Your Rights as the Beneficiary of a Trust

If you are the beneficiary of a trust, you have very important rights. Courts have said that trustees owe you “the punctilio of an honor.” If a trustee breaches his duties, you may be able to file suit against the trustee and gain very important remedies in court. This is the first in a series of three posts. In this post, I’ll discuss what rights you have as a trust beneficiary, and what you can do if anyone violates your rights. In my next post, I’ll talk about your rights if someone has left you property in a will. In the following post, I’ll describe your rights to inherit under the law of intestate succession.

Many clients, who are the beneficiaries of a trust, have come to me for advice. Some of my clients believe that the trustees, or other family members, have treated them unfairly, and ask what they can do about it. You may be wondering: If the trustee doesn’t give me the money I’m entitled to, can I do something? The answer is yes.

First, I’ll define what a trust is. Very few of my clients know what a trust is, but the definition is very simple: A trust is a legal entity where one person controls property for the benefit of another. The person who creates the trust is the “settlor.” The person who controls the property is the “trustee.” The person for whose benefit the property is controlled is the “beneficiary.”

As you can see, the definition of a trust is very simple. When I ask many of my clients what they think a trust is, they often think it’s complicated. It’s not. For example, if you give your wife money, and ask her to go to the store and buy something for your child, you’ve created a trust. You are the settlor, your wife is the trustee, and your child is the beneficiary.

Sometimes the same person can be the settlor, the trustee, and the beneficiary (or two of the three). For example, the settlor of a trust can declare that during his lifetime he is both trustee and beneficiary, and then after he dies, his children will be the trustees and the beneficiaries. (People often use this type of trust to prevent their assets from going through probate.) Or the settlor can name himself trustee, and name someone else beneficiary. Or the settlor may believe that his property is too complex for him to manage, so he names someone else the trustee, and names himself the beneficiary.

The settlor, the trustee, and the beneficiary don’t even have to be human. Many times, a bank or other corporation will act as a trustee. Sometimes, people will set up trusts where a charity is the beneficiary; people even set up trusts where the beneficiary is an animal.

If you’re the beneficiary, what duties does a trustee have to you?

A trustee may not use his position, or his control over your property, for any personal gain. A trustee is a “fiduciary.” A fiduciary owes a special duty of loyalty to a beneficiary. The late Supreme Court justice, Benjamin Cardozo, explained a trustee’s duties this way:

“Many forms of conduct permissible in a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the "disintegrating erosion" of particular exceptions. Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd. It will not consciously be lowered by any judgment of this court.”

If the trust specifies that the trustee must distribute property to you, the trustee must give you this property. Some trusts provide that a trustee must be paid for his services; however, the trustee may not take any more than he is allowed.

What if a trustee mismanages the trust? What if I don’t get what I’m entitled?

If a trustee does not properly manage the trust, or uses his control over the property for personal gain, or does not distribute property that you are owed, you can file suit for breach of trust. If you file suit for breach of trust, the court may:

1.    Order the trustee to perform his duties

2.    Order the trustee not to commit a breach of trust

3.    If the trustee’s actions have caused you to lose money, the court may order the trustee to remedy the loss by paying you

4.    Order the trustee to give you an accounting of all of the trustee’s actions

5.    Suspend the trustee from his position as trustee

6.    Remove the trustee from his position as trustee

7.    Appoint a receiver or temporary trustee

8.    Reduce or deny any compensation or payment to which the trustee is entitled

9.    Void a trustee’s action

10. Place a lien on trust property

11. If trust property has been wrongfully disposed of, a court may trace the trust property and recover the trust property

12. “Grant any other appropriate remedy.”

To read the law on what a court can do in a breach of trust suit, click here.

Should you file a breach of trust suit?

Elsewhere on this site, I have counseled readers to avoid filing lawsuits, and settle matters out of court, whenever possible. If you are a beneficiary of a trust, and you believe that the trustee has breached his duties, you may be able to talk with the trustee and get the situation resolved. If you retain an attorney, the attorney may be able to try to negotiate a settlement, and help you with some of the difficult legal details.

Do you need help with a trust issue? Contact the Persaud Law Office.

At the Persaud Law Office, we’ve helped many people with trust issues. We have counseled clients who believe that they may have been victims of breaches of trust. If you believe that someone has breached a trust of which you are the beneficiary, contact us today.