Lindsey Munyer, Partner at Keystone Law Group, discusses the rights of trust beneficiaries and the steps they can take to enforce them. Read the complete article below for more details. Click the YouTube Channel “Subscribe” button to be notified when new videos are published.
What Is a Trust Beneficiary?
A trust is a fiduciary arrangement that allows a third party, the trustee, to hold trust assets for the benefit of trust beneficiaries. When creating their trust, it’s standard — albeit not required — for the settlor (i.e., the trust creator) to name themselves as the sole trustee and beneficiary of their trust, but they will also usually appoint a successor trustee who can take over management of the trust when they become incapacitated or die.
Trust beneficiaries are persons who have a current or future interest in trust assets; they are for whom trusts are created.
How does a trust work after someone dies? Most living trusts automatically become irrevocable upon the settlor’s death, so if you were included as a beneficiary of a trust when the settlor died, you will almost certainly remain a beneficiary. An exception is if the trust in question were to be invalidated as the result of a trust contest.
Trustees are required to make trust fund distributions to beneficiaries according to the provisions of the trust. Trust distributions can take many forms, but some of the most common are a lump-sum cash payment, periodic payments made over time, and transfers of specific trust assets.
If someone died without a will or trust, or they left a will instead of a trust, you may have rights as an estate beneficiary rather than as a trust beneficiary.
Understanding Trust Administration
The successor trustee is appointed to preside over the trust during trust administration; they are responsible for marshaling and inventorying trust assets, paying creditors with valid claims (if any exist), and making disbursements to beneficiaries, among other things.
Because trusts are generally intended to be private instruments, trust administration, unlike estate administration, is not supervised by the court — although the court can be utilized if trust litigation arises along the way.
It is important for trust beneficiaries to remember that trustees have a fiduciary duty to act in their best interests at all times. If a trustee fails to do so, and the beneficiaries of the trust have evidence of this, they are entitled to bring a trustee misconduct claim against the trustee.
As a Beneficiary of a Trust, What Are My Living Trust Beneficiary Rights?
If you are the beneficiary of a trust, you are on the right track if you’re asking: What rights does a trust beneficiary have against a trustee?
During administration, you will be dealing either mostly or exclusively with the trustee. You should familiarize yourself with the ways trustees often breach their duties, so you can quickly take the necessary steps to enforce your living trust beneficiary rights if you detect trustee misconduct of any kind.
While the right to petition the court to have the trustee removed is important, especially in instances where the trustee has financially harmed the trust, there are other trust beneficiary rights that can be exercised before resorting to an extreme measure like trustee removal.
Trust beneficiary rights include:
- The right to a copy of the trust instrument
- The right to be kept reasonably informed about the trust and its administration
- The right to trust accounting
- The right to challenge trust accounting
- The right to be treated impartially by the trustee
- The right to receive timely distributions from the trust
- The right to petition the court to have the trustee suspended or removed, and surcharged
In some cases, the trustee is also a beneficiary of the trust. If this is you, it’s important you never prioritize your own best interests over those of the trust beneficiaries as a whole — doing so would be regarded as fiduciary misconduct.
A central aspect of a trustee’s job is providing trust beneficiaries with the information they need about the trust (e.g., the trust’s worth, the assets coming into the trust and leaving it) to enforce their trust beneficiary rights. Since it is their duty, trustees should communicate regularly with trust beneficiaries and provide them with periodic trust accountings.
If trustees fail to diligently fulfill their responsibilities to trust beneficiaries, beneficiaries can utilize the courts to try to compel the trustee to meet the requirements of their role. If the problems with a trustee are beyond solving, trust beneficiaries can consult with a trust lawyer to determine whether removal is a viable remedy.
Despite the broad rights trust beneficiaries have, they aren’t necessarily entitled to play an active role in every decision the trustee makes about the trust. For example, while it would be good practice for the trustee to communicate with trust beneficiaries before selling trust property, it generally is not a requirement for them to notify beneficiaries or obtain their prior consent before making a sale.
