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.
Imagine the terms of a trust entitle you to an annual distribution of $25,000 until the trust runs out of funds. You received your previous distribution over a year ago but have yet to receive your distribution for this year. You are wondering what recourse, if any, you have in this situation.
Fortunately, because you’re a trust beneficiary, you would have recourse in this situation. Your trust beneficiary rights would entitle you to, among other things, seek information about the status of your distribution from the trustee or petition the court to compel the trustee to provide your distribution.
One of the biggest mistakes you can make as a trust beneficiary is to sit idly by as trust administration takes place. If the beneficiary in the example above hadn’t been proactive about understanding the distribution schedule stipulated by the trust terms, they may never have realized the trustee was late in providing them their due and payable distribution.
In theory, there is nothing you need to do to be provided with your rightful inheritance, but a lot can go wrong between the time the trust creator (called the settlor, grantor or trustor) dies and trust distributions are made. For example, you could find out the trustee is stealing from the trust.
For this reason, if you wish to protect your inheritance, understanding your trust beneficiary rights, as well as how to enforce them, is crucial.
Delve into your trust beneficiary rights in this article by Keystone Law.
What Is a Trust Beneficiary?
A trust beneficiary is a person or entity the settlor designates to receive the benefits of their trust. Put simply, a trust beneficiary is who inherits from a trust after the settlor becomes incapacitated or dies.
To understand trust fund beneficiary rights, you must first understand how trusts work after death. After a settlor dies, the person or entity they appointed to serve as the successor trustee holds and manages trust assets on behalf of the trust beneficiaries until the assets are fully distributed. The trustee is bound by the terms of the trust when making distributions.
As a trust beneficiary, it’s easy to feel frustrated by the lack of control you have over the trust. However, you can still play an active role in administration by enforcing your trust beneficiary rights at every stage of the process.
How Does Trust Administration Work?
Trust administration is the process that ensues following the incapacitation or death of a settlor. During administration, the trustee will, among other things, create an inventory of trust assets, pay the settlor’s outstanding debts and distribute trust assets to beneficiaries in accordance with the terms of the trust.
Unlike estates, trusts generally are not subject to court supervision during administration. For this reason, it’s arguably more important for trust beneficiaries than estate beneficiaries to actively enforce their rights during the administration process.
6 Trust Beneficiary Rights to Know
In California trust law, beneficiary rights are extremely important, as they enable you to understand the nature of your inheritance, keep tabs on it, receive it on time and hold the trustee accountable.
Although the trustee can usually exercise some discretion in how they carry out their trustee duties, they are bound by certain rules. If the trustee strays from these rules, it’s crucial you take the necessary steps to enforce your trust beneficiary rights.
Six important trust beneficiary rights in California are:
- The right to trust information
- The right to enforce the terms of the trust
- The right to fair and impartial treatment
- The right to timely distributions
- The right to contest the trust
- The right to hold the trustee accountable
It’s important to remember that a trustee’s fiduciary duties require them to always act in the trust beneficiaries’ best interests. If they fail to do so, beneficiaries are entitled to take legal action.
Suppose a trustee prioritizes their personal interests over those of the trust beneficiaries. This would be considered a breach of their fiduciary duties, and could result in a surcharge or possibly even trustee removal if the beneficiaries were to petition the court seeking such remedies.
That said, the trustee is not required to involve beneficiaries in every decision they make about the trust. For example, while it would be preferable for the trustee to communicate with you before selling trust property, they generally wouldn’t be required to do so unless the trust terms stipulate it. Therefore, if you wish to have a say in trust-related matters, actively involving yourself in trust administration is essential.
In the following sections, we’ll explore the six important trust beneficiary rights and how to enforce them.
1. Right to Trust Information
The trustee is required to keep beneficiaries reasonably informed about the trust and its administration, per California Probate Code section 16060. To put it another way, beneficiaries must be provided with an adequate amount of information about the trust to effectively enforce their trust beneficiary rights.
