Trust Beneficiary Rights. Information, Accounting, Distributions and other Remedies.

Trust beneficiary rights depend on the type of trust one is a beneficiary of: are you a beneficiary of a revocable or irrevocable trust?

If you are beneficiary of a revocable trust, your rights as a beneficiary are somewhat limited. The grantor can change you as beneficiary anytime, and the moment the grantor changes you as beneficiary, you lose all your rights.

If you are a beneficiary of an irrevocable trust, however, your rights are provided under state law. Most rights are the same across all states, such as the right to a copy of the trust agreement, the right to information about the administration of the trust, the right to receive timely distributions, the right to an accounting, the right to remove the trustee, and in some circumstances, the right to end the trust.

For this reason, knowing whether a trust is revocable or irrevocable is important in determining your rights as a trust beneficiary.

In most cases, a revocable trust becomes an irrevocable trust when the grantor dies. This is because the grantor can no longer make any changes to the trust. However, it is not only when the grantor dies that a trust is irrevocable. There are many irrevocable trusts where the grantor is still alive. It really depends on the language in the trust agreement. For example, a Medicaid Asset Protection Trust or a Granted Retained Annuity Trust is an irrevocable trust. Usually, the best indication of whether a trust is irrevocable is whether the trust has its own tax identification number (EIN). An irrevocable trust is required to have its own EIN because it pays taxes on its own under a different graduated income tax bracket, separate from any other person’s social security number.

Right to a copy of the trust agreement

When you are a beneficiary of a trust, you have the right to request for a copy of the trust agreement from the trustee. The trust agreement will tell you when distributions should be made, the powers of the trustee, and how the trust is to be administered. If the trustee refuses to give you a copy, you can petition the court to compel the trustee to give you a copy of the trust agreement.

Right to information about the management of the trust

As a beneficiary, you have a right to be informed about how the trustee is managing the trust. You can’t manage the trust because that’s the job of the trustee. The trustee, however, has to keep you periodically informed about the trust administration, for example, how much are the trust assets, what are the other assets coming into the trust, and which of those assets are being sold. Trust information is important for the trust beneficiary because this is how the trust beneficiary will know when and how to enforce his rights. If the trustee is selling trust assets to a company he owns or to his family member (even if it is within or over market value), the beneficiary has the right to be informed about this to prevent the trustee from being suspected of conflict of interest. Trust information will guide the trust beneficiary on whether the trust beneficiary should file a petition to compel the trustee to account or to remove the beneficiary.

Right to receive timely distributions

The trust agreement will tell the trustee when distributions will be made. It could either be an outright distribution, a staggered payment, or discretionary on the part of the trustee. When a distribution is purely discretionary, the beneficiary cannot compel the trustee (even by court action) to make the distribution.

Outright distributions are given to the beneficiary upon the happening of an event or the arrival of a period, for example, the death of the grantor or when the beneficiary turns 25 years old. This is usually a one-time lump-sum payment, given to the beneficiary by means of a check.
Staggered distributions are payments made to the beneficiaries on a periodic basis. For example, the trust agreement can state that a beneficiary is entitled to the monthly income of the trust assets. Sometimes, the trust agreement will state that the beneficiary will receive a certain amount each month to be taken from the income, and if income is insufficient, to be taken from the principal.
Discretionary distributions are payments made to the beneficiary depending on the trustee’s discretion. These types of discretionary distributions could either be absolute or subject to a standard.

Usually, discretionary distributions subject to a standard are those distributions to be made for the beneficiary’s health, education, maintenance, and support. These distributions are subject to interpretation, and the correct interpretation can be decided by the court. For example, if the trust agreement allowed a distribution for purposes of education and the trustee refused to pay for a beneficiary’s room and board expenses between college semesters because the beneficiary was not actively in school at that time, the beneficiary may file a lawsuit in court to request for an interpretation that education includes support between college semesters.

A trustee, however, cannot be compelled to make a purely discretionary distribution, not subject to any standard, by court order. A sample provision would state, “[t]he Trustee shall have the absolute discretion, at any time and from time to time, to make payments or distributions to or among the beneficiaries.”

Right to an accounting

One of the main rights a beneficiary tries to enforce through court is the right to an accounting. When the trustee doesn’t provide an accounting to the beneficiaries, the beneficiaries can compel the trustee to make a judicial settlement of account. This accounting is a detailed report of all the income and expenses of the trust. Once the trustee submits the accounting, the beneficiaries are given the opportunity to object to certain items in the accounting. If the beneficiaries do not object to the judicially settled accounting, they are bound by it and cannot question it at a later date. Matter of Hunter, 4 N.Y.3d 260, 269 (2005).

Oftentimes, the trustee will submit an informal accounting, and if all the beneficiaries agree to the accounting, they beneficiaries can execute waivers and releases, which would release the trustee from liability (for as long as full disclosure is made to the beneficiaries).

Right to remove the trustee in certain limited circumstances

Usually, together with the petition to compel the trustee to submit an accounting is a petition to remove the trustee. When you suspect the trustee of misconduct, you can consult with a trust lawyer on whether you have enough basis to remove a trustee. In New York, under EPTL § 7-2.6, the Supreme Court has the power to suspend or remove a trustee who:

has violated or threatens to violate his trust
is insolvent or whose insolvency is imminent
is apprehended (arrested)
is unsuitable to execute the trust

SCPA § 711 also provides additional grounds for suspending or removing a fiduciary (which includes a trustee):

ineligible or disqualified
improper or wasteful application of trust assets
failure to obey a court order
misrepresentation of a material fact in the application for the grant of letters
when the trust agreement provides for the trustee’s removal upon the happening of an event
substance abuse, dishonesty, want of understanding, improvidence, unfit for office
failure to account within the time and manner directed by court order

Right to end the trust in certain limited circumstances

In New York, EPTL § 7-1.9(a) allows the revocation of an irrevocable trust when the grantor and all the beneficiaries agree. The beneficiaries need to execute a written consent, revoking the irrevocable trust, which document must be acknowledged before a notary. This provision cannot be used when one of the beneficiaries is a minor, because minors are not capable of granting consent.

Most New York trusts, however, authorize the trustee to “decant” the trust and pour it over another new trust with more favorable terms. It also includes a lifetime power of appointment, giving the grantor or his agent (through a durable power of attorney), the power to remove or add additional principal beneficiaries during the grantor’s lifetime, without destroying the irrevocable character of the trust. This is usually used in Medicaid Asset Protection Trusts.

Trust beneficiary rights can be enforced by court order if your trustee refuses to respect these rights. You will need a reliable and experienced trusts attorney who can help you compel the trustee to account, remove the trustee, or modify or revoke an irrevocable trust. Should you need assistance, we at the Law Offices of Albert Goodwin are here for you. We have offices in New York City, Brooklyn, NY and Queens, NY. You can call us at 212-233-1233 or send us an email at [email protected].