Many people believe that a trust beneficiary has no rights other than to just “wait and see” what the trustee of the trust distributes to them. However, trust beneficiaries typically have certain rights in relation to the trust. The rights of a trust beneficiary depend on the type of trust, the type of beneficiary, provisions contained in the trust, and state law.
A trust is a legal arrangement through which one person, called a “settlor” or “grantor,” transfer assets to another person who acts as a custodian/manger over the trust assets (usually the grantor while they are alive and competent), called a “trustee.” The trustee holds legal title to the assets for another person, called a “beneficiary.” The rights of a trust beneficiary depend on the type of trust and the type of beneficiary.
If the trust is a revocable trust—meaning the person who set up the trust can change it or revoke it at any time–the trust beneficiaries other than the settlor have very few (if any) rights. Because the settlor can change the trust at any time, he or she can also change the beneficiaries at any time. Often a trust is revocable until the settlor dies and then it becomes irrevocable.
An irrevocable trust is a trust that cannot be changed except in rare cases by court order. Beneficiaries of an irrevocable trust have rights to
information about the trust and to make sure the trustee is acting properly. The scope of those rights depends upon on the type of beneficiary, provisions contained in the trust, and state law.
Current beneficiaries are beneficiaries who are currently entitled to income and principal from the trust. Remainder or contingent beneficiaries have an interest in the trust after the current beneficiaries’ interest is over. For example, a wife may set up a trust that leaves income to her husband for life (the current beneficiary) and then the remainder of the property to her children (the remainder beneficiaries).
There are generally provisions in the trust indicating which beneficiaries are entitled to an accounting of trust activities and under what circumstances. Revocable trust can contain provisions requiring an accounting only to the current beneficiaries of a trust only (usually only the grantor(s) during their lifetime) or they may require an accounting to contingent beneficiaries also.
State law and the terms of the trust also determine exactly what rights a beneficiary has. For example, under Michigan law, if there are no provisions in the trust to the contrary, the trustee is required to account to both current and remainder beneficiaries (called “qualified trust beneficiaries”).
However, the following are five common rights given to beneficiaries of irrevocable trusts:
Payment. Current beneficiaries have the right to distributions as set forth in the trust document.
Right to information. Current and remainder beneficiaries have the right to be provided enough information about the trust and its administration to know how to enforce their rights.
Right to an accounting. Current beneficiaries are entitled to an accounting. An accounting is a detailed report of all income, expenses, and distributions from the trust. Usually trustees are required to provide an accounting annually, but that may vary, depending on the terms of the trust. Beneficiaries may also be able to waive the accounting.
Remove the trustee. Current and remainder beneficiaries have the right to petition the court for the removal of the trustee if they believe the trustee isn’t acting in their best interest. Trustees have an obligation to balance the needs of the current beneficiary with the needs of the remainder beneficiaries, which can be difficult to manage.
Termination of the trust. In some circumstances, if all the current and remainder beneficiaries agree, they can petition the court to end the trust. State laws vary on when this is allowed. Usually, the purpose of the trust must have been fulfilled or be impossible.