Trusts can be a great way to make a plan for your future. They ensure your assets are managed and your loved ones are taken care of.
As a trust beneficiary, there are several things you’ll need to know about how trusts work and what protections they provide you. Read on to learn what is a trust beneficiary and their rights.
What Is a Trust Beneficiary?
Trusts are created to distribute funds to designated individuals, or trust beneficiaries. Multiple parties are involved to ensure that the trust assets are given out in the manner stipulated by the trust.
First, the grantor, the creator of the trust, must outline the conditions for how the assets should be managed and distributed. Immediately after the trust is created, it becomes a living trust.
A living trust, also called a revocable trust, can be updated and changed by the grantor at will. As soon as the grantor(s) die, the document becomes an irrevocable trust. This type of trust can no longer be changed.
A successor trustee is an individual, or group of individuals, who will become responsible for the trust management after the grantor’s death.
The recipients of the trust assets are called trust beneficiaries. Whether the trust is living or irrevocable, trust beneficiaries have a right to receive the assets promised to them by the trust. However, trustees have some decision-making authority over how these funds are dispersed.
Why Establish a Trust?
A trust is a legal document outlining your plans for what you want to be done with your assets. Trusts can help you manage your wealth and plan for the future. They also provide a level of financial security to your loved ones.
How Do Trusts Work?
Trusts create a plan for how you want your assets to be managed and distributed. They create contingency information regarding who should control the associated finances if you are no longer able. Trusts establish who you want to distribute funds to, when you want to do so, and how these assets are to be given out.
How a Beneficiary of Trust Works
The beneficiary of a trust does not necessarily have any duties regarding the trust assets. Unless they are also a trustee, the beneficiary has no responsibility for paying taxes for the trust, managing trust assets, or distributing funds.
What Are a Trust Beneficiary’s Rights?
In some cases, the trustee may abuse their authority. In these situations, the trust beneficiary should know what they can and cannot do. Beneficiaries are entitled to the following rights:
- The right to receive accounting information regarding the trust
- The right to request information about the trust
- The right to receive funds as outlined by the trust
- Obtain an interpretation of an ambiguous trust from the court
- The right to sue a trustee who does not follow the rules of the trust
When Can a Beneficiary Sue a Trustee?
The beneficiary has the power to sue a trustee if they are not complying with the trust or are making self-interested decisions. They can also sue for mishandling of trust assets. Some of the most common reasons to sue a trustee are:
- Refusing to comply with the terms of the trust
- Trying to make changes to an irrevocable trust
- Making self-interested decisions regarding the trust
- Mismanaging trust assets
- Failure to provide accounting information to beneficiaries upon request
The most blatant reason to sue a trustee is because they try to change the trust. The successor trustee does not have the power to change the rules of the trust. If the trustee refuses to comply with trust instructions or tries to amend or change the trust in any way, they could be violating the beneficiary’s rights.
Successor trustees also cannot remove any beneficiaries from the trust or distribute any assets to themselves. However, trustees may have the power to issue a payment to themselves for managing the trust assets. If the trustee is also a beneficiary they will also have rights to trust funds.
If the trustee is not complying with their duties, is mismanaging the trust, or overextending their authority, you may have cause to sue the trustee. Consult a legal expert for advice if you think your trustee may be in breach of their fiduciary duty.
Can a Beneficiary Sue a Grantor?
Keep in mind that the creator of the trust has the power to make any changes they wish. Trust beneficiaries do not have the ability to challenge the grantor’s decision about changing the trust or withholding assets.
If you have questions about your rights as a beneficiary, give us a call. We have experts on hand to help. Schedule your free consultation by calling 800-874-3528.