5 Rights That a Trust Beneficiary Has

As a trust beneficiary, you may feel you’re at the mercy of the trustee. However, depending on the type of trust, beneficiaries may have rights to ensure the trust is properly managed.

Trustee vs. Beneficiary

A trust is a type of legal arrangement in which one person, called a settlor or grantor, gives assets to another person, known as a trustee. (Note that a trustee can be a person or an institution, such as a bank or law firm.)

The grantor appoints the trustee, who holds legal title to the assets of another person, called a beneficiary. The rights of a trust beneficiary depend on the type of trust and the type of beneficiary.

The Rights of a Trust Beneficiary of a Revocable Trust

With a revocable trust, the person who set up the trust can change it or revoke it at any time. If the trust is revocable, the beneficiaries, other than the grantor, have very few rights. Because the grantor can change the trust at any time, they can also change the beneficiaries at any time.

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The Rights of a Trust Beneficiary of an Irrevocable Trust

Often, a trust is revocable until the grantor dies, and then it becomes irrevocable. An irrevocable trust is a trust that can’t be changed except in rare cases by court order. Beneficiaries of this type of trust have rights to information about the trust and to make sure the trustee is acting properly. The scope of those rights depends on the type of beneficiary:

• Current beneficiaries are beneficiaries who are currently entitled to income from the trust.
• Remainder or contingent beneficiaries have an interest in the trust after the current beneficiaries’ interest is over.

For example, a wife may set up a trust that leaves income to her husband for life (the current beneficiary). Then the remainder of the property would go to her children (the remainder beneficiaries).

State law and the terms of the trust determine exactly what rights a beneficiary has. However, the following are five common rights given to beneficiaries of irrevocable trusts:

1. Payment – Current beneficiaries have the right to distributions set forth in the trust document.
2. Right to information – Current and remaining beneficiaries have the right to access information about the trust and its management. This allows them to understand how to enforce their rights.
3. Right to an accounting – Current beneficiaries are entitled to an accounting explaining all financial transactions of the trust.An accounting is a detailed report of all income, expenses, and distributions from the trust. Usually, trustees are required to provide an accounting annually, but that may vary, depending on the terms of the trust. Beneficiaries may also be able to waive the accounting.
4. Right to remove the trustee – Current and remainder beneficiaries have the right to petition the court for the removal of the trustee if they believe the trustee isn’t acting in their best interest. Trustees have an obligation to balance the needs of the current beneficiary with the needs of the remainder beneficiaries. This can be challenging to manage.
5. Right to end the trust – The beneficiaries of a trust can petition the court to end the trust if they all agree. This is possible in certain circumstances. State laws vary on when this is allowed. Usually, the purpose of the trust must have been fulfilled or be impossible to accomplish.

Trustee Duties

Trustees who fail to fulfill the duties of their role can be held personally liable. As a trustee, you must ensure the trust beneficiaries receive the assets to which they are entitled. It is your obligation to work in the best interest of the beneficiaries. You are also responsible for protecting the assets in the trust, keeping careful records of all expenditures, and filing income tax returns for the trust in a timely manner.

Taking on the task of a trustee can be overwhelming. You have the option to turn down the role. But you also can seek out a professional for support. Should you need assistance with your duties as a trustee, you are permitted to hire an attorney; the trust funds can pay for the attorney’s fees.

Additional Resources on Managing or Setting Up a Trust

To learn more about how trusts operate, you may wish to refer to the following articles:

• Understanding the Common Types of Trusts
• The Difference Between a Will and a Trust
• Understanding Revocable Trusts

If you have further questions about setting up a trust, consider consulting with an elder law or estate planning attorney. Find a qualified attorney near you today.