Can a Trustee Remove a Beneficiary From a Trust?
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What Are the Trustee and Beneficiary of a Trust?
Before delving into the rights of trustees and beneficiaries, it is important to understand what exactly a trustee and beneficiary are.
A trustee is the person who has been designated by the creator of the trust (i.e., the grantor) to manage and eventually distribute trust property. In other words, they spearhead the trust administration process. Trustees are fiduciaries, which means that they are required to act in the best interests of the trust and its beneficiaries at all times.
A trust beneficiary is a person for whom the trust is created; they stand to inherit from the trust.
Trustees have certain powers related to the trust to ensure they are able to effectively do their job, and beneficiaries have certain powers to help them ensure they receive the inheritances to which they are entitled. A probate attorney can help both trustees and trust beneficiaries uphold their rights.
Powers of a Trustee
The powers and duties of a trustee are essentially one in the same, as trustees have certain rights in order to ensure their responsibilities to the trust and its beneficiaries are met. That being said, trust beneficiaries have certain rights, too, and sometimes their rights can be at odds with those of the trustee.
The powers of a trustee include all of the powers that are listed in the trust instrument (so long as those powers do not conflict with California law or court orders) as well as the powers listed in California Probate Code sections 16200-16249 (summarized below), which relate to the trustee’s duty to marshal, preserve and protect trust assets.
Unless a trust explicitly forbids a certain right, the rights of a trustee generally include:
- The right to make reasonable repairs of trust property
- The right to insure trust property
- The right to sell trust assets
- The right to make prudent investments
- The right to pay certain administrative bills and expenses (including the right to hire third-party professionals – such as lawyers, CPAs, and real estate agents – to assist with administration)
- The right to make distributions and payments to trust beneficiaries in accordance with the terms of the trust
What does this mean for beneficiaries? Can a trustee remove a beneficiary from a trust? The short answer is no, but there are rare exceptions. While the California Probate Code does not explicitly grant trustees this right, the trust instrument might give the trustee the power to determine whether and when to distribute trust assets to a beneficiary. A trust lawyer can help trustees and trust beneficiaries determine whether the trustee has the right to reduce or eliminate a beneficiary’s interest in the trust.
Rights of Beneficiaries
A trust beneficiary has broad rights to ensure they receive their rightful inheritance and can hold trustees accountable if they commit misconduct. These rights, however, mean nothing unless the trust beneficiary is playing an active role in administration and keeping themselves apprised of what is happening at every stage of the process. By doing so, they will know if their beneficiary rights are being violated and can take the necessary steps to enforce them.
Living trust beneficiary rights include:
- The right to the payments and distributions set forth by the trust instrument
- The right to information about the trust
- The right to receive trust accountings
- The right to petition the court to suspend or remove and surcharge the trustee
If trust beneficiaries suspect that the trustee is violating their rights, improperly withholding trust fund distributions, or seeking to reduce the beneficiary’s interest in the trust, they should consider retaining a beneficiary representation lawyer who can help enforce their rights and protect them against unlawful removal.
If the decedent did not have a living trust, but had a will or died without leaving a will or a trust, then you may have rights as an estate beneficiary.
Removing a Beneficiary on the Basis of an Unsuccessful Trust Contest
Before the trust administration process starts, anyone with standing can contest the validity of a trust if they believe misconduct or error was involved in the document’s creation or execution. A person has standing if they have a financial stake in the trust; generally, this is the trustee, trust beneficiaries and the grantor’s heirs, who are all known as “interested parties.”
If an interested party has cause to believe that a beneficiary of the trust unduly influenced the decedent into leaving them a larger share of the trust, they can bring a contest to try to invalidate the portion of the trust relating to that beneficiary. Likewise, if the interested party believes the entire trust to be the result of misconduct, the interested party may be able to bring a contest to invalidate the entire trust. If the court grants the order to have the trust invalidated, and there is no prior valid trust document, the trust assets may pass to the decedent’s heirs via estate administration, which will be guided by the state’s intestate succession statutes.
Valid grounds for contesting a trust include:
- Undue influence may have been used on the decedent to have them drastically alter their trust.
- The decedent may have lacked the capacity to create or execute the trust.
- Elder financial abuse may have played a role in the creation or execution of the trust.
- Fraud may have played a role in the creation or execution of the trust.
- The trust document may have been forged.
- The proper procedures may not have been followed when executing the trust.
- The trust may have been created or executed by mistake.
- The trust may have been revoked by the decedent.
In the vast majority of trusts, a beneficiary’s right to inherit becomes vested (i.e., locked in place) once the settlor has died. It is also common for beneficiaries to receive their inheritances “outright,” which means that the trustee must make a distribution to the beneficiary as quickly as possible.
Even though the trustee may not have the power to change or remove beneficiaries of a trust, the trust may give the trustee the power to delay — or not make — distributions from the trust.
For example, the trust might allow the trustee to decide when to make distributions to a beneficiary. Or, the trust might allow the trustee to decide how much property is distributed to a beneficiary, or whether a beneficiary receives a distribution of trust property at all. Trusts like these are sometimes called discretionary trusts, and they generally allow the trustee to exercise their discretion in determining which beneficiaries will inherit, when they will inherit and in what amount each beneficiary’s inheritance will be.
But even where the trust gives the trustee the power to delay or not make distributions to beneficiaries, California law generally requires that the trustee’s exercise of discretion be reasonable. In other words, there must be a good reason for a trustee’s decision to make or not make a discretionary distribution. Many factors must be taken into consideration when determining whether a trustee has acted reasonably. A probate lawyer can assist both trustees and trust beneficiaries with understanding a trust’s terms and evaluating a trustee’s exercise of discretion. If a trustee is acting unreasonably, a probate lawyer can help beneficiaries with forcing the trustee to make the distributions that the beneficiary is entitled to receive.
That being said, valid reasons do exist for a trust beneficiary not receiving their distribution on time or at all.
Some trusts give the trustee the right to withhold a trust distribution for specific reasons, which may include:
- The trustee has reason to believe the distribution will be squandered by the beneficiary (e.g., the beneficiary has a substance abuse problem).
- The trustee has reason to believe the beneficiary is not of sound enough mind to handle their own financial affairs (e.g., the beneficiary is diagnosed with severe mental illness or has dementia).
- The trustee has reason to believe the distribution will end up in the hands of the beneficiary’s creditors.
- The trustee has the power to delay distributions (i.e., the trust is discretionary).
- All or some portions of the trust were invalidated through a trust contest, or there is a trust contest pending that could affect the rights of a beneficiary.
- Certain conditions must be met for the beneficiary to receive their inheritance (e.g., they must graduate from college or be 24 years old).
It is a trust beneficiary’s right to receive the trust distribution they were left in a timely manner. Unless the trustee is given the power to delay distributions, it is generally improper for a trustee to withhold distributions. If the trust has been settled and trust beneficiaries are still waiting on their distributions, a beneficiary lawyer can help with expediting the process.