What are my Rights as a Beneficiary of a Trust or Estate?
If you happen to be a beneficiary of an estate or trust, then you need to know your rights and how to protect your beneficial interests. More specifically, you need to know when to speak up and step in to hold the executor / trustee (or their attorney) accountable for the actions they took (or should have taken) to protect your beneficial interests.
As a beneficiary of a trust / estate, you may prefer to be a passive bystander. You may hope that the person in charge knows what they are doing, and opt to wait patiently for your share of the inheritance to conveniently show up in your bank account. But the reality is that you have to be vigilant. You have to actively seek information, keep communication lines intact, and ultimately hold the executor / trustee accountable for their actions or inactions.
For example, if three months have gone by and you haven’t heard anything from the personal representative / executor or trustee as to what is going on with respect to the finances of the estate, then you better be on high alert.
The problem is that you may not know what you need to do (or what your options are) as a beneficiary of a trust or estate.
You may be asking yourself:
When do I get a full copy of the trust / will?
When should I expect to receive notices and distributions?
Do I need to be aware of how the trustee / personal representative is investing and spending money held in the estate or trust account?
Most importantly, what am I to do if I reach out to the trustee / personal representative and hear nothing but silence for months on end?
So, here’s what you need to know as a beneficiary of a trust or estate:
Beneficiaries, what to expect and what to look out for
In Massachusetts, we have two primary laws in place to give guidance to beneficiaries and fiduciaries regarding the handling of estates and trusts.
The first, regarding trusts, is called the Massachusetts Uniform Trust Code (the “MUTC”) - also known as Chapter 203E. There are several articles within the MUTC, but I’m going to highlight a sample of the pertinent provisions below:
ARTICLE 1 covers some general provisions and definitions. Here’s a few key definitions from Article 1 you should be familiar with:
Beneficiary (because you need to know whether or not you are in fact a beneficiary): “a person who has a present or future beneficial interest in a trust, vested or contingent.”
Qualified Beneficiary (narrower definition): “a beneficiary who, on the date the beneficiary's qualification is determined:
(i) is a distributee or permissible distributee of trust income or principal; or
(ii) would be a distributee or permissible distributee of trust income or principal if the trust terminated on that date”
Spendthrift provision: (very important for asset protection purposes) “a term of a trust which restrains transfer of a beneficiary's interest.”
For additional information on why a spendthrift provision is so important, check out How a Spendthrift Clause Protects Your Children’s Inheritance
Further described in Section 502
Ascertainable Standard (the most common language used to determine when/how a trustee may distribute money to a beneficiary) “a standard relating to an individual's health, education, support or maintenance.”
And, here’s a couple relevant general provisions for you to know as a beneficiary:
Methods and waiver of notice: “Permissible methods of notice or for sending a document [from trustee to beneficiary] shall include first-class mail, personal delivery or delivery to the person's last known place of residence or place of business.” - this is important because if you are in fact a beneficiary, you can rely upon this law to prove whether the trustee gave you proper notice (unless the trust agreement says otherwise).
Non Judicial Settlement Agreements: (great tool to resolve matters privately without needing to involve the court) - common situations include: “the approval of a trustee's report or accounting;... [or] the resignation or appointment of a trustee and the determination of a trustee's compensation.”
ARTICLE 4: covers beneficiary and creditor’s claims
More specifically, the rights of beneficiary’s creditors over your expected inheritance to be received from the trust - see Section 501. Generally, if the trust is drafted properly, creditors would only be able to attach your interest when it’s distributed out of the trust unless the trustee is withholding a “mandatory” distribution.
Article 4 also covers when a distribution may be overdue to you as a beneficiary (Section 506). Once again, the primary thing to look out for here is whether a distribution to you is “mandatory” or merely “discretionary”.
Duties and Powers of Trustee
ARTICLE 8: covers the real good stuff - “Duties and Powers of Trustee”
Unless the trust agreement specifically says otherwise, Article 8 lays the groundwork for all the things a trustee can and cannot do. It also clarifies when a failure to act is just as bad as a wrong action.
For example, the trustee must act as a prudent person with respect to the property and investments of the trust. So if the trustee fails to diversify investments (to protect the principal) or the trustee fails to maintain a property (once again, to protect the principal), then you, as the beneficiary, may be able to seek recourse against the trustee for his or her failure to act.
Then there’s the duty of loyalty, which in effect says that the trustee generally cannot self-deal or act in a way that would benefit him or her (or his/her spouse/kids, etc.) unless the trustee agreement says so or unless you, the beneficiary, agree to such action.
