Beneficiary Rights of a Trust

Trusts are settled when all expenses, taxes, debts and obligations of the trust are paid and the assets in the trust are distributed by the trustee to the beneficiaries. This distribution is made according to the instructions given by the grantor of the trust, regarding what to do in the event of the grantor's death, for example.

If you are a trust beneficiary you should wait to be contacted by the successor trustee, who is responsible for executing the grantor's instructions. How the property will be distributed also depends on whether the assets have to go through probate. Probate is a court-administered process for paying the debts and obligations and then distributing the property with a clear transfer of title. In many cases the assets in a living trust do not have to go through probate.

If you are a family member, you may know the trustee and can keep yourself informed on the status of the distribution of trust assets. You could also consult with your attorney if you have any questions about the status and process of distribution.

Beneficiaries under the age of majority
Minor children who are beneficiaries of a trust will normally require a guardian to watch over their financial interests. Financial institutions will not pay benefits directly to minors or give them access to investment accounts. State laws generally require that a guardianship be appointed to oversee the personal affairs of minors until they reach the age of majority, typically age 18.

According to attorney Patricia Leong, you can only name a guardian for your children in a legal will. If you do not name one, and the other parent is not living, a court will appoint the guardian. You can name two guardians for your child: guardian of the person, who is to have physical custody of your child, and guardian of the estate, who will be investing and managing the money you leave for your child. You can name the same person for both or two different people.

You could also set up the trust so that funds for your minor children continue to be held in the trust. The funds would continue to be managed by the trustee until the minor reaches legal age or any other age you specify. The funds can also be specifically earmarked for certain expenses, such as education, with the balance turned over to the child after college graduation.

Leong mentions how intimidating it can be for a 21 year old to receive large sums of money in an inheritance. She points out that it may be wise to give the money in steps, allowing your child to learn from the experience of handling money and gaining additional maturity before the next disbursement of funds is made.

When you are the trustee
When you are named as the trustee, your responsibilities in settling a trust basically include making sure all creditors are paid, tax returns are filed and taxes are paid. You then contact the beneficiaries and set up asset transfers as instructed by the grantor of the trust.

As a trustee, you are expected to manage the trust responsibly with an eye toward preserving and growing its assets. Any decisions you make must be in the trust's best interests, not your own. While you typically won't be held liable for losses caused by a lack of understanding, you can be liable for acts of negligence or for decisions made by the advisors you choose.

You will need to manage relationships with the beneficiaries of the trust, acting in their best interests and following the trust grantor's instructions. You have to balance the beneficiaries' desire to receive their distributions as soon as possible with your responsibility to ensure that all trust expenses, debts and obligations are paid.

To maintain good relationships, one of your first priorities is to set up a schedule for settling the trust and a budget for administrative costs. You should communicate these to the beneficiaries as soon as possible. You must also provide an account of the assets in the trust in the format prescribed by local laws.

As trustee, you must identify and collect all the assets the grantor owned at the time of death. Some may be readily apparent and others may not be. You can use the documentation the grantor provided, such as financial statements. You can also look at past income tax returns for indications of real estate and investment properties.

Your obligation is to exercise reasonable care and diligence in identifying all trust assets and obtaining titles. Once all the assets are identified, you are responsible for taking the necessary steps to protect them.

As the trustee, you should normally retain a trust attorney for expert advice on how to administer the trust. You may also need the help of other specialized professionals. A CPA can help manage tax aspects and prepare tax returns. An investment manager can give advice or handle the investment decisions regarding funds in the trust. Expert appraisers may be needed to determine the fair market value of real estate, antiques, collectibles and artwork for the estate tax return.

The fees charged by the professionals who assist you are legitimate trust expenses that are paid from the assets in the trust prior to distribution. If you are a direct beneficiary of the trust, you may want to hire these professionals after talking to the other beneficiaries so that there is no appearance of a conflict of interests. If you are not a direct beneficiary, the trust may provide you with compensation for your services and time.