Complex family dynamics can quickly complicate estate planning. If there is conflict between a trustee and beneficiary, the trustee may attempt to remove the beneficiary from the trust.
There are several key people involved in the creation and management of an estate plan. The grantor is the person whose trust it is and the beneficiaries are the persons or organizations who will receive the assets or property in the trust once the grantor dies.
The trustee is the person that holds and administers assets or property on behalf of the grantor. A trustee is trusted to make decisions in the best interests of the beneficiaries and will generally have a fiduciary responsibility to the beneficiaries.
To serve as a trustee, a person must meet certain qualifications. The trustee must be at least 18 years old and not likely to become mentally incompetent or go bankrupt. If the trust is a revocable living trust, grantors themselves can be trustees.
However, if the trust is an irrevocable trust, the grantor must choose another individual to be the trustee. It is also common for a beneficiary to serve as a trustee or be named as a successor trustee following the death of a grantor who serves as his or her own trustee. In some cases, a grantor may name a lawyer or firm as a trustee.
Responsibilities of a Trustee
Trusts allow individuals the chance to ensure the financial health of their loved ones after they are gone. When set up and managed properly, a trust can protect property and assets from creditors and give grantors more control over who ends up with their property. When a person agrees to become a trustee, they also agree to take on certain responsibilities.
Some duties of a trustee include the following:
- Fiduciary Role – A trustee has a fiduciary responsibility with respect to the beneficiaries named in the trust, as well as any remaindermen named to receive assets upon the death of the current beneficiaries. Fiduciaries must pay close attention to all investments and disbursements from the trust to ensure that all property and assets fall into the right hands.
- Investments – A trustee must avoid risky investments and take into account the interests of the beneficiaries before making decisions.
- Distributions – Before agreeing to make a distribution to a beneficiary, a trustee must first evaluate the current and future needs of the beneficiary, as well as their sources of income and other responsibilities. In this role, a trustee has the right to say “no” to a distribution or can set limits on the use of trust funds.
- Accounting – Trustees also have important accounting duties. They must keep track of all income, distributions and expenditures, or provide this information to an accountant to do so on their behalf. A trustee will also have to file an annual tax return and possibly pay taxes.
Rights of a Trust Beneficiary
It is a common misconception that beneficiaries are virtually powerless in their position and must wait to see what the trustee distributes to them. Beneficiaries are entitled to certain rights when named on a trust. The rights of a beneficiary will depend on a number of factors, such as the type of trust, provisions of the trust, and state laws.
If the trust is a revocable trust, then the person who set up the trust can revoke it at any time. This means that the beneficiaries have few (if any) rights. In addition to changing the provisions of the trust at any time, the grantor can change the beneficiaries at any time and there is generally nothing that can be done. A revocable trust typically remains revocable until the grantor dies and it then becomes irrevocable.
Beneficiaries have more rights with an irrevocable trust as it cannot be changed except in rare cases with a court order. With an irrevocable trust, beneficiaries have rights to certain information about the trust which can be used to ensure that the trustee is acting responsibly. Provisions in the trust may outline which beneficiaries are entitled to information regarding trust activities and under what circumstances this information can be given.
Removing a Trust Beneficiary
In the majority of cases, a trustee does not have the legal authority to remove a beneficiary from a trust. However, if the grantor gives the trustee a power of appointment, then the trustee may have the discretion to make certain changes to the terms of the trust.
A power of appointment is generally only given to a surviving spouse who created the trust together with his or her partner. When one of the spouses passes away, a power of appointment is given to the other spouse. This allows the surviving spouse to make any necessary changes to the trust for their own benefit and the benefit of any heirs.
Call an Estate Planning Attorney
It is not always clear whether or not a trustee has the authority to remove a beneficiary from a trust. If the grantor of the trust has already passed away, it can become even more challenging. If you are struggling with a situation involving the attempted removal of a beneficiary from a trust, speak to an experienced estate attorney at JacksonWhite Law to determine your rights.
Call our Arizona Estate Planning team at (480)467-4325 to discuss your case today.
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