A trust beneficiary’s right to trust information generally includes:
- The right to receive a copy of the trust instrument
- The right to see trust accountings
- The right to see financial statements related to the trust
- The right to updates on the trust’s performance
It’s easy to understand why your right to trust information is so important. Without this right, the trustee could theoretically leave you in the dark about the inheritance you’re entitled to under the trust, and possibly even squander or misappropriate trust funds without anyone finding out.
According to Probate Code section 16060.7, beneficiaries generally have the right to request a copy of the trust instrument from the trustee. This may be the most important trust beneficiary right you have, as you will not know what your inheritance entails without it. If the trustee is refusing to comply with your requests for a copy of the trust instrument, it may be necessary for you to seek the assistance of a trust attorney, who can light a fire under the trustee to make them comply.
The trustee is also generally required to provide you with trust accountings at least annually, and upon a change of trustee and termination of the trust, per Probate Code section 16062. In essence, trust accountings are summaries of the assets that have entered or exited the trust, and their value.
If the trustee is engaged in trustee misconduct, the trust accountings likely will show it. This is why it’s crucial you carefully review not only trust accountings but all the financial documents provided to you by the trustee, preferably with help from a trust attorney, who will know which red flags to look for. If a trustee is refusing to give accounting to beneficiaries, you may need to take legal action to compel them to account.
To enforce your right to information, it’s crucial you obtain a copy of the trust instrument, thoroughly inspect all the documents the trustee provides you, and actively communicate with the trustee anytime you have questions or concerns, or require additional information.
Regardless of the type of information requests you are making, it is ideal for you to make your requests in writing. This way, if legal action needs to be taken against the trustee, you will have a log of your correspondence with the trustee to present to the court in support of your case.
That said, remember that the trustee is only required to keep you reasonably informed about the trust. Although you generally will be entitled to a copy of the trust and trust accountings, the other information you’re entitled to can be subjective. For this reason, if you are making a request for information, be prepared to explain why the information is necessary for you to have.
2. Right to Enforce the Terms of the Trust
Although the trustee may be able to exercise some discretion in how they carry out their responsibilities, they are bound by the terms of the trust. According to Probate Code section 16000, the trustee has a duty to administer the trust according to the trust instrument, except to the extent the trust instrument provides otherwise.
A settlor generally makes the effort to create a trust to ensure their assets will be distributed to the beneficiaries of their choosing, in the manner of their choosing, after they die. As such, the law requires the trustee to strictly adhere to the terms of their trust.
If you discover the trustee is disregarding or contradicting the terms of a trust, it’s crucial you seek the assistance of a skilled trust attorney to determine what recourse you may have to undo the damage caused by the trustee’s shortcomings.
3. Right to Fair and Impartial Treatment
When a trust has two or more beneficiaries, the trustee has a duty to deal impartially with them, per Probate Code section 16003. Put simply, the trustee must treat all the trust beneficiaries equally and avoid favoring one beneficiary over another.
For example, if a trustee rejects your request for a loan from a trust but accepts another similarly situated beneficiary’s request for a loan, it may indicate the trustee is playing favorites with the beneficiaries, which would be a violation of their duty of impartiality. In such a scenario, and depending on the gravity of the trustee’s misdeeds, you may be able to petition the court to compel the trustee to provide you with the loan you requested, surcharge the trustee or suspend/remove the trustee.
What happens when the trustee is also a beneficiary? If this is the case, the trustee must place the collective best interests of the beneficiaries above their personal interests. If you are concerned about a trustee-beneficiary’s conflict of interest, seeking the assistance of a trust attorney to monitor the trustee-beneficiary’s activities may help to ease your concerns.
Although you can raise concerns about a trustee’s unethical actions with the trustee directly, a trust attorney could also help hold the trustee accountable. At the very least, an attorney could help you understand your best course of action in such a scenario.
4. Right to Timely Distributions
Most trust instruments lay out in detail who the trust beneficiaries are, the amount of each beneficiary’s inheritance, and the manner in which it should be provided to them. Per Probate Code sections 16000 and 16004.5, the trustee must follow the terms of the trust when making distributions and do so without unreasonable delay.
