Rights of the Beneficiary of an Irrevocable Family Trust

By Anna Assad

An irrevocable family trust is a noncharitable trust set up by the creator, or settlor, for the benefit of family members. This type of trust is typically a permanent agreement that controls family assets placed into the trust for the benefit of the beneficiaries named in the trust papers. Although state laws establish irrevocable trust beneficiary rights, some rights are common across all or most states.

An irrevocable family trust is a noncharitable trust set up by the creator, or settlor, for the benefit of family members. This type of trust is typically a permanent agreement that controls family assets placed into the trust for the benefit of the beneficiaries named in the trust papers. Although state laws establish irrevocable trust beneficiary rights, some rights are common across all or most states.

Payment

An irrevocable family trust beneficiary is entitled to payment from the trust as outlined in the trust agreement. How much you get and when depends on the trust's written terms. For example, the trust of which you are a beneficiary might state that the beneficiary receives 6 percent of the trust's balance every six months, and that sets how much you are entitled to and on what date the trustee must give the money to you. The settlor might have given you a temporary withdrawal right, often used in irrevocable family trusts to avoid gift tax. This right allows you to withdraw a recent contribution to the trust within a certain number of days, such as 30, after the addition is transferred to the trust. Once the window passes, the contribution becomes a permanent part of the trust if you haven't withdrawn it.

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Documentation and Accounting

You are entitled to all documentation relating to the irrevocable trust, including its assets and liabilities, a copy of the original agreement and any amending papers. You can ask the trustee to produce these documents at any time. Other trust documents vary but commonly include current financial account statements and current bills. The trustee is obligated to provide you a full account of what he's done with the family trust to date. An account includes line-by-line details of what's gone in and out of the trust. For example, if the trust contains a rental property, part of the account would be the rent amounts received by the trust so far and on what dates the money was added to the trust's balance. Any money the trustee is receiving for his services from the trust must also be disclosed.

Trustee Action

You might be able to remove the current irrevocable trustee and replace him with another person, depending on your reason and state laws. A family irrevocable trust beneficiary typically has the right to remove the trustee if he's not meeting his obligations, is behaving dishonestly or is not acting in your best interests. For example, a trustee who is paying his personal bills from the trust fund is acting dishonestly and not in your interest. A trustee who is suffering from an incapacitating illness can no longer meet his obligations. Depending on your state, you might have to take the trustee to court to enforce this right, even if he's willing to resign.

End the Trust

State laws determine whether you can end an irrevocable family trust. Some states allow a beneficiary, or both the beneficiary and the settlor together, to end the trust by just petitioning in court. However, other states don't allow you to end an irrevocable trust if the court finds the trust's purpose hasn't been fulfilled yet. For example, if your state doesn't allow termination before the trust's purpose is accomplished, and the court finds the trust was established to pay for your completed college education, you may be unable to end the trust until you graduate from college.

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Rights of the Beneficiary of a Family Trust

References

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