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Are You The Beneficiary Of A Trust?

A trust is a legal arrangement wherein a grantor transfers assets to a trustee, who may be an individual or an institution like a law firm. The grantor designates the trustee, who then holds legal ownership of the assets for the benefit of a beneficiary. The entitlements of a trust beneficiary vary depending on the type of trust and the characteristics of the beneficiary. 

As a beneficiary of a trust, you might sense vulnerability in your reliance on the trustee. Yet, the rights of beneficiaries can vary according to the trust type, potentially granting avenues to safeguard the proper administration of the trust according to a trust lawyer.

Revocable Trust

In a revocable trust, the individual creating the trust retains the authority to modify or even cancel if desired at any time. In such cases, beneficiaries, apart from the grantor, have limited rights. Since the grantor holds the power to alter the trust at will, they also have the ability to choose a different beneficiary if they see fit. 

Irrevocable Trust

A trust remains revocable during the grantor’s lifetime, transitioning to an irrevocable trust upon their death. An irrevocable trust is one that cannot be altered, except under specific circumstances through court intervention. Once the trust becomes irrevocable the beneficiaries gain entitlements to access trust details and ensure the trustee’s act appropriately. Depending on the type of beneficiary the rights may vary.  

  • Current beneficiaries are individuals who are eligible to receive income and/or principal from the trust.
  • Remainder or contingent beneficiaries hold stake in the trust once the entitlement of the current beneficiaries concludes. 

The specific rights granted to a beneficiary are dictated by state lay and the provisions that are outlined in the trust itself. Below are five typical entitlements given to beneficiaries of irrevocable trusts according to our friends at McCarthy Law, LLC

  1. Payment – Current beneficiaries entitled to distributions that are highlighted in the trust documents.
  2. Right to information – Current and remaining can obtain information concerning the trust and its administration, particularly regarding their respective shares. This provision enables them to comprehend the means to uphold their rights. 
  3. Right to an accounting – Current beneficiaries have the right to receive an account detailing all financial transactions pertaining to their portion of the trust. This includes all the earnings, expenditures, and allocations. Typically, trustees are obligated to provide annual accounting, although this may vary based on the trust. Additionally, beneficiaries can have the option to waive the accounting.
  4. Right to remove the trustee – Current and remainder beneficiaries retain the right to request the court to dismiss the trustee if the actions of the trustee are not aligning with their interests. Trustees are obligated to balance the interests of both the current and remaining beneficiaries which can be very challenging.
  5. Right to end the trust – Trust beneficiaries have the option to collectively decide to request the court to terminate the trust under specific conditions as long as all parties agree. Typically, the trust’s termination is considered when its purpose has been fulfilled, or it becomes unattainable, or if the assets have diminished which renders the administration impractical. This action is permissible under certain circumstances, with the permissibility varying according to state laws. 

If you have further questions about setting up a trust, or need support in your role as Trustee, or understand your role as a beneficiary, consult with a lawyer located near you for help.