In an estate plan, the beneficiary receives trust property and a trustee has a fiduciary duty to maintain the trust and its assets. Both the beneficiary and trustee are central components of a trust and the grantor (the trust creator, also known as settlor or trustor) appoints each of them in their trust document. The trustee has the power to make management decisions regarding the trust, but the beneficiaries do not wield such power. However, the law gives beneficiaries certain rights, like requesting a trust accounting and receiving assets from the trustee in a timely manner. If the beneficiary's rights have been violated, they can petition the court to remove the trustee.
Trusts are a useful way to pass to beneficiaries since trust property can avoid probate. (By comparison, if you use a will to distribute property, an executor must submit the will to a probate court to prove its validity.) Other types of trusts, like an asset protection trust or spendthrift trust, have additional advantages that can help to build a strong estate plan.
Duties and rights of the beneficiary
The trust beneficiary is the person or entity that benefits from the trust by receiving trust property or income. When the primary beneficiary is deceased or unable to inherit, then a contingent beneficiary may receive in their place. When beneficiaries receive trust funds, they may need to pay income tax (and in some cases an inheritance tax). If you’re a trust beneficiary, talk with an estate planning attorney or tax advisor for more information.
The trust beneficiary is entitled to the following rights:
Receive timely payment from the trust
Request a trust accounting
Get basic information about a trust
Petition the court for trustee removal
Petition the court to dissolve a trust (which may only happen in limited circumstances with the consent of all beneficiaries.)
Learn how to set up a trust.
Duties and rights of the trustee
The trustee responsibilities are manifold and they are typically entitled to compensation. In addition to distributing trust assets to beneficiaries, they must maintain the assets, file and pay necessary trust taxes, and record the trust's activities. Sometimes trustees have additional powers, like investing trust funds and selling trust property, which the can grantor outline in the trust agreement.
Related article: Can a trustee remove a beneficiary from a trust?
With a revocable trust, the grantor often acts as trustee. You can amend a revocable trust at any time. With an irrevocable trust, which typically can’t be revoked, the grantor chooses someone else to fulfill the trustee’s role.
Can a trustee also be a beneficiary?
The trustee and beneficiary can be the same person. It's not uncommon for a grantor to open a family trust for the benefit of the children and appoint one of them to act as trustee or successor trustee. While it may be helpful or convenient having a trustee beneficiary, keep in mind that there may be a potential conflict of interest, since the trustee has a beneficial interest in the assets they manage.
A trustee who is also a beneficiary should take care not to prioritize their own stake in an inheritance over the interests of other beneficiaries (like their siblings, for example), who can take them to court for breach out contract as previously mentioned. Even if the beneficiaries don’t petition for the removal of the trustee beneficiary, they may still have disagreements that lead to family strife.
Here’s another example. With a more complex family trust, the grantor could appoint remainder beneficiaries who receive trust assets only if they have not been exhausted by the current primary beneficiary who receives funds throughout their lifetime. If the remainder beneficiary is also the trustee, they should not restrict what the current beneficiary receives to increase their own inheritance.
