Can a Trustee Remove a Beneficiary From a Trust?

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

A trust is a legal arrangement in which one person, called a grantor, transfers the management of assets to someone else. That someone else is called a trustee.

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 generally cannot simply remove their name from a trust on their own, but they may be able to disclaim or renounce their interest in the trust. A disclaimer is a legal refusal to accept property or benefits that would otherwise pass to the beneficiary, and it is typically governed by state law and, in some cases, federal tax rules.

For a disclaimer to be effective, the beneficiary usually must follow specific procedural requirements, which may include putting the disclaimer in writing and delivering it within a certain time period. For federal estate and gift tax purposes, a qualified disclaimer generally must be made within nine months of the transfer creating the interest, and the beneficiary cannot have already accepted the property or directed where it should go.

Once a beneficiary validly disclaims an interest, the trust assets typically pass according to the trust document as if that beneficiary had not accepted the inheritance. That could mean the property goes to another named beneficiary, to the beneficiary’s descendants or according to a contingent distribution provision written into the trust.

A beneficiary may choose to disclaim a trust interest for several reasons, including tax planning, creditor concerns or a desire for assets to pass to another generation. However, disclaimers can have significant legal and tax consequences, and the beneficiary usually cannot control who receives the property after the disclaimer. For that reason, reviewing the trust terms and applicable state law with an estate planning attorney can be important before taking action.

Can a Beneficiary Remove a Trustee?

A beneficiary may be able to remove a trustee, but usually not simply because they disagree with the trustee’s decisions. The process depends on the terms of the trust and applicable state law. Some trust documents specifically give beneficiaries the power to remove and replace a trustee, while others require a court to approve the removal.

Courts may remove a trustee when there is evidence of serious misconduct or an inability to properly administer the trust. Common grounds can include breach of fiduciary duty, mismanagement of trust assets, conflicts of interest, failure to follow the trust’s instructions or a lack of required accounting and communication.

In some cases, a trustee may also be removed when ongoing hostility or a breakdown in cooperation makes effective trust administration difficult. However, personality conflicts alone are generally not enough. The beneficiary usually needs to show that the trustee’s continued service is harming the trust or interfering with the interests of the beneficiaries.

If court involvement is required, the beneficiary typically must file a petition and provide evidence supporting the request for removal. Since removing a trustee can be a significant legal step, beneficiaries may want to review the trust document and speak with an estate planning attorney before pursuing the process.

Bottom Line

Whether a trustee can remove a beneficiary depends largely on the trust document and applicable state law. Trustees generally must follow the terms established by the grantor and cannot simply eliminate a beneficiary without authority to do so. Beneficiaries may also have options to disclaim an inheritance or seek removal of a trustee in certain circumstances, particularly when misconduct, mismanagement or a breach of fiduciary duty is involved.

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 vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel 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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