Rights of the Beneficiary of a Family Trust

By David Carnes

A family trust is a trust in which the beneficiaries are family relations of the grantor. Since the assets of a revocable trust legally belong to the grantor, beneficiaries have no rights in trust assets that are not subordinate to the grantor's right to unilaterally revoke the trust. The assets of an irrevocable trust, by contrast, legally belong to the beneficiaries subject to the trustee's fiduciary authority. Trust beneficiaries enjoy certain rights under state law.

Distributions

A beneficiary has the right to receive distributions from the trust that are mandated by the terms of the trust deed, and the trustee may not withhold such distributions. Some trust deeds vest the trustee with discretionary authority, and a beneficiary is generally not entitled to a discretionary distribution. A beneficiary might assert, however, that the trustee's fiduciary duty of loyalty toward the beneficiaries obligates him to refrain from completely withholding discretionary distributions or favoring one beneficiary over another for personal reasons unrelated to the terms of the trust deed.

Information

A beneficiary of a family trust is entitled to an annual report: a detailed description, prepared by the trustee, of the trust's income and expenses. If the trustee has the authority to invest trust assets, the trustee must report the details of these investments, including their gains or losses.

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Authority Over the Trustee

Since the trustee is bound by a fiduciary duty of care toward trust assets, a beneficiary may collect damages from the trustee if he wastes trust assets through negligent mismanagement or self-dealing. A beneficiary may also petition a court to replace the trustee. When ruling on a petition to replace the trustee, a court will give primary consideration to whether the trustee has fulfilled his fiduciary duties and whether he has carried out the original intentions of the trust grantor.

Termination

State laws vary on the authority of beneficiaries to terminate a trust. Many states allow beneficiaries to terminate an irrevocable trust by unanimous consent. Some states require the additional consent of the trustee or the grantor (if he is alive). Some states require a court order, based on legal grounds such as fulfillment of the original purpose of the trust, even if all beneficiaries consent to the termination of the trust. Some states do not allow beneficiaries to terminate the trust by consent if any of them is under 18. Once a trust is terminated, its assets will be distributed in accordance with the original intentions of the grantor: they might be divided among beneficiaries, or they might revert to the grantor or the grantor's estate.

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References

Related articles

How to Terminate an Irrevocable Trust

With a trust, you transfer assets to a legal entity set up to shelter your estate from the probate process. A trust allows you to control who will inherit your property after your death and give instructions to a trustee on how to manage that property. Although an irrevocable trust, in theory, cannot be changed or cancelled, there are ways to close down the trust and, if you wish, transfer assets to a new one. If the trust no longer serves the purpose for which it was set up, you may revoke it or draw up amendments that substantially change its terms. In most cases, this process will be subject to review by the courts to ensure that the beneficiaries retain the rights they were granted in the original trust.

How to Change the Trustee of an Irrevocable Trust

A trust is a legal device that allows you to place your assets under the care of a trustee for eventual distribution to beneficiaries you select. An irrevocable trust is a trust that you may not unilaterally revoke because the trust assets no longer legally belong to you. However, under certain circumstances it is possible to replace the trustee of an irrevocable trust. Although state laws differ somewhat on the procedure for replacing a trustee, the basic principles are the same in every state.

What Are the Disadvantages of an Irrevocable Trust?

A trust is a legal device that permits a grantor to place assets under the control of a trustee, then who administers the assets for the benefit of beneficiaries named by the grantor. A living trust is a trust created while the grantor is still alive -- as opposed to a testamentary trust, which is created by the terms of the grantor's will. A trust is irrevocable if the grantor cannot unilaterally revoke it.

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