Finding out that you are the beneficiary of a trust is typically welcome news. After all, that often means you will receive a steady income stream from the trust for some time to come. That is, of course, as long as the Trustee administers the trust and manages the trust assets successfully. What can you do is that is not the case? If you believe the Trustee is not doing a good job fulfilling his/her duties as Trustee – or worse, you believe the Trustee is engaged in some type of nefarious conduct – is there anything you can do? As a beneficiary, do you have the authority to have the Trustee removed? If you do have that authority, how do you go about removing the Trustee? The Lincolnshire trust lawyers at Hedeker Law, Ltd. explain when a beneficiary can remove a Trustee.
It helps to first get a general idea of what a trust is and how a trust works. A trust is a legal relationship where property is held by one party for the benefit of another party. The person who creates a trust is referred to as the “Settlor”, “Trustor” or “Grantor.” The Settlor transfers property to a Trustee, appointed by the Settlor. The Trustee holds that property for the trust’s beneficiaries as well as invests trust assets and administers the trust terms according to the terms created by the Settlor. Trusts all fall into one of two categories – testamentary or living trusts. A testamentary trust is activated by a provision in the Settlor’s Will at the time of death whereas a living trust activates once all formalities of creation are in place and the trust is funded. Living trusts can be further divided into revocable and irrevocable living trusts. Because a testamentary trust is activated by a provision in the Settlor’s Will, and a Will can always be revoked up to the time of the Testator’s death, a testamentary trust is also revocable up to that point.
The trust agreement will determine, to some extent, the rights of the beneficiaries of the trust. The Settlor of a trust has the ability to grant beneficiaries a variety of rights within the trust agreement. The trust terms, therefore, may specifically grant beneficiary rights with regard to removal of the Trustee. A Settlor may, for example, give the beneficiaries of a trust the ability to remove a Trustee if a majority of those beneficiaries vote to do so.
Even if the trust agreement is silent on the issue of beneficiary rights, that does not mean that beneficiaries have no rights. On the contrary, beneficiaries always have certain rights, including:
- Right to distributions – if you are a current beneficiary, you have a right to receive any distributions due to you under the terms of the trust agreement.
- Right to communication/information – you have the right to be kept informed about trust business and to be able to communicate with the Trustee of the trust.
- Right to an accounting – you have the right to receive a full accounting showing things such as what assets the trust holds, how much interest has been earned by the trust, and what expenses have been paid by the trust.
- Right to petition a court to remove a Trustee or terminate a trust – even if the Settlor did not grant you the authority to remove a Trustee directly, you always have the right to petition a court for the Trustee’s removal. Of course, you will need to convince the court that removing the Trustee is in the best interest of the trust and of all the beneficiaries. Reasons why a court might approve a petition to remove a Trustee include providing proof that the Trustee has done things such as:
- Mismanaged trust assets
- Engaged in self-dealing
- Failed to follow the trust terms
- Created a conflict of interest
- “Good cause” (this is the “catch-all” for reasons that do not fit neatly into any of the common categories)
If you are the beneficiary of a trust, and you are concerned about how the Trustee is performing his/her duties and responsibilities, consult with an experienced trust administration attorney right away.
Contact Lincolnshire Trust Lawyers
Please join us for a FREE upcoming seminar. If you have questions or concerns regarding your rights as a beneficiary, or removing a Trustee specifically, contact the experienced Lincolnshire trust lawyers at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.