Trust Week, Day Five: Beneficiaries' Rights...and Wrongs

A man will fight harder for his interests than for his rights.

- Napoleon Bonaparte

We’ve talked a little this week about how and when to set up a trust. We’ve talked about grantors powers and trustees authority. We’ve talked about types of trusts. But we haven’t yet discussed the whole reason for creating a trust: the beneficiaries. If you don’t have any beneficiaries, then you don’t need a trust, right? The property isn’t being protected for or from anyone, because there is no one to claim it when the trust ends. Let’s look at some statements made by beneficiaries to find out their role where trusts are concerned.

“The trust is for my benefit, so I’m in charge.”

This couldn’t be farther from the truth. The trust is for your benefit, but it wouldn’t exist if the beneficiaries were supposed to be in charge. Beneficiaries are sometimes given special powers regarding election of a trustee, and they can remove a trustee in certain situations. But in no way do the beneficiaries have any right to dictate how trust property should be used or managed.

“Okay, so the trustee is in charge. That means I have to take what the trustee decides to give me.”

Once again, off the mark. The buck seldom stops with the trustee. In truth, the person in charge is the grantor. He or she created the trust by choosing what terms to include in the trust document. Sometimes that involves giving the trustee discretion. In many trusts, a beneficiary is given the right to request distributions from the trust. It is not uncommon for the grantor to require that a trustee make a minimum annual distribution to the beneficiaries. Always, always, always read the trust document to determine if the trustee is being fair. And remember, the trustee owes fiduciary duties to you as beneficiaries. If he violates those duties, he can be held liable.

“Nice! So, when the trustee does something I don’t like, I can sue him!”

You just keep missing the mark. You’re like a blindfolded orangutan firing a Civil War era rifle.

Sorry about that.

The trustee owes the beneficiaries certain fiduciary duties, but he or she still has a lot of latitude when it comes to managing the trust assets. Courts are hesitant to second guess business judgment of a trustee who is at least marginally familiar with managing the types of assets owned by the trust. However, if the trustee treats certain beneficiaries differently than others (without special instructions from the trust), or if he or she is mixing trust funds with personal funds, legal action could be used to force the trustee to comply with the duties of loyalty and prudence. Again, you can be certain that the trustee is doing his job if you check the terms in the trust document. And seek counsel from an attorney.

It’s been fun discussing trusts with you this week. Hopefully you’ve gained some understanding of what a trust is and how it might play an important role in your estate plan. If you have additional questions or would like to schedule a free initial consultation, give us a call or fire off an e-mail.

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Lawyer Joke of the Day:

Five signs you need a new lawyer:

3. When the prosecutors see who your lawyer is, they high-five each other.