Not everyone is comfortable gifting assets outright to loved ones for a variety of reasons. Instead, a trust is often used to distribute assets to beneficiaries. If you are a beneficiary of a trust, you are dependent on the Trustee to make distributions from the trust as directed by the trust agreement. Most of the time, things run smoothly for the beneficiaries of a trust; however, there are also a number of things that can go wrong. To ensure that your interests are protected, the Overland Park trust administration attorneys at Parman & Easterday stress the importance of knowing your rights as a beneficiary of a trust.
Using a Trust to Make Gifts
Traditionally, gifts to loved ones are made using your Last Will and Testament to distribute those gifts after you are gone. Gifting assets outright, however, isn’t always the best idea for a variety of reasons. For example, there are legal restrictions that prohibit direct gifts to a beneficiary who is a minor child. Even if the beneficiary is legally an adult, if he/she is still relatively young, gifting a large lump sum of money can be a bad idea. By the same token, handing over a lump sum of money, or valuable assets, to someone with a history of addiction or who is known to be spendthrift isn’t wise. When gifting outright is not a good idea, a common solution is to create a trust to hold the assets and distribute them in smaller amounts over a longer period of time.
A trust is a legal relationship wherein property is held by one party for the benefit of another. A trust is created by a Settlor, also referred to as a Grantor, Trustor, or Maker, who transfers property to a Trustee who is appointed by the Settlor. The Trustee holds that property for the trust’s beneficiaries. A trust can have a single beneficiary or numerous beneficiaries as well as have both current and future beneficiaries. Among the numerous benefits a trust provides is the fact that the Settlor is able to decide, in detail, when and how assets will be gifted to the beneficiaries.
Rights You Have as a Beneficiary of a Trust
As the beneficiary, you may have statutory rights that apply to all beneficiaries of a trust. You may also have rights that were specifically granted to you by the Settlor in the trust agreement. The Settlor of any trust creates the trust terms. As such the Settler can provide beneficiaries with rights that go above and beyond the rights that exist by law. For example, a Settlor often grants the beneficiaries the right to remove the Trustee by a majority vote of the beneficiaries. In addition to any rights that are granted within the trust agreement, a beneficiary also has the following rights by law:
- Right to distributions – if you are a current beneficiary, you have a right to receive any distributions due to you under the terms of the trust agreement.
- Right to communication/information – you have the right to be kept informed about trust business and to be able to communicate with the Trustee of the trust.
- Right to an accounting – you have the right to receive a full accounting showing things such as what assets the trust holds, how much interest has been earned by the trust, and what expenses have been paid by the trust. This is an especially important right to remember if you are concerned about the way in which the Trustee is administering the trust.
- Right to petition a court to remove a Trustee or terminate a trust – as mentioned above, the Settlor can specifically grant beneficiaries the authority to remove a Trustee; however, even if the Settlor did not expressly grant the beneficiaries the direct authority, a beneficiary always has the right to petition a court for the Trustee’s removal. The difference is that if you were not granted the direct authority by the Settlor, you will need to convince a judge that the Trustee should be removed. To prevail on such a petition, you will likely need to prove that the Trustee has done one (or more) of the following:
- Mismanaged trust assets
- Engaged in self-dealing
- Failed to follow the trust terms
- Created a conflict of interest
- “Good cause” (this is the “catch-all” for reasons that do not fit neatly into any of the common categories)
Contact Overland Park Trust Administration Attorneys
For additional information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about the rights of a trust beneficiary, contact the experienced Overland Park trust administration attorneys at Parman & Easterday by calling 405-843-6100 to schedule your appointment today.