Before delving into the rights of trustees and beneficiaries, it is important to understand what exactly a trustee and beneficiary are.
The trustee is the person who has been designated by the creator of the trust (aka the settlor, grantor or trustor) to manage the trust and eventually make distributions to beneficiaries. In other words, they spearhead the trust administration process. Trustees are fiduciaries, which means they are required to act in the best interests of the trust and its beneficiaries at all times.
Trust beneficiaries are the persons for whom a 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 rights to ensure they receive the inheritances to which they’re entitled.
A probate attorney can help trustees stay within the confines of the powers they’ve been granted, and beneficiaries with enforcing their rights.
What Are the Powers of a Trustee?
The powers and responsibilities of a trustee are essentially one in the same, as trustees have certain powers to ensure their duties to the trust and its beneficiaries are met. That 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 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 particular 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 take reasonable trustee fees and 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 the right to remove beneficiaries from a trust, the trust instrument might give the trustee the power to determine whether to distribute trust assets to a beneficiary and when.
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 a trust.
Can a trustee withdraw money from a trust? Read our article to find out if this is a power trustees have.
Rights of Beneficiaries
Trust beneficiaries have broad rights to ensure they receive their rightful inheritances and can hold the trustee accountable if they commit trustee misconduct.
These rights, however, mean nothing unless trust beneficiaries are playing an active role in administration and keeping themselves apprised of what is happening at every stage of the process.
By playing an active role in administration, beneficiaries will be able to more easily detect if the trustee is harming the trust in some way. Discovering misconduct early is key, as it can prevent the trustee from jeopardizing beneficiaries’ inheritances.
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 the trustee, and surcharge them
If trust beneficiaries suspect the trustee is withholding trust fund distributions, violating their rights or seeking to reduce their interest in the trust, they should consider retaining a fiduciary misconduct lawyer, who can help enforce their rights and protect them against unlawful removal by a trustee.
If the decedent did not have a living trust, but had a will or died without leaving behind 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 bring a trust contest if the trust instrument meets one or more of the grounds for contesting a trust. A person has standing if they have a financial stake in the trust; generally, parties with standing include the trustee, trust beneficiaries, the settlor’s heirs and even creditors in some cases (these persons are collectively known as interested parties).
Suppose an interested party has cause to believe a beneficiary used undue influence on the decedent to be left a larger share of the trust. That interested party may be able to bring a contest to try to invalidate the portion of the trust relating to that beneficiary. If the interested party believes the entire trust to be invalid, they, likewise, may be able to bring a contest to invalidate the entire trust.
If the court grants the order to have a trust invalidated, and a valid prior trust instrument does not exist, the trust’s assets may pass via estate administration to the decedent’s heirs in accordance with California’s intestate succession laws.
Remember: There are strict deadlines for contesting a trust, so if you suspect a trust to be invalid, it’s crucial you act quickly to file your trust contest petition.
Valid grounds for contesting a trust include:
- You suspect undue influence was used on the decedent to convince them to drastically alter their trust.
- You suspect the decedent lacked the requisite capacity to create or execute a trust.
- You suspect elder financial abuse played a role in the creation or execution of the trust.
- You suspect fraud played a role in the creation or execution of the trust.
- You suspect the trust instrument to be a forgery.
- You suspect the proper procedures were not followed to execute the trust.
- You suspect the trust was created or executed by mistake.
- You suspect the decedent intended to revoke the trust.
Trust beneficiaries should reach out to a trust and will dispute lawyer as soon as possible if they believe that their interest in a trust may be reduced or eliminated as a result of a trust contest.
Can a Trustee Change the Beneficiary?
Trustees generally do not have the power to change the beneficiary of a trust. The right to add and remove beneficiaries is a power reserved for the settlor of the trust; when the grantor dies, their trust will usually become irrevocable. In other words, their trust will not be able to be modified in any way.
With the vast majority of trusts, a beneficiary’s right to inherit becomes vested (i.e., locked in place) once the settlor has died. It’s also common for beneficiaries to receive their inheritances “outright,” which means 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 may allow the trustee to decide when to make distributions to a beneficiary. Or, the trust may 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 the amount of each beneficiary’s inheritance.
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 enforce their inheritance rights.
Why Might a Trustee Withhold Distributions?
There are not many valid reasons for a trustee withholding a trust beneficiary’s distributions, so if a beneficiary is not receiving the distributions they’re entitled to from the trustee or if it’s taking too long for them to receive their distributions, they should reach out to a beneficiary lawyer right away.
In most cases, a petition seeking to compel the trustee to release due and payable trust distributions to beneficiaries can be used to remedy this issue.
That said, valid reasons do exist for a trust beneficiary not receiving their distributions 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 substance abuse issues).
- 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 beneficiaries.
- 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’s generally a trust beneficiary’s right to receive trust distributions on time. Unless the trustee has been given the power to delay distributions, it is usually improper for them 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.
Is a trustee threatening to remove you from a trust? We can help.
As a beneficiary of a trust, it is only natural to wonder: Can a trustee remove a beneficiary from a trust? Can a trustee change a beneficiary? Can a trustee withhold trust distributions?
The answer to all of these questions is almost always no, so if the trustee is threatening any of these things, request a free consultation with one of our skilled fiduciary misconduct lawyers as soon as possible to learn what you can do to enforce your beneficiary rights.
