RETIREMENT TIPS: Your Rights as Beneficiary of a Trust

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By ALAN KONDO, CFP, CLU

If you have been named as a beneficiary of a trust, you probably have many questions about what comes next. Trust beneficiaries are usually entitled to income from the trust. The trustee who is in charge of the trust is responsible to make sure that assets from the trust are invested well and productively. The following are some of your rights.

● The right to an accounting of investments: Trustees typically decide how the principal of the trust will be used As a result, the law requires that trustees act prudently with investments, diversifying so that all the assets of the trust are not in one place, which would put them at risk and could limit returns.

Under the Prudent Investor Rule, the trustee must avoid speculative and risky investments, like second mortgages and new business ventures, and keep in mind the following factors:

● The needs of the beneficiaries

● The need to preserve the estate

● The amount and regularity of income

If you have questions or concerns about the trustee’s decisions for the investments, you have the right to request an accounting of investments. This accounting report will detail every investment and its gains and losses.

● The right to receive annual trust reports: Trust reports contain information that includes the income that was produced by the trust and expenses and commissions paid out. Traditionally, these reports should be mailed out annually.

● The right to request a new trustee: If a trustee is being difficult, uncooperative, or refusing to do the job, you can request a new trustee. This requires a legal filing and a ruling by the court. If the reason for the request is because of large losses of principal, the trustee will also be required to repay the trust.

● The right to sue the trustee: The trustee can be held liable for loss of trust assets and for income that that was lost because of the wrongful conduct by the trustee. The trustee has a fiduciary duty to manage the trust with due care and caution and must be loyal and impartial to the beneficiaries.

● The right to terminate the trust: If all the beneficiaries on a trust are “adults of sound mind,” the trust can be terminated if the court determines that the intent of the creator of the trust has either already been accomplished or cannot be accomplished for reasons such as impossibility. All the trust beneficiaries must agree, including those beneficiaries of the trust that are entitled to the remainder of the trust assets after the trust would have naturally ended. Some trusts are difficult to terminate, such as spendthrift trusts where the settlor clearly intended that the trust assets be withheld and protected from the beneficiaries and their creditors.

Being named as a beneficiary of a trust is indeed a welcome event, but not without its complications. To avoid unfortunate consequences, to receive help understanding your rights, and to protect your inheritance, it may be wise to engage the services of an experienced trust attorney.

The information in this communication is not intended to be legal advice and should not be treated as such. Each individual’s situation is different. You should contact an attorney skilled in trusts and wills to discuss your personal situation. For a better understanding of the Prudent Investor Rule and what constitutes a properly-diversified investment, consult with your Certified Financial Planner™.

The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, a Registered Investment Advisor in the State of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.

 

 

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