So You Are a Trust Beneficiary

If you recently learned that you are a beneficiary of a deceased relative’s trust, we help answer your questions about what to expect.

Presented by: Kris Maksimovich, AIF®, CRPC®, CPFA®, CRC®

If you recently learned that you are a beneficiary of a deceased relative’s trust, you probably have questions about your rights and what to expect. The key is the trust document (i.e., the instructions left by the trust creator, called the grantor) and how state law interprets that document.

Some trusts are designed to be liquidated shortly after the grantor’s death. The trust assets are then transferred to the beneficiary outright or to accounts set up in the beneficiary’s name. Other trusts are designed to be managed by a trustee for decades—even centuries. The trust document will tell you if and when you may receive distributions of net income from the trust and when principal can be paid to you.

What is the role of a trustee?

With an estate plan, the trustee administers the trust, manages the assets, and distributes income or principal according to the terms of the trust. The trustee must always act in the best interests of both current and future beneficiaries. Unless given other instructions in the trust document, the trustee must preserve, protect, and invest the trust assets for the benefit of all beneficiaries and not favor the interests of one beneficiary over the interests of others.

Trustee discretion

Often, the trustee is given discretion over how, when, and to whom income and principal can be distributed.

Some trusts give the trustee complete discretion over distributions if the distributions are in line with the purpose of the trust.
Other trust instructions may limit distributions to a certain standard, such as for the beneficiaries’ health, education, and appropriate levels of support.
Another version might instruct the trustee to consider the beneficiaries’ other resources before making distributions. This would allow the trustee to distribute more to beneficiaries with the most need and less to those who have other sources of income.
Other documents allow the trustee to pay income only to one set of beneficiaries, preserving the trust principal for another set of beneficiaries at a later date.

If you are a beneficiary of a discretionary trust, you can help the trustee by providing your budget and financial plan. If you request a distribution for an extraordinary expense, be sure to help the trustee understand the circumstances and costs.

Working with the trustee

In most states, beneficiaries of irrevocable trusts are required to receive a copy of the trust and annual accounting statements. In most states, the trustee can delegate the investment responsibilities to a professional. You can ask the trustee to review the trust’s investment strategy with your own financial advisor.

Unless you are the sole beneficiary, the trustee cannot dedicate all the assets toward creating income for you. The trustee has an obligation to manage the principal with the future needs of the remainder beneficiaries in mind. Remainder beneficiaries are those whose rights to the trust begin after your interests end.

If you are unhappy working with a particular trustee, look to the trust documents for procedures on how to remove and appoint a trustee. You may be able to ask the trustee to resign and then to appoint a new one. But before removing a trustee, be sure to show the trust document to the prospective successor. It is possible that the source of your complaint cannot be resolved by changing the trustee.

As a general rule, the trust is irrevocable and cannot be changed by the beneficiary. If the trust instructions are difficult or impossible to carry out—or are written in a way counter to the grantor’s intention—it is possible to ask the probate court to intercede. A court will interpret the terms of the trust or has the power to change the trust so that its application is fair and just. Typically, the court will seek the consent of all the beneficiaries before ruling on or making any changes.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

Kris Maksimovich is a financial advisor located at Global Wealth Advisors 4400 State Hwy 121, Ste. 200, Lewisville, TX 75056. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network^®, Member FINRA/SIPC, a Registered Investment Adviser. Financial planning services offered through Global Wealth Advisors are separate and unrelated to Commonwealth. He can be reached at (972) 930-1238 or at info@gwadvisors.net.