For instance, a trust may stipulate for the settlor’s surviving spouse to receive a distribution of $500,000 every year on the settlor’s death anniversary until no funds remain in the trust. The trustee would be required to follow these terms precisely and could be sued for failing to do so.
If the trustee fails to provide you with your full distribution at the time the trust instrument requires them to provide it, it’s crucial you ask the trustee about the status of your distribution and why it’s delayed.
Remember, a trustee not paying beneficiaries on time is a serious breach of duty. While a trustee, unlike executors and administrators, may be permitted to temporarily withhold your inheritance for valid reasons, they cannot do so indefinitely. Valid reasons for withholding an inheritance may include a beneficiary suffering from a serious mental illness or substance abuse issue.
5. Right to Contest the Trust
If the trust instrument does not reflect the known final intentions of the settlor, it could be because of a mistake of some kind or foul play perpetrated by another party. For example, the settlor might have signed their trust believing it to be another type of document or changed their trust because of someone else’s undue influence.
If you suspect a mistake, foul play or another issue that could have played a role in the creation, alteration or revocation of a trust, Probate Code section 17200 authorizes you to petition the court to have the trust invalidated.
There are only a few valid grounds for contesting a trust. They include:
- Undue influence
- Fraud
- Lack of capacity
- Forgery
- Lack of due execution
- Mistake
- Revocation
- Elder financial abuse
If you are considering contesting a trust, in addition to determining whether you have grounds, you must determine whether you have standing, or a financial stake in the outcome of the matter. An easy way to determine whether you have standing is to ask yourself whether winning your trust contest would mean you’d receive a greater inheritance. If the answer is yes, you have standing.
When a trust is successfully invalidated, trust assets will either be distributed to trust beneficiaries in accordance with a prior valid version of the trust (if one exists) or to the settlor’s heirs in accordance with intestate succession laws.
6. Right to Hold the Trustee Accountable
If the trustee fails to fulfill their obligations to the trust beneficiaries, you have the right to utilize the courts to compel the trustee to meet the requirements of their role, according to Probate Code section 16420.
In extreme scenarios, and if the trustee’s lack of cooperation is severely impeding administration, you may even have the right to seek the trustee’s suspension or removal, and possibly even a surcharge.
For minor issues with a trustee, it generally is best to attempt to discuss the issues with the trustee directly to try to find a resolution. However, for major issues with a trustee, litigation may be necessary. A knowledgeable trust attorney can provide you with guidance about the best path forward after learning about the specifics of your situation.
Keep in mind that suing a trustee can be expensive, but if the case proceeds to trial and you win, there is a possibility you can recover your attorney’s fees and costs from either the trust or the trustee. However, recovery of your attorney’s fees and costs is never a guarantee, so if you plan to sue the trustee, the safest bet would be to expect to cover your own attorney’s fees and costs.
FAQs: Trust Beneficiary Rights
Do you still have questions about your trust fund beneficiary rights?
Navigating the complexities of trust fund beneficiary rights can be overwhelming, so it’s understandable why you’d have lingering questions. To help address these concerns, we’ve created a frequently asked questions section below.
If you continue to have questions or are seeking personalized legal guidance, we encourage you to reach out to our firm to request a consultation.
What are my irrevocable trust beneficiary rights?
Although most living trusts become irrevocable once the settlor becomes incapacitated or dies, some trusts are irrevocable from the onset. Whether a trust is irrevocable from the onset or becomes irrevocable after the settlor’s incapacitation or death, a trust beneficiary can neither be added nor removed from it.
That said, there are exceptions to this rule. Irrevocable trust beneficiary rights in California may allow beneficiaries to alter or terminate a trust if everyone named in the trust — the settlor, the trustee, and trust beneficiaries— unanimously agree to the proposed course of action.
If unanimous consent isn’t available, a trustee could request for the court to modify or terminate the trust on account of its continuance defeating or impairing the spirit in which it was created.
Are heir rights the same as trust beneficiary rights?
Yes and no. Although the rights of a settlor’s direct heirs (i.e., the heirs who would be entitled to inherit by intestate succession if the trust were invalidated) are similar to trust beneficiary rights, they aren’t necessarily identical to them.
