Being named a beneficiary or heir to a trust can seem a little overwhelming, especially if you are new to the world of trusts. What does it mean to be a beneficiary? What do you have to do to get your portion of the trust? How do you know that the trust is being handled correctly?
These and other questions are behind the reason some trust beneficiaries retain the services of an experienced Arizona trust lawyer. While every trust has its unique nuances, all are subject to the Arizona Trust Code (ATC), which gives certain rights to the trust beneficiaries, as well as outlines the responsibilities and fiduciary duties of trustees.
What Is a Trust?
Like a will, a trust outlines the writer’s wishes upon his or her death. Yet a will is subject to probate, whereas a trust is not. Plus, trusts can be written to deal with complex familial relationships, such as who gets which assets in a blended family.
Differences Between Revocable and Irrevocable Trusts
Trusts can be either revocable or irrevocable. A revocable trust can be changed or altered at any time. Most trusts are revocable until the person who has written them dies, at which point they become irrevocable or unable to be revoked or changed unless a court intervenes, which is quite rare. Sometimes, trust writers choose to create irrevocable trusts that go into effect while they are living.
What Is a Trustee?
The writers of a trust name at least one trustee to handle the trust per the terms of the trust agreement. For instance, a trustee may have to distribute trust assets to beneficiaries as appropriate when the trust becomes irrevocable upon the death of the writer.
According to the ATC, trustees should act impartially and focus only on the wishes of the individual who set up the trust. In other words, a trustee is not legally allowed to make decisions about the trust that go against the spirit of the trust. A good example would be a trustee who is living in a house that is a trust asset. The trustee cannot simply remain in the house without distributing it to the appropriate heir merely so the trustee does not have to move.
Trustees are also asked to administer the trust, keeping and disseminating records such as estate tax payments or payments for other matters. This means a trustee has a fiduciary duty to responsibly keep track of all of the assets, as well as how they are used if needed.
Finally, the trustee must inform all trust beneficiaries of the state of the trust in a prompt manner. Usually, this means at least once annually, although some trustees are expected to report to beneficiaries more often depending upon the circumstances.
Types of Trust Beneficiaries
Who can become a qualified beneficiary of a trust under the ATC? Essentially, anyone named by the writer of the trust. Usually, beneficiaries are considered either current or contingent.
A current beneficiary would be someone who is first in line to inherit from the trust. A contingent beneficiary would be next in line to inherit if the current beneficiary would die before the trust became irrevocable. For instance, if the trust writer’s son is the current beneficiary and his granddaughter could only inherit if her father died before the trust became irrevocable, she would be considered a contingent beneficiary.
Contingent beneficiaries may also be individuals who receive what is leftover after trust funds and assets have been distributed among the current beneficiaries. In this way, they still have a stake in the trust, but the amount of assets they receive when the trust becomes irrevocable may change over the years.
Legal Expectations of Trust Beneficiaries
While trust beneficiaries can sit back and wait for a trust to go from revocable to irrevocable, they should ideally stay on top of the trust. Per state law, they must be informed by the trustee within 60 days that a trust has moved from revocable to irrevocable.
Additionally, they should make sure that they are receiving all information they are due from the trustee or trustees. This includes knowing what assets and the value of those assets that they are entitled to receive as part of the trust and estate plan. If a trust beneficiary does not feel that a trustee is doing his or her fiduciary duties, the beneficiary can choose to take action.
Recourse for Beneficiaries When Trustees Violate Their Duties
Trust beneficiaries who feel that a trust has not been handled judiciously, objectively, or responsibly by a trustee may want to speak with a lawyer. Sometimes, the trustee may fail to send out reports and may need to be nudged to get back on track.
Still, if the trustee is allegedly committing fraud or another crime, the beneficiary has a right to know and protect that beneficiary’s inheritance. Again, having help from a knowledgeable trust attorney can make all the difference, particularly if the beneficiaries have to remove the trustee and the court decides to appoint a new one.
Interested in knowing more about trust documents, types of beneficiaries, and the purpose of trusts? Want to create your own trust or terminate a revocable trust to replace it with another? Contact Susan Sandys in Phoenix, AZ, by calling (602) 996-4076 to arrange a free consultation.