The use of a trust has become more common in the estate plans of the average person as either a secondary estate planning tool or as the primary estate distribution method. Consequently, there is an increasing likelihood that you will be one of the named beneficiaries of a trust agreement at some point in your life. If that has already happened, and this is the first time you have been a beneficiary, you probably have a number of questions about your status as a beneficiary and about how the trust works as a whole. With this in mind, the living trust attorneys at Morris Hall PLLC answer beneficiary questions.
- What is a trust? At its most basic, a trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, who transfers property to a Trustee. The Trustee holds that property for the trust's beneficiaries. A trust is created using a trust agreement. The trust agreement includes terms, created by the Settlor, that dictate how the trust is to be administered by the Trustee.
- Who can be the Trustee of a trust? The Settlor appoints the Trustee, and usually a successor Trustee as well, in case something happens to the Trustee. Anyone can be the Trustee; however, given the numerous and varied duties and responsibilities of a Trustee, it is wise for a Settlor to give considerable thought to the position before deciding whom to appoint.
- What are the duties and responsibilities of a Trustee? The overall job of a Trustee is to protect the trust assets and administer the trust. Some of the common duties and responsibilities that go along with the job of Trustee include:
- Managing and protecting trust assets
- Abiding by the trust terms unless they are impossible, illegal, or unconscionable
- Investing trust funds using the “Prudent Investor Standard”
- Monitoring trust investments
- Communicating with trust beneficiaries
- Resolving conflicts among beneficiaries
- Making discretionary decisions
- Distributing trust funds to beneficiaries
- Approving or denying distributions if given discretionary authority
- Keeping detailed trust records
- Preparing returns and paying trust taxes
- Are there guidelines for how the trust assets are invested? First and foremost, the Trustee must follow any directions left by the Settlor with regard to how the trust assets are to be invested. In addition, the law requires a Trustee to use the “prudent investor standard” when investing trust assets. This requires the Trustee to invest with caution, avoiding risk at all times and always focusing on protecting the principal first and growth second. A Trustee should always be more careful with trust assets than he/she would be with the Trustee’s own assets.
- Does the Trustee have to follow all the trust terms or does the Trustee have discretion when administering the trust? The Trustee must abide by the terms of the trust agreement unless a term is illegal, unconscionable, or impractical. Even then, the Trustee will need to seek the guidance of a court, in most cases, to be justified in ignoring that term. If, however, one of those terms gives the Trustee discretionary authority over specific decisions and/or over the distribution of trust assets, then the Trustee may make those designated decisions independently.
- Can I do anything if the Trustee isn’t doing his/her job well? As a beneficiary of the trust, you have certain rights. One of those might be the right to remove the Trustee if the Settlor included that right in the trust provisions. Even if the Settlor did not include a provision giving you that right, you can file a petition to remove the Trustee with the appropriate court.
- What other rights do I have as a beneficiary? The rights you have will depend, to a large extent, on the type of trust. If the trust is revocable you have very few rights because the Settlor retains the right to change anything about the trust at any time, including removing you as a beneficiary. If the trust is irrevocable, you have more rights but even those will still depend on the exact type of trust as well as state law. At a bare minimum, however, for an irrevocable trust you have a right to be kept informed about trust business and to an accounting regarding trust activity. You also have a right to the disbursements of trust assets as outlined in the trust provisions.
Contact Living Trust Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about trusts or beneficiary rights, contact an experienced trust attorney at Morris Hall PLLC by calling 888-222-1328 to schedule your appointment today.