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Who Has More Rights: a Trustee or a Beneficiary?

who has more right a trustee or a beneficiary

If you are a trustee or beneficiary under a trust agreement, you might be curious as to what rights you may have under this legal arrangement. What is your role as a trustee or beneficiary of a trust? And what are your corresponding responsibilities? Specifically, you may want to know who has more rights, a trustee or a beneficiary.

In order to fully understand the extent of your rights under New York law, it is important to first understand what a trust is.

What is a trust?

In a trust agreement, a “trustor” or “grantor” appoints a person called a trustee to handle or manage certain assets and property for the benefit of a third party called the beneficiary. The trustee holds legal title to the said assets on behalf of the beneficiary who, on the other hand, is entitled to enforce certain rights under the trust. But as to who has more rights between a trustee or beneficiary, this will depend a lot on the trust instrument itself. You will learn more about this below.

Why was this trust established?

There are many reasons behind wanting to establish a trust. For example, a father who wants to transfer property to his child might be worried that the latter may be too young to properly manage it. Instead of directly transferring the property, the parent might want to appoint a trustee who would oversee its management until the said child comes of age.

Other common reasons for establishing trust involves the minimization of tax liabilities and for asset protection purposes. A trust is a flexible legal tool that may be formulated and designed to suit your specific estate planning needs. Each trust is different based on why and how it’s set up. Therefore, rights of a trustee and beneficiary are different depending on each trust.

Rights of a trustee

As a trustee, you have certain rights and powers over the trust. In general, they are as follows:

  1. Legal title. As the trustee, you have legal title to the assets that you hold on behalf of the beneficiary. This means that you may have the power to enforce certain legal rights over the trust assets.
  2. Right to manage and invest. As part of your fiduciary duties, it is also up to you on how to manage and invest the assets to promote and achieve the trust’s purpose. However, with this right comes the corresponding obligation of making prudent investment decisions as required under New York law.
  3. Discretionary powers. You may also have certain discretionary powers that you could exercise based on your sound judgment. New York law, for example, empowers an independent trustee to adjust the rate of income distribution to the beneficiary subject to certain conditions and limitations. The trust instrument itself might also expressly grant you other similar discretionary powers.
  4. Power to delegate. Depending on the provisions of the trust, a trustee might also be empowered to delegate tasks and duties to another party or person. For instance, the trustee might want to hire a certified public accountant or an estate lawyer to help manage and oversee the overall business of the trust.

Note, however, that all of the abovementioned rights and powers must be understood in the context of the fiduciary duty of a trustee. Whatever rights and powers you have cannot be exercised in such a way that would disadvantage or prejudice the trust or its beneficiaries. Thus, a trustee does not necessarily have more rights than the beneficiary just because the trust provides him with several rights and powers.

Rights of a beneficiary

If you are a beneficiary of a trust, you might think that you have little to no power over the trust. That is not completely true. A beneficiary has more rights than you think. While indeed, it is the trustee who has legal title and the right to manage the trust assets, the fact remains that you are still the beneficiary for whom the trust has been set up for.

The following are the common rights of a beneficiary under a trust arrangement:

  1. Entitlement to fiduciary care. The trustee owes you a fiduciary duty in general. This means that the trustee is required to always act in your best interest and to exercise a high degree of care in managing the trust. Hence, the trustee is prohibited by law from promoting his/her own interest over that of the trust such as through “self-dealing.”
  2. Right to information. As beneficiary, you have the right to know about the trust itself and its terms and conditions. Moreover, even though you may not have the right to manage the trust, you are still entitled to know matters relating to its administration.
  3. Right to an accounting. Trustees may be required to provide an accounting of the trust which includes a detailed report on all the financial affairs of the trust including its income, expenses, and distributions. The frequency of the accounting may depend on the provisions of the trust.
  4. Removal or suspension a trustee. New York law also allows you to petition the suspension or removal of a trustee who violates the terms of the trust or who is found to be unfit to serve the role of a trustee.
  5. Right to income payment and distribution. You may also be entitled to some income payments from the trust. The amount and frequency of the distribution, however, may vary depending on the trust instrument.

As you might observe, the determination of who has more rights between a trustee and a beneficiary would largely depend on the trust itself. Some trust agreements provide the trustee with a large amount of discretion over the trust. Other times, the trust provisions leave the trustee with very little power as to favor the beneficiary in terms of rights.

How a New York trust lawyer can help protect your rights

Whether you are a trustee or a beneficiary, always remember the importance of hiring an experienced New York estate and trust attorney who can assist and guide you in protecting your rights under the trust. Having a lawyer ensures that you are properly guided in every legal step you take. If you are looking for a qualified and experienced New York trust lawyer, you can call the Law Offices of Albert Goodwin at (212) 233-1233.

Sources:

https://www.lexisnexis.com/lexis-practical-guidance/the-journal/b/pa/posts/personal-trusts-under-new-york-law

https://www.nysenate.gov/legislation/laws/EPT/A7

https://nysba.org/NYSBA/Meetings%20Department/Section%20Meetings/Trusts%20and%20Estates/TRUSSP19Materials/Panel%202%20Minimizing%20Trustee%20Risk.pdf