If you are the beneficiary of a California Trust, there are a few things you ought to know to help you understand and protect your rights as a Trust beneficiary.  Here’s the Top 10 things you must know as a Trust beneficiary:

1.  Know your Trust.

Read it and then read it again.  If you don’t understand it (and who really does?) have a consult with a lawyer to go over the Trust terms.  If you don’t know what your rights are, you won’t be well armed to protect those rights.

2.  Know your rights as a beneficiary.

Not all beneficial interests are the same.  Some beneficiaries have superior rights than others.  Sometimes you are entitled to a distribution now, sometime you have to wait.  You must know what your beneficial rights are as soon as possible.

3.  Ask for information in writing, follow-up often.

All beneficiaries are entitled to information.  Ask for as much as you want, such as copies of bank statements, checks, trustee’s fees, costs, etc.  Better yet, ask for the information in writing.  It does not take much to send an email or a letter listing what you want to see.  It does NOT need to be sent by certified mail, just get it to the Trustee in writing as soon as you can.

4.  Ask for an accounting in writing, after six months or one year.

Unlike information described in number three above, not every beneficiary is entitled to an accounting.  In fact, only current income and principal beneficiaries can demand an accounting, unless the Trust specifies otherwise (and they usually don’t).  If you are a current income or principal beneficiary, then you will have to wait at least six month to get an accounting.  But once the time comes, request an accounting in writing.  Again, you need not send anything by certified mail, just get it out in writing as soon as you can.

5.   Know your income tax consequences.

The good news: most of the assets you receive by way of an inheritance are NOT subject to income tax (except for things like 401(k)’s and IRA’s which have a built in income tax when you receive them because the decedent put the money away tax free during life).  The bad news: if the Trust generates income, such as from rental property or investment accounts, you may be on the hook for a portion of the income tax generated by the Trust assets regardless of whether you receive any money from the Trust.  so it pays to learn what income tax consequences you can expect from your beneficial interests.

6.  You have the right to question and challenge your Trustee without fear of the no-contest clause.

If you start questioning the actions of your Trustee, or you need to go to Court to enforce your rights as a beneficiary, you have nothing to fear from a Trust no-contest clause.  But yet, Trustees (especially private individual Trustees) continually threaten disinheritance under a no-contest clause if their actions are challenged.  Well Trustees can say what they want, it simply is not true.

7.  Discretion is not absolute.

Many times a Trust will give the Trustee “discretion” to make distributions to a Trust beneficiary.  While Trustee’s have wide latitude in exercising discretion, it is not absolute.  That means a Trustee must act reasonably under the circumstances and make distributions when they are needed.  A Trustee cannot refuse to make a distribution just for the sake of saying no.

8.  Communicate often.

Wonder what’s going on with your Trust?  Ask about it.  Don’t get a satisfying answer?  Ask again, and then follow-up with the Trustee, and then keep asking.  A lack of communication is a bad thing for a beneficiary.  And your Trustee has a duty under California law to communicate with you.  So ask away, the earlier the better.

9.  Investments matter.

Every California Trustee has a heavy burden to invest Trust assets under the rules of the Prudent Investor Rule.  The rules requires Trustees to act reasonably and responsibly in investing.  Trustees are not allowed to make risky investments.  But not every Trustee knows or implements their duties to invest properly, so know the investment rules and ask your Trustee if he or she is following the rules.

10.  Trustees are not all powerful, they have duties, obligations, and responsibilities. 

The number one problem with private people acting as Trustees is that they think they can do whatever they like.  The common misconception is that the Trustee is “in charge now” and can act as though they are the Trust creator.  Not true.  In fact, Trustee’s have far more duties and obligations than they can even imagine.  But if no one informs them of their duties, then they may continue to act under this misconception, which can do a lot of damage to you as a beneficiary.  Trustee’s are not all powerful, and sometimes they need to be told as much.

  • kathy

    Does the trustee have to provide years of financial records or just when the trust creator dies.

    • davidsonkeitha

      It depends on the circumstances. In California, we can usually obtain past financial records that cover the period before the trustor died, especially if the same trustee was acting both before the trustor’s death and after.

  • Robert N. Schick

    Excellent info…especially about not fearing the no contest clause….Thankyou..!

  • Justice Merry

    The trustee refuses to answer my calls or questions about the trust. Refuses me a copy of the trust.

    • davidsonkeitha

      That is where you need to take court action. The court can order your Trustee to respond to you, provide you a copy of the Trust document, and discuss the Trust terms, or remove the Trustee is he or she refuses to comply.

  • Lori Walston

    My sister with durable power of attorney abducted my mother from her home and a first-time delirium that I have every reason to believe turned into a full mental breakdown my mother is legally blind now she has my mom saying she doesn’t want to talk to me and I’m sure she convinced her that our home is trashed so she saying she doesn’t want to go home I was supposed to care for her in her own home this is the best article on the internet so informative I’m going to do everything you say to do immediately and bring the letters to her personally when I bring a police escort to her house to attempt to see my mother again next weekend. If I get to see my mom or not she’s getting the letters directly after thanks again for the help on the internet there sure isn’t a lot of it out in the world

    • davidsonkeitha

      Thank you for your kind words, hope everything works out with you and your mother.

  • Candace

    does client incapacity eliminate right to inherit?

    • davidsonkeitha

      Do you mean if the beneficiary is incapacitated? No, a beneficiary can lack capacity, but still have the right to inherit.

  • Candace

    In this case, lawyer diagnosed client totally disabled. No such diagnosis existed. MD claimed client totally competent. Lawyer ignored and overrode.

  • john

    I have read all of this before but the most important thing being left out of your comments is as follows:
    1. The trustee uses trust funds to pay attorney fees.
    2. Beneficiaries pay out of pocket.
    3. Result: Beneficiaries are being set up for failure by the legal system..
    The system is rigged in favor of the trustee or why wouldn’t the beneficiary also have this ability. Did the legal system think it was no big deal for people to pay $300.00 per hour to get justice? Was this an oversite?
    4. Also go ahead and go through the legal system to complain about a judge even if they blatantly accept hearsay over material facts. I can tell you are wasting your time. There is absolutely no accountability and they don’t even have to explain their rational but just say over ruled.

    The system is rigged

    • davidsonkeitha

      We think there are many beneficiaries who share your frustration with the legal system as it applies to trust and will beneficiaries. It was not an oversight that beneficiaries can’t pay their attorneys from the trust, but it certainly is a big disadvantage–one that threatens many beneficiaries with losing their inheritance altogether.

      We think most judges do the best they can with the information they have. there is accountability in the sense that you can appeal a trial court’s ruling, but there again that takes money and time–two things many beneficiaries do not have.