Trust Beneficiary Rights | Can a Beneficiary Sue a Trustee?
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?
When executing a trust, the grantor (i.e., the creator of the trust) designates a trustee to manage the trust and beneficiaries to inherit from the trust. Trust beneficiaries are the persons for whom trusts are created.
In a typical living trust, it is standard for grantors to designate themselves as the initial trustee and beneficiary of their trust. When the grantor becomes incapacitated or dies, the person they designated as the successor trustee will take over management of the trust.
Most living trusts automatically become irrevocable upon the grantor’s death, so if you were included as a beneficiary of a trust when the grantor died, you will remain a beneficiary of the trust. One of the main exceptions to this rule is where a trust is invalidated through a trust contest.
Trustees are required to distribute to trust beneficiaries the inheritances they were left once the trust is settled. Depending on the terms of the trust, distributions can be in the form of the transfer of a specific asset, a lump sum cash payment or periodic payments made over time. If the grantor left a will instead of a trust, or died without a will or a trust, you may have rights as an estate beneficiary rather than as a trust beneficiary.
Understanding the Trust Administration Process
The trustee of the trust is the person who has been designated by the grantor to spearhead the trust administration process, which entails everything from taking an inventory of trust property to settling the trust’s debts and making trust distributions to the beneficiaries of the trust. Trust administration, unlike estate administration, is not supervised by the court, although the court can be utilized if trust-related disputes arise 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, they are entitled to bring a 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, so you should familiarize yourself with the ways in which trustees can breach their duties. When a breach is committed, it is essential trust beneficiaries take the necessary steps to enforce their living trust beneficiary rights.
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 removal.
Trust beneficiary rights include:
- The right to a copy of the trust document
- The right to be kept reasonably informed about the trust and its administration
- The right to an accounting
- The right to challenge an 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 and surcharged
It is important for trust beneficiaries to keep in mind that a trustee is a fiduciary, which means that it is the trustee’s job to always consider and act in the trust beneficiaries’ best interests. Trustees are required to remain impartial (i.e., they cannot favor one trust beneficiary over another), and they have a duty of loyalty as well. If a trustee prioritizes their personal interests over those of the trust beneficiaries, they will have committed a breach of their fiduciary duties, giving trust beneficiaries cause to potentially remove and surcharge them.
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 make it a point to communicate regularly with trust beneficiaries and supply 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 cannot be resolved, trust beneficiaries can consult with a trust lawyer to determine whether removal is a viable remedy.
Despite the broad rights trust beneficiaries have, they are not entitled to play an active role in every decision the trustee makes about the trust. For example, while it would be preferable for trustees to communicate with trust beneficiaries before selling trust property, doing so is not generally a requirement for them unless the terms of a trust require it. If you are a beneficiary of a trust who wants a say in trust-related decisions, it would be in your best interest to regularly communicate with the trustee and actively involve yourself in the trust administration process.
Irrevocable Trust Beneficiary Rights in California
As previously mentioned, most living trusts become irrevocable the moment the grantor 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 modify or terminate the trust
- The trustee requesting 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 the trustee of 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, have breached their fiduciary duties, or have caused harm to the trust through misconduct or negligence is one of your most important rights as a trust beneficiary.
If you are the beneficiary of a trust and believe the trustee to have failed in their duties in any of the ways mentioned above, it is important to get in touch with a beneficiary lawyer as soon as possible. Regardless of whether the trustee’s actions were intentional or unintentional, trust beneficiaries have the right to bring a claim to protect their living trust beneficiary rights and the trust.
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 maybe the trustee is taking too long to make distributions of trust funds to beneficiaries.
In all of these scenarios, the trustee’s actions amount to a breach of duty so suing the trustee with help from a probate lawyer would not just be warranted but recommended.
Put simply, a breach of fiduciary duty occurs when the person who has been designated to act in the best interests of someone else fails to do so. With trusts, it occurs when the trustee fails to act in the best interests of the trust beneficiaries.
