Creating a trust as part of your estate plan is something you might consider if you’d like to ensure that your assets will be managed according to your wishes after you’re gone. When you establish a trust, you’ll need to name a trustee to manage assets and one or more beneficiaries who can receive them. Can a trustee remove a beneficiary from a trust? Generally speaking, no, but there are other scenarios when a beneficiary can be removed. For help with your estate plan, consider talking to a financial advisor who has estate planning expertise.
Trustee vs. Beneficiary Rights and Responsibilities
It’s the trustee’s job to manage the assets in the trust according to the terms and conditions set down by the grantor. They do so on behalf of one or more beneficiaries. A trust beneficiary is an individual or entity who benefits from the trust.
So, say you want to set up a trust on behalf of your three children. You could name your brother as the trustee and include specific directions about when your children would be entitled to receive assets from the trust. For instance, you might specify that they can’t get their inheritance until they reach a certain age or get married.
The trustee is obligated to follow your directions to the letter because they have a fiduciary duty to do so. Fiduciary duty requires trustees to act in the best interests of beneficiaries at all times.
Technically, a trustee can also be a beneficiary but that’s not common. It may not be wise either if you’d like there to be some separation of rights and responsibilities between your trustee and your beneficiaries.
Can a Trustee Remove a Beneficiary From a Trust?
The short answer is no, trustees typically cannot remove a beneficiary from a trust. When a grantor creates the trust, they have control over what assets go into it, who is named as the trustee and who is named as beneficiary.
Again, the trustee’s job is simply to follow the directions left by the trust grantor while adhering to a fiduciary standard. A trustee generally cannot remove a beneficiary unless one of two things is true:
- The trustee is also the trust grantor.
- The trust grantor has included a specific provision in the trust document allowing the trustee to add or remove beneficiaries.
A grantor can name themselves as trustee during their lifetime, with one or more successor trustees named who can assume the role once they pass away. If the trustee and the grantor are the same person and they’ve established a revocable living trust, then they’d be able to add or remove beneficiaries at their discretion.
Revocable living trusts are different from irrevocable trusts, in that they can be amended at the direction of the grantor. An irrevocable trust is permanent and it’s very difficult to change any of its terms, including beneficiary designations.
Assuming the trustee and grantor are two different people, the grantor could give the trustee authority to change or remove beneficiaries. Again, they’d need to include a power of appointment in the trust document conveying that power to the trustee.
Why Would a Trustee Need to Remove a Beneficiary From a Trust?
There are different reasons why a trustee might need to remove a beneficiary from a trust. For example, removal might be necessary if the trustee:
- Suspects or has evidence that the beneficiary is stealing or otherwise misusing assets from the trust
- Believes that the beneficiary is not of sound mind to manage their financial affairs
- Is directed to do so by the trust document in cases where the beneficiary fails to meet certain conditions set down by the grantor
If a trustee has the power of appointment to remove beneficiaries, the trust grantor can choose a narrow or limited scope for allowing them to do so.
For example, one spouse may name the other as trustee with power of appointment but specify that they cannot remove any of their children, including children from previous marriages, who are named as beneficiaries. Or the spouse may impose no such restriction, leaving the door open for children from a previous marriage to be disinherited.
When a trustee initiates the removal of a beneficiary, they must notify them in writing of the reasons why. The beneficiary is also entitled to a court hearing so they can offer a defense as to why they should not be removed.
Can a Beneficiary Remove Themselves From a Trust?
A beneficiary could ask to be removed from a trust of their own free will. For example, a beneficiary might waive their right to inherit if they don’t need the assets they’d otherwise be entitled to or if inheriting would impose too great of a tax burden on them.
The beneficiary would need to contact the trustee to ask for removal. The approval of the other beneficiaries may be required before their request could be finalized.
Whether it makes sense to remove yourself as the beneficiary of a trust and disclaim your inheritance can depend on your financial situation. That’s something you may want to discuss with your financial advisor before submitting your request to the trustee.
Can a Beneficiary Remove a Trustee?
Beneficiaries may seek the removal of a trustee if they believe the trustee has committed a breach of fiduciary duty.
For example, say that the beneficiaries believe the trustee is siphoning assets away from the trust for their own benefit. They could initiate a court proceeding to have the trustee removed and replaced with someone else.
A trustee could also be removed if it’s believed that they’re unfairly withholding assets from beneficiaries or otherwise mismanaging assets in a way that’s harmful to beneficiaries. The court would have the final say on whether to remove the trustee or not, based on what evidence beneficiaries are able to present to make their case.
Trustees have a wide scope of powers and duties but removing beneficiaries isn’t always one of them. Unless the trust grantor has given them the authority to remove or add beneficiaries, trustees typically can’t block them from inheriting trust assets. That’s important to know if you’ve been named as the beneficiary to a trust or if you’re acting as trustee on behalf of someone else.
Estate Planning Tips
- Consider talking to your financial advisor about whether a trust is something you might need as part of your estate plan, or how to handle an inheritance if you’re the beneficiary of a trust established by someone else. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- While a trust can be a useful estate planning tool, it’s also important to consider other documents you might need, such as a last will and testament. A will allows you to specify how you want your assets to be distributed. You can also use a will to name a legal guardian for minor children. If you’re ready to write a will, you could do so with the help of an estate planning attorney or go solo using an online will-making software program.
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