As a trust beneficiary, if you want to have a say in the decisions the trustee is making about the trust, it may be necessary for you to be proactive about it. For example, if there’s a trust property you stand to inherit that you’d prefer the trustee not sell, be sure to let the trustee know this at the start of administration — though keep in mind the decision may still ultimately be left up to the trustee. In the same vein, if you are seeking specific information about the trust, such as information about the trust’s investments, you generally have a right to be provided it within a reasonable timeframe, though make sure you make your requests in writing.
Irrevocable Trust Beneficiary Rights in California
As previously mentioned, most living trusts become irrevocable the moment the settlor dies. Once a trust is irrevocable, a trust beneficiary can neither be added nor removed. In California, there are exceptions to this rule. They include:
- If everyone named in the trust – the trustee, trust beneficiaries and heirs – unanimously agree to termination or modification of the trust.
- The trustee requests for the court to modify or terminate the trust on account of its continuance defeating or impairing the spirit in which it was created if there is not unanimous consent.
Trustee vs. Beneficiary: Can a Beneficiary Sue a Trustee?
If you are the beneficiary of a trust and suspect trustee misconduct, mismanagement or negligence, you are probably wondering: Can a beneficiary sue a trustee?
The answer is yes. Suing the trustee if they have failed to competently do their job, breached their fiduciary duties, or caused harm to the trust is one of your most important rights as a trust beneficiary.
If you believe the trustee to have failed in any of the ways mentioned above, it’s important to get in touch with a beneficiary lawyer as soon as possible. Regardless of whether or not the trustee’s misdeeds were intentional, trust beneficiaries have the right to take legal action against the trustee to protect trust assets.
Perhaps a trustee’s questionable accountings need to be challenged. Perhaps an uncooperative trustee needs to be compelled to provide information about the trust. Or perhaps the trustee needs to be forced to make timely disbursements to beneficiaries. In all of these scenarios, the trustee’s actions amount to a breach of duty, so suing the trustee would be justified.
If you suspect that the trustee breached their duties, it’s important to seek counsel from a beneficiary lawyer as soon as possible. A lawyer can help you enforce your trust beneficiary rights and prevent the trustee from causing further harm to the trust.
Reasons for Suing a Trustee
Can a beneficiary sue a trustee if the trustee has breached their fiduciary duties, committed misconduct or harmed the trust? The short answer is yes. Trust beneficiaries can bring a claim against the trustee, so long as they have a valid reason.
Valid reasons for trust beneficiaries suing a trustee include:
- The trustee misused or misappropriated trust assets for personal gain (e.g., trustee sold trust property and kept the proceeds from the sale).
- The trustee acted negligently, resulting in financial harm to the trust (e.g., trustee made a high-risk investment with trust funds that ultimately reduced the value of the trust).
- The trustee had a conflict of interest that ended up benefiting someone other than the trust beneficiaries (e.g., trustee sold trust property to a friend for less than market value without first obtaining approval from trust beneficiaries).
- The trustee acted impartially, favoring certain trust beneficiaries over others (e.g., trustee provided preliminary distribution to one trust beneficiary but then declined another trust beneficiary’s request for a preliminary distribution).
- The trustee withheld a trust distribution without having a valid reason for doing so.
If a trustee’s actions fall under the categories mentioned above or are questionable in any way, it’s important for trust beneficiaries to not wait to get in touch with a lawyer, so if necessary, their lawyer can swiftly work to recover any trust property that was damaged, lost or misappropriated. If the trustee’s actions call for it, their lawyer can also file a petition to have the trustee removed and surcharged.
Living Trust Beneficiary Rights in Trust Contests
As a trust beneficiary, you generally have standing to contest a trust if you believe a compelling reason exists for doing so. It is important to keep in mind that disliking the terms of a trust is not considered a valid reason for bringing a contest, nor can a contest be brought by someone who does not have financial stake in the outcome of the matter.
Valid grounds for contesting a trust include:
- It is suspected elder financial abuse played a role in the creation or execution of the trust.
- It is suspected undue influence or fraud played a role in the creation or execution of the trust.
- It is suspected that legal protocols were not followed when creating or executing the trust.
