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Marc A. Hebert's Money Sense: What are your rights as the beneficiary of a trust?

By MARC A. HEBERT
October 06. 2018 8:21PM




Being named a beneficiary of a trust can be a welcome event, but it can also come with questions and concerns. Beneficiaries can feel that they are at the mercy of the trustee.

To help clarify this, let's start with the definition of a trust. A trust is a legal arrangement, usually written, in which an individual (the trustor/grantor) gives fiduciary control of property to a person or institution (the trustee) for the benefit of beneficiaries.

The trustee is responsible for ensuring that the assets of the trust are used according to the trust document provisions and that they are appropriately invested. This is called a fiduciary duty. If this duty is breached, beneficiaries have the right to protect their interests.

The rights a beneficiary has depend on the type of trust, the type of beneficiary, trust provisions, and state law. Here are a few general rights beneficiaries typically have:

. The right to distributions: The trust document will dictate how assets are to be distributed to beneficiaries. The trustee may not withhold such distributions. Some trusts do give the trustee discretionary authority to make distributions, so make sure to read the trust document.

. The right to an accounting of investments: Trustees typically make choices as to how the trust assets are invested and they must act prudently in doing so. Diversification is usually a consideration. As a beneficiary, you have the right to know how the assets are invested as well as whether the assets are generating any gains or losses.

. The right to receive an annual trust report: The trustee should provide you with a report detailing the income that the trust produced as well as the expenses it paid. This is necessary so that the beneficiaries may monitor the actions of the trustee and help ensure that the trustee is acting in the best interest of the beneficiaries.

. The right to sue the trustee: The trustee can be held liable for loss of trust assets and income if he or she acts in a wrongful manner. If the trustee wastes trust assets through negligent mismanagement or self-dealing, a beneficiary may be able to collect damages from the trust. The trustee has a fiduciary duty to manage trust assets with care and caution. The job also requires the trustee to be loyal and impartial to the beneficiaries.

. The right to terminate the trust: If all the beneficiaries of a trust are "adults of sound mind," they can ask the court to terminate the trust if they feel it has outlived its purpose or if the purpose is impossible to accomplish. State laws vary on when this is allowed. Upon termination, trust assets will be distributed in accordance with the original intentions of the grantor. Keep in mind that some trusts, spendthrift trusts for example, in which the grantor clearly intended that trust assets be withheld and protected from beneficiaries and their creditors will be harder to terminate.

. The right to remove the trustee: Trust documents may contain provisions detailing the circumstances for removing a trustee if he or she is being negligent in performing his or her job. If the trust does not contain such a provision, the beneficiaries may petition the court for the removal of the trustee if they believe the trustee isn't acting in their best interest.

If you are the beneficiary of a trust and have questions, it is best to engage the professional help of an estate planning attorney. As each trust and situation is unique, it is important to work with an advisor competent in the area to help you know your rights as a beneficiary.

Marc A. Hebert, MS, CFP, is a senior member and president of the wealth management and financial planning firm The Harbor Group of Bedford. Email questions to Marc at mhebert@harborgroup.com. Your question and his response might appear in a future column.


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