For example, if the trustee wants to buy an investment property that is currently held in the trust, then you would need to refer to the facts and circumstances in light of this law to determine whether or not the trustee can legally do so.
Duty to Inform and Report
Then there is Section 813 - the duty to inform and report:
“Within 30 days after acceptance of the trust or the trust becomes irrevocable, whichever is later, the trustee shall inform, in writing, the qualified beneficiaries of the trustee's name and address. The information shall be delivered or sent by ordinary first class mail.”
You’ll also notice that the trustee is required to provide “prompt” response to inquiries of qualified beneficiaries. Once again, this is why it's important to understand the definition of a beneficiary vs. a qualified beneficiary - because that could impact your rights and the obligation of the trustee to you.
The trustee must also send an account to qualified beneficiaries who request it at least annually and at the termination of the trust. So if you aren’t getting accounts / reports, then that should be a red flag for you as a beneficiary. To be clear, it may take some time for the trustee to get up to speed on all of this (because it’s often another family member or friend who is grieving over the loss of the person and just trying to do his/her best), but as a beneficiary you cannot let things slide for too long or else you may find yourself in a legal predicament.
The basic idea is that you need to make sure the lines of communication between you and the trustee are open at all times. Many legal battles seem to be created out of nothing but a lack of understanding between the two parties. So, even though you would expect the trustee to be proactive, you need to make sure that you are doing your part as beneficiary by assisting in any way that you can.
For example, you may have valuable information that the trustee is unaware of that could help track down certain documents or be able to help him/her find certain items mentioned in the Will or Trust. You may also be aware of certain key contacts that the trustee may not be aware of. Or, as backwards as it may seem, you may be the more organized of the two, and therefore be better at keeping track of things.
That is why you should be careful to make yourself almost like an assistant to the trustee in a sense, rather than an adversary if things start to get confusing or frustrating in administering the estate or trust. Also, try to keep an open mind and give all parties the benefit of the doubt (at least at first). Money makes people act and behave in strange ways so don’t be surprised if you accidentally offend someone by your own proactiveness.
But what if I am the beneficiary of an estate (not a trust)?
For estate administration, meaning the stuff that passes through the public court system - we have the Massachusetts Uniform Probate Code (“MUPC”) under Chapter 190B.
Unlike a trust administration, which can be done privately and without any court involvement, an estate administration requires varying levels of court involvement (voluntary administration, informal probate, formal probate, supervised administration). This could help protect your interests as a beneficiary, but it could also complicate and delay the process because now you have a judge / magistrate involved.
If you are the beneficiary of an estate, then the first thing you should keep an eye out for is a copy of the Will and notice of a petition to appoint a personal representative. You may also receive an assent / waivers form that looks like this. At the very least, the petitioner (person who generally wants to become the personal representative and is probating the Will) has to publish the notice of petition (called a citation) in a local newspaper - this is also known as proper notice. Once the personal representative is appointed, that person is now in charge of making sure the estate is handled properly (parallel to the trustee of a trust). If the personal representative does something wrong then he/she could face personal liability - as a beneficiary, that can be a powerful accountability tool at your disposal.
Here’s the really important part - within 3 months, the personal representative must provide the beneficiaries with an inventory of the estate (see MUPC 3-706). This inventory should show the list of assets and debts known to the personal representative and the estimated value of such listed items.
But, what if I don't get an inventory of the estate from the personal representative? That’s when you need to speak up immediately. Send a request in writing to the personal representative (and the attorney assisting with the probate process, if applicable) to put them on notice and have evidence of a formal request for an inventory. If you receive no response within a reasonable period of time, you should immediately contact a probate attorney to go through the step of removing the personal representative. Cases are fact specific, but (generally) if the personal representative has failed to uphold his/her fiduciary duties, then you have good cause to file such a motion (and pursue damages, if applicable).
In practice, this approach usually ends up with additional hearings/motions and legal hurdles, but ideally it would scare the personal representative to take action and fulfill their obligations of the estate. No one is going to be more concerned about your rights than you, so you need to be your own best advocate.
If the above explanation is giving you a headache, then you may now understand why it’s so important for you to have a properly drafted estate plan in place and make sure your family understands your wishes while you are still able to answer questions and address concerns. Otherwise, your family can get caught up in excessive delays and fees.
Need help with your estate planning?
If you would like to review or update your estate plan, then give me a call at 781 202 6368, email jlento@perennialtrust.com, or click here to schedule your free personal consultation.
Joseph M. Lento, J.D.
Your Local Estate Planning Attorney
www.PerennialEstatePlanning.com
477 Main Street
Stoneham, MA 02180
