A trust is a legal arrangement that allows a Grantor (creator of the trust) to place assets into a trust for the benefit of third-party individuals, entities, or even pets. The Trustee, appointed by the Grantor, administers the trust according to its terms and legal obligations. Although trust administration can be complex, if you are the beneficiary of a trust, it is imperative that you have a basic understanding of the trust administration process and your rights as a beneficiary. With that in mind, the Los Angeles attorneys at Schomer Estate & Wealth Advisors explain what every beneficiary should know about trust administration.
Understanding the Trust and Its Terms
As a beneficiary, your first step is to understand the type of trust you are involved in and its terms. A trust can be administered during the lifetime of the Grantor (known as a “living trust”) or only take effect after the death of the Grantor (referred to as a “testamentary trust”). In addition, a revocable living trust can be modified by the Grantor during their lifetime, while irrevocable trusts cannot be altered after they are created. The terms of the trust outline how the assets will be managed, distributed, and what conditions may apply to distributions. For example, some trusts specify that beneficiaries receive distributions at certain ages or life milestones, such as completing college. Others may grant the Trustee broad discretion in deciding when and how much to distribute. Knowing the terms of the trust can help you understand what you can expect in terms of distributions and timeline.
The Role of the Trustee
The Trustee, appointed by the Grantor, is responsible for the administration of the trust. Trustees have a fiduciary duty, which is a legal obligation to act in the best interests of the beneficiaries. Their responsibilities include managing and protecting the trust’s assets, filing tax returns, keeping accurate records, and making distributions according to the trust’s terms. As a beneficiary, you should understand that while the Trustee must act in your best interests, they may also have discretion when making some decisions. For instance, a Trustee might have the authority to decide the timing of distributions based on what they believe is in your best interest or the best interest of all beneficiaries. This can be frustrating if you feel that distributions are too slow or infrequent, but if the Trustee is acting within their fiduciary duty and following the trust’s terms, they are fulfilling their role.
Your Rights as a Beneficiary
While the Trustee holds the responsibility of managing the trust, you have rights as a beneficiary. Although your rights can vary depending on the type of trust and the jurisdiction in which it was created, some commonly held rights include:
- Right to Information: You are generally entitled to receive information about the trust and its administration. This typically includes a copy of the trust agreement, as well as periodic updates on the trust’s assets, liabilities, income, and expenses. The Trustee may provide formal accountings annually or more frequently, depending on the trust’s requirements.
- Right to Distributions: If the terms of the trust agreement direct distributions to you as a beneficiary, you have the right to receive those distributions. The timing and amount, however, may depend on the trust’s terms and the Trustee’s discretion. For example, some trusts distribute a fixed amount yearly, while others give the Trustee the authority to adjust distributions based on circumstances.
- Right to Fair Treatment: As a beneficiary, you have the right to be treated fairly. Trustees are bound by fiduciary duty to act impartially among beneficiaries, which means they should not favor one beneficiary over another unless the trust’s terms specify otherwise. If you believe the Trustee is not acting fairly, you may have legal recourse to address this.
- Right to Request an Accounting: If you feel uninformed about the trust’s finances, you typically have the right to request an accounting. An accounting is a detailed report of the trust’s financial activity, including income earned, expenses, and distributions. This transparency can give you peace of mind that the Trustee is managing the trust responsibly.
- Right to Remove the Trustee: If you believe the Trustee is mismanaging the trust, you have legal options that may include having the Trustee removed. Sometimes the terms of a trust specifically give beneficiaries this authority; however, even if the trust agreement is silent, you can petition a court to have a Trustee removed if you believe there is cause to do so.
Are You a Beneficiary Who Needs Help Understanding Trust Administration?
For more information, please join us for an upcoming FREE seminar. If you are the beneficiary of a trust and you have additional questions or concerns about the administration of the trust, contact the experienced Los Angeles trust administration attorneys at Schomer Estate & Wealth Advisors by calling (310) 337-7696 to schedule an appointment.
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