A trust beneficiary is the person who benefits from a trust, usually by receiving the trust income or assets. It’s common for parents or grandparents to open up a trust for their children or grandchildren — as beneficiaries of the trust — to leave them an inheritance or provide for them a steady stream of money like a trust fund. Trusts can provide a lot of flexibility, which makes them a useful part of estate planning.
In addition to receiving trust property, beneficiaries of a trust have certain rights they can exercise under state law, it’s important to know what they are when it’s time for the assets to be distributed.
Who is the trust beneficiary?
The beneficiary of a trust is chosen by the person who creates the trust (grantor or settlor) and they can be a family member, loved one, or organization like a charity. The beneficiary is designated in the trust document, which establishes the trust’s existence and outlines how it operates. You can even set up a trust for a minor child as the beneficiary and say what age you want them to be able to use the assets.
While they’re alive, the grantor can also be a beneficiary of their trust so long as the trust is revocable. A beneficiary of an irrevocable trust should be someone other than the grantor; people often open an irrevocable trust to get certain advantages (like paying less taxes or protecting their assets from creditors), and naming yourself as beneficiary will make it difficult, or even impossible, to receive those benefits.
You can read more about what a trust grantor should or shouldn’t do.
How do you receive trust funds or assets?
A beneficiary of a trust only inherits trust property only when the conditions set by the grantor have been satisfied. There are two common ways that trust asset are distributed:
The beneficiary receives assets after the grantor dies.
The beneficiary begins receiving assets during the grantor’s lifetime.
The first method is a common and straightforward way to give someone an inheritance. Once the grantor passes away, the trustee will distribute assets to the beneficiary, who can receive them outside of the probate process. (The exception is inheriting from a testamentary trust, created through a will, because the assets are still subject to probate before they enter the trust.)
A beneficiary can also receive assets while the grantor is alive. More complex trusts, which are typically irrevocable, may be intended to last for the beneficiary’s whole life time, and these trusts can be structured to generate income to provide for beneficiaries over many generations.
Learn more about the distribution of trust assets to beneficiaries.
How to find out if you’re a beneficiary of a trust
Unlike wills, trusts are not public record, so the person who created the trust isn’t usually obligated while they’re alive to disclose the details to anyone — including their beneficiary, (unless the beneficiary is actively receiving assets). They can though, and sometimes it can be helpful to inform your beneficiary so they know what to expect in the future.
After the grantor has died, the trustee must typically notify beneficiaries of a trust, usually within a certain period of time. The beneficiary may receive notice from the trustee via mail or in person, and they can request to see a copy of the trust document if they’re about to inherit trust assets. (Contingent beneficiaries may not be able to see the agreement yet, but it depends on your state’s law.)
What are a trust beneficiary’s rights?
As a beneficiary of a trust, you have a legal right to the following information. If you aren’t receiving it you can contact the local court or talk to an estate lawyer for more legal advice on what to do next.
Information
Trust beneficiaries are entitled to basic details about who created the trust and when, and where it was set up, as well as information about the trustee, like their name and address or a way to contact them. They should also be notified if the trustee changes.
Learn more about the difference between a trustee and beneficiary.
Trust accounting
A beneficiary should typically receive annual accountings of the trust’s activities and transactions (like when the trustee withdraws money from the trust) and if they haven’t they can ask the trustee for it or petition the court for the information. Accounting reports can provide insight into how the trustee is managing the trust property.
Asking the court to remove the trustee
If you believe you the trustee is neglecting their fiduciary duty to the trust, you can petition the court for their removal. To start this process you must typically file a petition with court in the county where the trust was set up. Trust beneficiaries can also recommend someone else that they feel would be a better fit as trustee.
Related article: Can a trustee remove a beneficiary from a trust?
Taking legal action against the trustee
In addition to having the trustee removed, beneficiaries can also sue the trustee and seek damages for any losses, like if the trustee stole from the trust or misused the funds.
See also: Can a trustee sell trust property?
End the trust
Trust laws in your state may allow the beneficiary of a trust to ask the court to be closed under certain circumstances, like when the trust no longer serves a purpose or if it’s cost-prohibitive to keep open.
Learn more about how to dissolve a trust.