If you are a beneficiary of a trust and suspect the trustee to have committed a breach of fiduciary duty, it is important to seek counsel from a beneficiary lawyer as soon as possible to not only enforce your trust beneficiary rights but also to prevent the trustee from causing any more 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 may bring a claim against a 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 lowered 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 the trustee’s actions fall under any of the categories mentioned above or are questionable in any way, it is important for trust beneficiaries to take immediate action to recover any trust property that was damaged, lost or misappropriated. If the trustee’s actions call for it, trust beneficiaries can also file a petition to have the trustee removed and surcharged.
Living Trust Beneficiary Rights in Trust Contests
As the beneficiary of a trust, you generally have standing to bring something known as a trust contest to try to have the trust invalidated 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 trust contest.
Valid grounds for bringing a trust contest include:
- It is suspected elder 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.
- The trust terms violate the inheritance rights of the decedent’s surviving spouse and/or heirs.
- Errors and/or unresolvable ambiguities have been found in 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 to contest a trust are typically very short.
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 trust beneficiary, an heir, the trustee or a third party, you can bring a claim to try to recover the lost property and/or damages.
Contexts in which trust property disputes can occur include:
- Assets that are supposed to be distributed through the trust are being held by the decedent’s estate, a family member of the decedent or a third party.
- Property belonging to the trust was stolen by a family member of the decedent.
- The trustee misappropriated trust property for personal gain.
When property disputes are against beneficiaries, heirs or third parties, it is generally the trustee’s job to bring the claim since they are supposed to represent the best interests of the trust and its beneficiaries. However, trust beneficiaries are also entitled to sue if the trustee is refusing to bring a valid property claim or if the property claim is against the trustee.
Trust beneficiaries who bring a property claim can seek to have the opposing party return the property to the trust or compensate the trust for the property. They may even be able to seek punitive damages.
In trust litigation, something known as an 850 Petition can be filed to transfer property into or out of a trust. For example, if the estate of a decedent is in possession of a certain piece of property mentioned in the decedent’s trust, and the trustee believes that the trust is entitled to it, the trustee can use an 850 Petition to try to have the property transferred.
When there is a dispute over trust property, it is recommended trust beneficiaries hire a probate lawyer to help them recover the property they believe belongs to the trust.
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 misconduct against the asset owner to have themselves designated. Payable-on-death and transfer-on-death assets include bank accounts, retirement accounts, life insurance policies and pensions.
Beneficiary designation disputes in trusts can be tricky because designated beneficiaries generally take control of the asset at issue upon the asset owner’s death, long before the trustee has had opportunity to claim it. If it can be proven, for example, that the designated beneficiary committed fraud against the decedent in order to be named as the beneficiary of that asset, 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 that the decedent wished for the asset to be distributed through their trust.
Both trust beneficiaries and trustees are permitted to bring a claim to invalidate a beneficiary designation if they believe compelling reasons exist for doing so. A beneficiary lawyer can help with bringing a claim.
Living Trust Beneficiary Rights to Trust Accountings
Trustees should be providing trust beneficiaries with regular trust accountings containing information about the trust’s investments, trust’s losses, trust’s debts and assets coming into and leaving the trust. Once the beneficiaries of a trust have the accountings, they can and should inspect the accountings for errors and red flags, and hire a trust lawyer to help with this process if they don’t feel qualified to go about it on their own.
If errors or red flags (i.e., evidence suggesting trust assets were mismanaged or misappropriated by the trustee) are discovered in the trustee’s accountings, trust beneficiaries are entitled to not only challenge those accountings in court but possibly remove and surcharge the trustee as well. Trust beneficiaries are likewise entitled to utilize the courts to compel the trustee to provide a formal accounting if they have failed to do so.
To ensure favorable results, it is best to involve a beneficiary lawyer both when inspecting accountings and challenging them.
Call Us to Learn How We Can Help With Your Trustee Dispute
If you are the beneficiary of a trust seeking to enforce your irrevocable trust beneficiary rights in California, you’ve come to the right place. Our experienced probate attorneys assist trust beneficiaries every day with their trustee disputes. Schedule a free consultation today with one of our beneficiary representation lawyers to learn how we can help.