- It is suspected that the grantor lacked competence when creating or executing the trust.
- It is suspected the trust is a forgery.
- It is suspected there was a mistake in creating or executing the trust.
- It’s suspected the settlor had previously revoked the trust.
If you believe you have valid grounds for bringing a trust contest, get in touch with a trust contest lawyer as soon as possible. The deadlines for contesting a trust are typically very short.
Keep in mind that not all trust disputes can be resolved with a contest. For example, if there is ambiguous language in a trust, the trustee will likely need to file a Petition for Instructions to seek the court’s help in interpreting it.
Living Trust Beneficiary Rights in Property Disputes
If you are a beneficiary of a trust and believe trust property to have been damaged, lost or misappropriated by another party, you can bring a claim to try to recover the lost property and/or damages.
Examples of contexts in which trust property disputes can occur include:
- Trust assets are being held by the decedent’s estate, a family member of the decedent (e.g., the surviving spouse) or a third party.
- Property belonging to the trust has been stolen by someone.
- Trust property has been damaged.
If the property claim is not against the trustee, it is generally the trustee’s job to bring the claim, since they are supposed to be representing the best interests of the trust beneficiaries. Successful property claims can result in the property at issue being returned to the trust, the trust being compensated for the property, or even in the trust being paid punitive damages.
Trustees may also be responsible for defending property claims if it’s being claimed that the trust is holding property to which it’s not legally entitled.
When trustees refuse to act to bring or defend a property dispute, trust beneficiaries may have a right to sue the trustee to compel them to litigate, or they may be able to litigate the claim themselves.
In trust litigation, something known as a Heggstad petition (which is a type of 850 petition) can be filed to transfer property into or out of a trust. For example, if the decedent’s estate is in possession of a property that the decedent had intended for trust beneficiaries to inherit, the trustee may be able to use an 850 Petition to try to have the property transferred into the trust without the property having to pass through a formal probate.
When there is a dispute over trust property, it is recommended trust beneficiaries work with a probate lawyer to enforce their rights.
Living Trust Beneficiary Rights in Beneficiary Designation Disputes
Disputes can arise when certain payable-on-death or transfer-on-death assets with designated beneficiaries are included in a trust. Disputes can also arise when it comes to light that a designated beneficiary may have engaged in foul play to have themselves designated.
Payable-on-death and transfer-on-death assets can include bank accounts, retirement accounts, life insurance policies and pensions.
Beneficiary designation disputes involving trusts can be tricky, since designated beneficiaries generally have the right to take control of assets with beneficiary designations upon the asset owner’s death. But, if it can be proven, for example, that the designated beneficiary committed fraud against the decedent to be designated beneficiary, then the trust might be able to claim it for distribution. It may also be possible for the trust to claim the asset if the trustee has proof the decedent wished for the asset to be distributed via their trust.
Both trust beneficiaries and trustees are permitted to bring a claim to invalidate a beneficiary designation if they believe a compelling reason exists for doing so. A probate lawyer can help with this process.
Living Trust Beneficiary Rights to Trust Accountings
Trustees have a duty to provide trust beneficiaries with periodic trust accountings, which should contain information about the trust’s assets, gains, losses, investments and debts. Once beneficiaries of a trust are provided accountings, they should inspect the accountings for errors and red flags. If they don’t feel qualified to inspect accountings on their own, they can always enlist the help of a probate lawyer.
If accountings suggest the trustee could potentially have mismanaged, misused or misappropriated trust assets, trust beneficiaries may be entitled to not only challenge those accountings in court, but to suspend or remove and surcharge the trustee as well. Likewise, trust beneficiaries are entitled to utilize the courts to compel the trustee to provide a formal accounting if they have failed to do so.
Call us to learn how we can help you enforce your trust beneficiary rights.
If you are the beneficiary of a trust seeking to enforce your living trust or irrevocable trust beneficiary rights in California, you’ve come to the right place. Our experienced probate attorneys are equipped to handle all manner of trust-related disputes. Request a free consultation today with one of our beneficiary representation lawyers to learn how we can help.
