Types of Trust Beneficiaries
Our asset protection attorneys in Chapel Hill have previously reviewed the rights of trust beneficiaries. These rights vary depending on the type of beneficiary, which may include:
- Primary. The primary beneficiaries are those who are first named to receive distributions from the trust. They have an active interest in trust assets.
- Contingent and remainder. Contingent beneficiaries are those who are named secondary, and sometimes tertiary, to receive trust assets if the primary beneficiary is not available or eligible to receive the assets. If the primary trust beneficiaries predecease the term of the trust, contingent beneficiaries’ rights become vested. In the event the trust completes its purpose, any assets still held in trust may be distributed to remainder beneficiaries. This might be another individual or an entity such as a charity. Contingent beneficiaries only receive their interest in the trust after current beneficiaries’ interests cease. Whether contingent beneficiaries are entitled to annual accountings and trust reports will depend on the unique terms of the trust document as well as governing state law.
While remainder beneficiaries generally do not have a right to bring a claim against the trustee of a revocable living trust (RLT) for breach of fiduciary duty to them for any period during which the trust was revocable, they may have rights to bring claims for breach of fiduciary duty to the settlor, according to case law compiled by the American Bar Association. Several factors influence the validity of a remainder beneficiary’s claim, including whether the settlor actually or implicitly consented to the trustee action. Although case law provides guidance on how courts may rule in similar cases, the outcomes are not universally applied to all cases. Review the few cases concerning trustee duties for remainder beneficiaries here.
In some cases a beneficiary might enjoy the benefit of trust assets but have no authority to direct the transfer or sale of the assets during their lifetime or upon their death. For example, a parent might leave a house in trust for a surviving adult child to reside in for the rest of the child’s life. The trust might direct that upon the child’s death, the house be sold and the proceeds donated to charity.
