Rights of Trust Beneficiaries
Trust beneficiaries have legal rights detailed in the trust documents and governed by state and federal trust code. If a beneficiary experiences problems with or desires clarification of issues related to distributions or other matters of trust administration, they should notify the trustee. However, if problems have resulted from a negligent trustee, or the trustee fails to adequately address issues brought to his or her attention by the beneficiary, it might be time for the beneficiary to reach out to a trust attorney and, potentially, the courts for corrective action.
- Distributions. Beneficiaries generally have the right to receive distributions according to the terms outlined in the trust document. In some cases, this involves mandatory periodic payments, while other trusts provide for distributions in the discretion of the trustee. If the grantor had established an incentive trust, the beneficiary might be required to complete certain life goals (graduate from college, maintain employment in a certain field, etc.) in order to receive payments.
- Accountings. The trustee must maintain detailed reports about trust activity. If trust funds are investments, kept in interest-bearing accounts, or another income-producing asset, the interest or income accrual must be noted in accounting reports. Also included in accountings are a history of distributions to beneficiaries, payments to trustees (if any), and any other disbursements or payments. Generally, beneficiaries are entitled to at least an annual trust accounting report, although, depending on governing state law and the terms of the trust document, the trustee may have discretion regarding whether and to what extent to provide such information to a beneficiary.
- Notices. If a trustee plans to move the trust jurisdiction, generally the beneficiary must be notified of the proposed change in place of administration and must be provided with the reason for and anticipated date for the change. Depending on where the proposed place of administration is located, beneficiaries may be required to submit their approval in writing before the change occurs. For example, in North Carolina, beneficiaries’ written approvals are required if the place of administration is changed to an international jurisdiction. Beneficiaries also generally must be notified of trust termination, contests, trustee acceptance, and successor trustee appointment. The deadlines for each of these vary, but generally range from 30-120 days.
- Trustee removal. If beneficiaries believe the trust is being mismanaged by a trustee, they have the right to request removal of the trustee. Depending on the trust provisions, the beneficiary might be required to petition the court for trustee removal. Some trusts have special provisions appointing trust protectors, an individual or entity with specific powers concerning the trust administration that might include the authority to immediately remove and replace a trustee who fails to meet his or her fiduciary duty.
- Termination. A trust may be terminated if it’s not economical to maintain, cannot be managed effectively, or when all assets held in trust have been extinguished. The latter might occur after all distributions have been made to beneficiaries, trust assets returned to the grantor, or assets transferred to a different trust.