What Are Beneficiaries’ Rights In A Trust?
Just to clarify, there are three roles in a Trust. The first role is the Grantor, who is the person who created the Trust and donates property to it. The Trustees are the people who they are trusting to manage the assets of the Trust in a way that is defined according to the terms of the Trust. The Beneficiaries are the ones who ultimately receive the benefit of the Trust. Individuals can play more than one role, where Grantors can also be Trustees and Beneficiaries. Beneficiaries can be broken down into Beneficiaries of income and Beneficiaries of principle, and the Grantors can be either or both. Trustees can be Beneficiaries and Beneficiaries can be Trustees. There are different ways to mix and match it depending upon the goals of the Grantors.
In a classic structure, you might have the Grantors as parents who are aging a little bit and who want to retain income for life but would like their children to take over as Trustees and have the assets go to the children upon their passing. Now what you have are the people who created the Trust as Grantors. The Grantors are also beneficiaries. The clients who have created the Trust are also the Beneficiaries of the income. If the Trust owns income-generating property, such as rental properties or an investment account that’s generating income, then that income goes to the Grantors, to the Grantors as beneficiaries. If the Trust is structured so that the principal goes to the children upon their passing, now the children are Beneficiaries and the children are also the Trustees. This means the children are Beneficiaries in principal, and the Grantors and beneficiaries of income.
The question now comes to defining the rights of the Beneficiaries. The rights of the Beneficiaries are going to be those that have been defined by the Grantor. The Grantors have complete control over those assets and what rights they grant the Beneficiaries are the time of the creation of the Trust. What they going to do in a classic situation like that is say that they reserve the right to income for life, and the principal they will give to their children upon their passing. What are the rights? The rights are that the parents or the grantors are entitled to the income for life, so the income has to be paid to the Grantors regardless. There is no discretion on the part of the Trustees.
The Trustees, who are the children of the Beneficiaries, are going to have rights also, and those rights are going to be upon the passing of parents. They are going to have rights to the principal, whether that right is an outright distribution or some distribution over time. It also could be that they are entitled to interest or income for life on the principal, but not entitled to the principal; the principal might be preserved for the grandchildren. All of that’s going to be defined by the Trust document itself and by the Grantors who are creating the Trust document.
One thing that all Beneficiaries have is the right to that the Trustee has a fiduciary duty towards them, which includes operating according to the terms of the Trust. If a Trustee is not operating according to the terms of the Trust, the Beneficiary has the right to petition the court for their removal under what’s called breach of fiduciary duty. If the Trustee is not doing what they are supposed to be doing, then they can be removed, and the Beneficiaries have that right. This is because the Beneficiaries have the right to whatever is pledged to them in the Trust document. If the Trustee is not helping to make that come about, the Beneficiaries have the right to request the court to make appoint a new Trustee who will actually do what they are supposed to do.
This gets into an area called generally estate litigation. Sometimes people call it Trust litigation. In my firm, I deal with this type of litigation on a regular basis (always on Trusts created by other firms). Oftentimes, I am presented with a case where there is an individual who is a Trustee, who may be a relative, and who was believed to be Trustworthy in the early years, but when the Grantors passed away, the Trustee didn’t do exactly what they were supposed to do. Now the Beneficiary is saying, “Wait a minute, I’m supposed to be getting this. Why am I not getting this?”
If that’s the case, they’ll have to take the entire issue to Surrogate’s Court and litigate the matter in order to try to bring about the appropriate results according to the definition of the Trust. Beneficiaries have the right to do that, and I represent Beneficiaries who feel that they are being mistreated. Sometimes I also represent Trustees who feel like the Beneficiaries are asking for inappropriate things. I have to explain to the Beneficiaries what’s appropriate under the terms of the Trust in order to help smooth out the rough feathers in a family situation that otherwise might lead to some form of family litigation.
For more information on Beneficiaries’ Rights in A Trust in Long Island, Nassau County and Suffolk County, a FREE phone consultation is your next best step. Get the information and legal answers you are seeking by calling (516) 806-0762 today.
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