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A trust is a legal relationship that entails property being held by one party for the benefit of another. A trust agreement is the legal document that sets forth the terms of a trust. A trust is created by a Settlor (also referred to as a Maker or Grantor), who transfers property to a Trustee, also named by the Settlor.
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Yes. All trusts are first divided into one of two categories – testamentary or inter vivos – the latter of which is more commonly referred to as a living trust. A testamentary trust is a trust that arises upon the death of the Settlor and which is typically activated by a provision in the Settlor’s Will. A living trust is a trust that takes effect as soon as all the formalities of creation are in place. Trusts can also be revocable or irrevocable.
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A Trustee, appointed by the creator of a trust, is responsible for administering a trust. The Trustee holds all trust property for the benefit of the beneficiaries named in the trust agreement. The trustee of a trust can be an individual, several individuals acting as Co-Trustees, or an entity such as a bank.
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Yes, you have an ownership interest in the assets held in a trust if you are a beneficiary; however, you do not have a right to access the assets until the trust terms dictate that you are entitled to a disbursement. The nature and extent of your ownership interest will depend on the terms of the trust. A trust can have current and future beneficiaries, for example, which will impact your ownership interest in the assets.
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Maybe. Many trust agreements include an anti-alienation clause that effectively prevents a beneficiary from selling or encumbering his/her interest in the trust. Conversely, the provisions of a trust may specifically give a beneficiary the power of appointment, effectively giving the beneficiary the ability to transfer his or her inheritance to a third party. If the trust agreement is silent, state law governs whether a beneficiary can sell or encumber his/her interest in trust assets.
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As a trust beneficiary you have several important rights granted by law and you may have additional rights granted to you in the trust agreement. Among the most basic rights a trust beneficiary has are the right to:
- Receive scheduled 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. If you are a future beneficiary, you have the right to be considered when making decisions that could impact your future distributions.
- Request 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. This is an especially important right to remember if you are concerned about the way in which the Trustee is administering the trust.
- Be informed about trust business. You have the right to be kept informed about trust business and to be able to communicate with the Trustee of the trust.
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If you believe that the Trustee is not properly fulfilling the duties and responsibilities of a Trustee, you may be able to have the Trustee removed and replaced. Sometimes, the terms of a trust agreement specifically grant authority to remove a Trustee to a beneficiary, a group of beneficiaries, an attorney, or other designated individual/group. Even if the authority to remove the Trustee was not explicitly given to the beneficiaries in the trust agreement, the beneficiaries may still be able to petition the court for the right to remove the Trustee.
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