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Educating Families in Southern California

The Role of a Beneficiary

The Role of a Beneficiary
Velasco law Aug 01 2019

By Velasco Law Group: Estate Planning and Litigation Attorneys

Long Beach | Downey | Irvine

One of the most stressful, confusing, and worrisome times of your life is when you lose a loved one. Beyond the grieving process, you may also have been named a beneficiary of the decedent’s Trust. You may have a number of questions about what that means in terms of responsibility and rights. Luckily, there’s plenty you can do to prepare ahead of time as a beneficiary.

What is a Beneficiary?

Every trust must have at least one beneficiary. The trust property is being held for the benefit of this person or entity and they, therefore, have legal rights to enforce the trust. Understanding your rights as a beneficiary is essential because you may be entitled to the cash or other assets held by the decedent. Not all beneficiaries have the same rights. For example, sometimes you may be entitled to distribution immediately and other times you may need to wait. This depends on how your beneficiary role is set up in the trust.

Familiarize Yourself with the Trust

A trust manages the distribution of a person’s property and assets by transferring its benefits to the person or people named in the trust. As a beneficiary, it’s imperative to read the trust. You may want to consult with an attorney when going over the terms of the trust to ensure you fully understand them.

Ask for Information and Accounting

All beneficiaries are entitled to information and some are entitled to an accounting of the trust’s assets. A beneficiary should request an accounting in writing, especially if there is reason to suspect a problem with the trustee’s performance of their fiduciary roles. Even then, you’ll likely have to wait at least six months in California. Then, if it is found that the trustee is in violation of his or her responsibilities or fails to provide proper documentation of trust activity, then the beneficiary has the right to take legal action, including removing the trustee and requesting a replacement. Such action is normally handled by filing a petition with the local probate court.

Every beneficiary is entitled to information; this can include bank statements, checks, trustee’s fees, etc. Neither a request for information, nor accounting, needs to happen via certified mail. The key is to communicate often with the Trustee, who under California law has a responsibility to communicate with you.

Financial Interests and Tax Consequences

In California, most of the assets a beneficiary receives through an inheritance are not subject to income tax (except for some retirement accounts, 401(k)’s and IRA’s as an example). However, if the trust generates income, the beneficiary may be responsible for income tax. A trust and estate attorney can help you sort out what your specific tax liabilities exist.

Know the Limits of Your Trustee’s Power

Trustees have many duties and obligations and a beneficiary should know what these duties entail.  While Trustee’s have some latitude in exercising discretion, it is not absolute. For example, a Trustee cannot refuse to make a distribution at their whim. In the event of a breach of trust by a trustee, there are several steps you can take as an aggrieved beneficiary. Such remedies include claims for damages, injunction to restrain a breach, tracing and/or recovery of trust property, among others. For example, if the trustee wrongfully disposes of trust property, the beneficiaries may be able to reclaim the property from a third party.

It’s important to know your rights and responsibilities as a beneficiary, but some trusts may appear convoluted. If the details are handled improperly, it may lead to costly, unfortunate consequences. For help understanding your rights and protecting your inheritance, contact the experts at Velasco Law Group. Here, an experienced attorney can help you navigate the ins and outs of being a trust’s beneficiary.

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