you are in.
Before we get to those rights, let’s first break down what exactly a beneficiary is.
Who Are Beneficiaries?
Simply put, beneficiaries are someone who benefits from a trust. Who the beneficiaries are in regards to the trust are decided by the owner of a trust. For example, if someone were to create a trust document for the benefit of their children, then the children are considered the beneficiaries. That said, most trusts will also incorporate remainder beneficiaries — people who would receive assets from the trust after initial beneficiaries receive their assets. Both of these types of beneficiaries have certain rights concerning the trust. In some cases, they may be the same. In others, they may have slight variations. So, what exact rights can a beneficiary expect to have?
The Right to Payment
Of course, the beneficiary has the right to payment — or distribution – of the assets listed within the trust.
However, it might not be as simple as receiving a certain amount of cash every month. In instances where the distribution is outlined as “mandatory,” then you can expect a set amount of assets to be distributed to you regularly.
However, if the trust insists on discretionary distribution, then things will get a little more complex. For discretionary payments, the trustee (the party in charge of making sure the requirements of the trust are met) will work with the beneficiary to decide what amount of payments is appropriate for their current situation. For example, a trust may warrant a discretionary distribution for payments for a college student. In order to pay for schooling, books, transportation, etc., then she will likely receive a large payment to help her afford her education. However, once she graduates and gets her first job, many of her needs can now be met by her income. Therefore, the amount of distribution coming from the trust would likely change based on her new financial status.
The total amount of each payment might change further if she were to start a family and have a child. If she is unable to work for an extended amount of time, the trustee would then speak with her once again about what an appropriate amount would be based on her current needs.
Right to Information and an Accounting
When a beneficiary has a vested right in the distribution of the assets within a trust (whether discretionary or mandatory), then they also have a right to be supplied with a copy of the trust document and annual accounts, or statements. At a minimum, a trustee must supply the beneficiary with this information. However, each state has different regulations for this right.
In Minnesota, the trustee is required to send them these statements. While in Wisconsin, the trustee must only send them when the beneficiary requests them.
Removal of the Trustee
Whether or not the beneficiary has the right to remove the trustee comes down to what the trust says. The person creating the trust might think it’s a good idea to include it, while others may not.
There are pros and cons to this. The benefit is that it helps to hold a trustee accountable for ensuring that the requests within the trust are being carried out.
However, if a beneficiary is unhappy with the trustee for an unwarranted reason (example: they are unsatisfied that the trust is set-up as a discretionary rather than mandatory), then taking the trust to a new trustee will not likely solve this problem.
The ‘friction’ between the beneficiary and trustee is almost a necessity. The trustee will act on behalf of the trust creator’s wishes, not necessarily what the beneficiary wants.
For example, if the trust creator wants the money with the trust to last the beneficiaries entire life and they chose to go with discretionary spending, then the beneficiary might not be receiving as much money as they would like at times. However, if their financial situation warrants an increase in the payments, then they are likely to see it.
Termination of the Trust
Generally speaking, beneficiaries will not have the right unilaterally terminate a trust. However, in some rare instances, they might.
If the initial and remainder beneficiaries agree, they can petition the court to end the trust. Once again, from state to state, the laws will vary on this. In most cases, to terminate the trust has to have been fulfilled or be impossible to carry out what is left.
Frequently Asked Questions About Trusts
Am I limited to What I Can Invest in With the Money I Receive From a Trust?
It depends on if the trust creator made any stipulations in terms of what you can and cannot invest in. For example, if the trust creator didn’t want any of their assets going towards a specific industry that they didn’t support, they could outline that within the trust.
In this case, the beneficiary would only be bound by those restrictions, but can still invest in other industries.
How Does a Revocable vs. Irrevocable Trust Affect My Rights?
A revocable trust can be changed or modified by the person who created it. Often, if you’re the beneficiary of a revocable trust, then it is a trust that was created by you. In this case, you have complete rights to all the assets within the trust, and for all intents and purposes, it’s your money.
With an irrevocable trust, it cannot be altered after completion. Therefore, a beneficiary of this type of trust is much more limited in terms of the rights they have.
