In a previous article, we explained how children or other beneficiaries of an estate planning client have limited rights to obtain information or be involved in the estate planning process when the client is still alive and not incapacitated. (See “Sorry, Kids, We Can’t Talk to You!”)
However, when a client passes away or becomes incapacitated, the children or other beneficiaries DO then acquire certain rights which they should be aware of and may wish to exercise. In this article, we will discuss the 5 Key Beneficiary Rights.
Before we do, please keep in mind the following. First, when we refer to the “Trustee” we will mean the person appointed by the client to be in charge of his or her Living Trust, as well as the person named under his or her Will and Power of Attorney. They are usually the same person. Second, a beneficiary’s rights are determined not only by the terms of the Trust and other related documents, but by state laws. This can at times become a bit confusing, since the states whose laws may apply can include the state where property is located, where the Trustee resides and/or where the beneficiary resides. The good news is, most state laws recognize the 5 Key Beneficiary Rights we’ll now address.
BENEFICIARY RIGHT #1:
Right to Certain Estate Information
For example, beneficiaries have the right to:
Notice when the Trustee changes, including who is now in charge and how to contact them (this right may also occur during the client’s lifetime if he or she is not incapacitated but merely resigns as initial Trustee).
- A copy of the Trust and other associated legal documents (such as Will, Power of Attorney, Marital Property Agreement). You may then ascertain the nature of your interest, if any, in the estate.
- A list or “inventory” of assets and their values, at the time the client passed away or became incapacitated and sometimes again at the time assets are distributed to the beneficiaries.
- Notice of any Court filings (such as a request to interpret the estate plan or approve a proposed Trustee action).
A beneficiary may not, however, have access to the entire attorney file (including attorney notes and communications with the client) unless the beneficiary is also serving as the Trustee. Otherwise, if the Trustee does not voluntary release file information, a beneficiary may have to seek a Court Order to compel the Trustee to do so.
BENEFICIARY RIGHT #2:
Such accountings typically include a listing of income or assets received and expenses paid, plus any distributions paid out to any beneficiaries. When this must be done and its format depends on both the terms of the Trust and state law. In most cases, it’s required once per calendar year. However, note that these accountings after often waived by beneficiaries if they trust the person in charge and want to avoid the additional cost of accountings being paid from the estate and thereby reducing their inheritance.
If a beneficiary spots issues in an accounting, it may be challenged directly with the Trustee or, if necessary, brought to the Court to resolve.
BENEFICIARY RIGHT #3:
The amount and timing of distributions are mainly determined by the terms of the Trust. Some distributions may be mandatory while others may be discretionary or in the judgment of the Trustee.
If a beneficiary is a permitted recipient of discretionary distributions, he or she may request a distribution by providing the Trustee with the justification or need, along with any appropriate backup information.
If an issue arises regarding the timing or amount of mandatory or discretionary distributions, if it can't be worked out with the Trustee, the beneficiary may bring a Court action to resolve it.
BENEFICIARY RIGHT #4:
To Be Treated Impartially
When the Trustee makes distributions or loans to a beneficiary, or allows a beneficiary to use or reside on trust property, the Trustee has a duty of fairness and impartiality. The Trustee cannot treat one beneficiary better or differently than another unless the Trust terms so dictate.
A common example may occur when there are multiple beneficiaries who are each entitled to some percentage or dollar amount of the estate. Every estate asset may not be divided on a prorata basis. One beneficiary may get more real estate, stocks or cash so long as another gets his or her proper percentage or share in value of the estate. Usually the Trustee will propose such “nonprorata” distributions before they are made so a beneficiary can have an opportunity to object and, hopefully, things can be amicably worked out with the Trustee. Again, if there are any issues which arise, a beneficiary can take the matter to Court to resolve them.
Which leads us to the last Key Beneficiary Right…
BENEFICIARY RIGHT #5:
The Right to Your Own, Independent Legal Counsel
Beneficiaries often assume that the attorney hired to assist with the estate administration represents both the Trustee and the beneficiaries. That is usually NOT the case and the attorney represents only the Trustee.
If there are any issues that arise between the Trustee and beneficiaries, a beneficiary is entitled to retain his or her own, independent legal counsel. Examples of where independent legal counsel representation may be warranted include:
- A challenge to certain actions of the Trustee (such as sale of a property or business)
- Removal and/or replacement of the Trustee (for a variety of reasons, such as breach of his or her fiduciary duties or the violation of the above rights of beneficiaries)
- Interpretation or modification of the Trust’s terms
- A Trustee conflict of interest (such as the Trustee unduly benefiting from certain actions)
- Misuse or mismanagement of funds by the Trustee.
This notion of having to hire independent counsel may become frustrating or even infuriating for beneficiaries when a parent-client of the estate planning attorney dies or becomes incapacitated. Understand that the estate planning attorney has legal duties to the client which continue even after he or she passes away or is incapacitated. The attorney then owes these duties to the client’s legal representatives (the Trustee or Power of Attorney holder who now steps into the shoes of the client). The attorney is duty bound to protect the client’s confidentiality (including most of the attorney file) and to avoid a conflict of interest (by representing both the Trustee and the beneficiaries).
For example, if our firm has written the estate plan, we only will represent a beneficiary if he or she is the Trustee and the only beneficiary of the estate. In all other cases, we may make some limited disclosures to beneficiaries or have limited communications with them, providing the Trustee so permits. If issues are anticipated or arise, we will typically advise the beneficiaries to seek their own independent legal counsel and recommend that their attorney contact us directly. It is important to note that we do this not only because of duties imposed on us by our State Bar Ethics Rules, but also because if a dispute should arise where we may be called to testify as a witness, we can do so independently rather than be seen as favoring one beneficiary over another. Also, we may and often do represent individual beneficiaries with their own estate planning once an estate is distributed and settled.
Please know that, based on our law firm’s experience in handling over 4,000 trusts and estates after clients have passed away or become incapacitated, only a very small number of cases have resulted in conflicts that require Court involvement. Most times, when a beneficiary is represented by their own legal counsel, things are worked out amicably with the Trustee and his or her attorney. Conflict between the Trustee, the beneficiaries, and their respective lawyers, which winds up in Court, only results in headaches, aggravation, delays, and expenses which effectively reduce everyone’s inheritance!
Some Last Words of Caution
This has been a quick, general summary of a beneficiary’s key rights. If you, as a beneficiary, wish to properly pursue your rights, you should not do this on your own and should seek properly qualified legal counsel.
Hopefully, by having explained your rights, this article will help you reduce any unnecessary anxiety and attorney costs when you become a beneficiary!