For example, just like trust beneficiaries, the settlor’s direct heirs may be entitled to obtain copies of the trust instrument and contest the trust. However, unlike trust beneficiaries, they are not entitled distributions from the trust and, once the time period to challenge the trust has elapsed, are typically not entitled to receive any information concerning administration of the trust.
As an heir, you may think it’s futile to play an active role in the administration of the trust if the settlor didn’t leave you an inheritance, but in reality, there is always a possibility the trust could be invalidated and you could inherit anyway. Therefore, it is as important for you as it is for trust beneficiaries to learn and enforce your rights.
If you would like guidance surrounding what your heir rights are, it is recommended you speak with a qualified trust attorney.
What are my special needs trust beneficiary rights?
Because of the nature of special needs trusts, beneficiaries typically have limited rights compared to beneficiaries of more common types of trusts. For example, special needs beneficiaries cannot receive cash directly in the same way beneficiaries of other trusts can. They, however, share with other beneficiaries the right to be reasonably informed, the right to trust accountings and the right to hold the trustee accountable, among other rights.
A special needs trust is a legal arrangement that’s designed to protect assets for a person with disabilities without compromising their eligibility for government benefits from programs like Medicaid. A special needs trust can only be used to pay for goods and services not covered by government benefits.
Do beneficiaries of a trust have any rights in the settlor’s estate?
No, trust beneficiary rights don’t extend to the settlor’s estate, per se. This is because the settlor’s estate is an entirely different entity with its own set of beneficiaries. Additionally, estates are distributed according to the terms of the decedent’s will or intestate succession laws, not according to the terms of the decedent’s trust.
That having been said, there can be exceptions to this rule. For instance, if a decedent’s will leaves all their property to the decedent’s trust, then beneficiaries of the trust may be considered interested parties in probate of the decedent’s estate.
What do family trust beneficiary rights entail?
Family trust beneficiary rights are identical to the trust beneficiary rights we discussed in this article. They include, among other rights, the right to trust information, the right to enforce the terms of the trust, the right to fair and impartial treatment, the right to timely distributions, the right to contest the trust, and the right to hold the trustee accountable.
The reason family trust beneficiary rights are identical to living trust beneficiary rights is because family trusts generally operate in the same way revocable living trusts operate. Often, the only difference between family trusts and living trusts is that family trusts are designed to exclusively benefit family members.
What rights do beneficiaries have over the trust assets?
Trust beneficiaries don’t have the right to control trust assets, per se. However, they can keep tabs on trust assets by reviewing the trustee’s inventory and accountings, and requesting information about the assets from the trustee.
That said, once the trustee distributes trust assets to beneficiaries, they will have full control over them and can do with them what they wish.
What do discretionary trust beneficiary rights include?
Discretionary trusts are unique in that no beneficiary is guaranteed an inheritance under them. Rather, the trustee has discretion over trust assets and may be able to decide who gets what, and when.
For obvious reasons, discretionary trust beneficiary rights are different from living trust beneficiary rights. For example, discretionary trust beneficiaries may not be entitled to timely distributions or have a guaranteed right to any distributions at all.
However, besides the exception mentioned above, discretionary trust beneficiaries have largely the same rights as other beneficiaries, including the right to trust information and the right to hold the trustee accountable.
Need help enforcing your trust beneficiary rights? Call our firm today.
If you’re uncertain about your trust beneficiary rights, Keystone’s skilled team of probate attorneys is here to help. Our attorneys are eager to discuss your situation with you to help you evaluate your options and provide you with the personalized legal guidance you need.
Our attorneys acknowledge that every situation is unique, and that a tailored approach is often necessary to comprehensively address each client’s legal issues.
If you believe your trust beneficiary rights are being violated, it’s crucial you immediately consult with a qualified attorney. Whether you’re seeking someone to advocate on your behalf or simply require clarity, our dedicated legal team is standing by to help.
Call us today to request a consultation. We are looking forward to hearing from you.
