A trust is a legal arrangement through which one person, called a “settlor” or “grantor”, gives assets to another person or institution, called a “trustee.” The trustee holds legal title to the assets for another person or institution, called a “beneficiary”. The rights of a trust beneficiary depend on the type of trust and the type of beneficiary.
While it may feel like it at times, trust beneficiaries are not at the absolute mercy of the trustee. Depending on the type of trust, trust beneficiaries may have rights to information about the trust as well as the right to ensure the trust is properly managed.
A revocable trust is set up by a person (settlor) who can change it or revoke it at any time. With this type of trust, the beneficiaries have very few rights while the settlor is still living and the trust is revocable. Because the settlor can change the trust at any time, he or she can also change the beneficiaries at any time. A revocable trust becomes irrevocable when the settlor dies.
An irrevocable trust is a trust that cannot be changed, except in rare cases by court order. While irrevocable trusts are more restrictive, beneficiaries of an irrevocable trust have more rights to information about the trust, and to ensure the trustee is acting properly. The scope of those rights depends on the type of beneficiary.
The two most common types of beneficiaries to an irrevocable trust are a “current” beneficiary and a “remainder” or “contingent” beneficiary. Current beneficiaries are beneficiaries who are currently entitled to income from the trust. Remainder or contingent beneficiaries have an interest in the trust after the current beneficiaries’ interest is over. For example, a husband may set up a trust that leaves income to his wife (the current beneficiary) for life and then the remainder of the property to her children (the remainder beneficiaries).
State law and the terms of the trust determine exactly what rights a beneficiary has, but the following five common rights are often given to beneficiaries of irrevocable trusts:
- Current beneficiaries have the right to distributions as set forth in the trust document.
- Right to information. Current and remainder beneficiaries have the right to be provided enough information about the trust and its administration to know how to enforce their rights.
- Right to an accounting. Current beneficiaries are entitled to an accounting. An accounting is a detailed report of all income, expenses, and distributions from the trust. Usually trustees are required to provide an accounting annually, but that may vary, depending on the terms of the trust. Beneficiaries may also be able to waive the accounting.
- Remove the trustee. Current and remainder beneficiaries have the right to petition the court for the removal of the trustee if they believe the trustee isn’t acting in their best interest. Trustees have an obligation to balance the needs of the current beneficiary with the needs of the remainder beneficiaries, which can be a difficult task.
- End the trust. In some circumstances, if all the current and remainder beneficiaries agree, they can petition the court to end the trust. State laws vary on when this is allowed. Usually, the purpose of the trust must have been fulfilled or be impossible.
About Oakstone Law, PL
Oakstone Law PL was founded by Bob Kleinknecht. A member of the Florida Family Trust Company Subcommittee, the Estate Tax & Trust Planning (ETTP) Committee and the Real Property, Probate & Trust Law (RPPTL) Section of the Florida Bar, Kleinknecht has 15 years’ experience.
Prior to founding Oakstone law, he spent more than eight years serving as a personal, in-house estate, tax and charitable planning attorney for a Forbes 400 family in New York and Florida. Before that he was an estate planning and estate settlement attorney with prominent firms in Boston and Washington, D.C. after beginning his career with a boutique firm in Naples, Florida.
Licensed in Florida and Massachusetts, Kleinknecht has developed a practice model that eliminates billing by the hour and offers a streamlined, customized client process supported by technology, security and a personal approach.
For more information on Oakstone Law, click here. To get in touch with us, click here to send us an email, or call 239-206-3454. Our office is located at 5137 Castello Drive, Suite 2 in Naples, Florida 34103.