If you learned that you'll be receiving an inheritance from the estate of a loved one, or if you are the beneficiary of a trust, then you might be wondering what you can request or expect during the administration process.
Similarly, if you're a personal representative of a loved one's estate or perhaps serving as a successor trustee, you might be wondering what beneficiaries can ask of you, and what requests are beyond what's legally required.
Regardless of which role you currently find yourself in, it can be challenging to navigate this process without having a full understanding of beneficiary rights. To help make this aspect of estate administration less stressful and easier to understand, this article will provide common beneficiary rights and explain the administrator's duties to the beneficiaries of an estate or trust.
There are certain beneficiary rights that are very straightforward. The beneficiary of an estate, regardless of whether the inheritance was provided through a will or trust, has the unequivocal right to:
Beneficiary Right No. 1: Good Faith
The personal representative, also called the executor, for a will and the successor trustee for a trust are both legally required to handle the assets they are charged with administering in good faith. This means that as a beneficiary, you have the right to expect good faith from the person administering your inheritance. And if you are the personal representative or trustee, then this means you must always exercise good faith when serving in that capacity.
What is good faith?
In general, the legal duty of good faith requires honest dealing. So, the trustee or personal representative must be honest in his or her administration of the assets. In addition, good faith in this context also means the trustee or personal representative must faithfully perform of his or her duties.
In plain terms, this means that if you are the beneficiary, you can expect that actions taken by the personal representative or trustee adhere to the terms of the trust, are in your best interests and the best interests of the estate and are not motivated by self-enrichment.
For a personal representative or trustee, this requirement is an important overarching principal to consider whenever making decisions that could affect the distributions of the beneficiaries. Investment choices, timing and discretion with distributions and other aspects of asset administration must all be undertaken with honesty and integrity.
When is there a lack of good faith?
While the definition of “good faith” may seem broad, there are common scenarios that show a clear lack of good faith, or “bad faith.” As a beneficiary, it would be prudent to watch for evidence of any of these circumstances. If you are a successor trustee or personal representative, then these can serve as cautionary examples of “what not to do” in your role:
1. Actions that go against the best interests of the beneficiaries
If an action taken by the personal representative or successor trustee causes intentional harm to the beneficiaries, then he or she is acting in bad faith. Decisions that are made to deplete assets, enrich the personal representative or trustee or intentionally interfere with the distributions to which the beneficiaries are entitled to all run counter to the good faith requirement.
2. Actions that go against the terms of the trust
Any action that contravenes the terms of the trust or will is a clear violation of the directive to act in good faith. This means that even if the personal representative or successor trustee believes in their judgment that a distribution is unwise, that a beneficiary is undeserving of their inheritance, or the sale of a beloved family home is not justified, if the trust or will directs that these actions must be taken, then they must be carried out. By not following the wishes of the person who passed, the personal representative or successor trustee is not acting in good faith.
3. Actions that go against legally required duties
Actions that intentionally conflict or run counter to the personal representative or successor trustee's express duties could also very easily be viewed as taken in bad faith. By refusing to provide an accounting of the assets, intentionally failing to protect the assets or managing the assets in a willfully negligent manner, the personal representative or trustee can be held accountable as acting in bad faith.
While duties may vary based on your state's laws, beneficiaries can generally expect a personal representative or successor trustee to carry out the following duties in their role:
1. To administer the assets in accordance with the terms of the trust or will.
This simply means that the beneficiaries can expect to rely on the personal representative or successor trustee to follow the directions in the will or trust instrument regarding management and distribution of the assets.
For the personal representative or trustee, this means that it's critical to ensure all actions taken align with the terms of the trust or will. Otherwise, you could be subjected to legal action or even removal by the beneficiaries.
2. To exercise reasonable skill and prudence in managing the trust or estate assets.
While this typically does not mean that you can delegate administration duties, as personal representative or trustee, you can seek professional advice to help guide your decision making to ensure that the choices you make are in the best interests of the beneficiaries.
For beneficiaries, this means that you have the right to expect that the person administering your inheritance will possess a reasonable level of skill in their undertakings. This does not mean that the person must be an expert or the best at managing the assets, but it does mean that they cannot be negligent in their handling of the estate.
3. To show a duty of loyalty to the beneficiaries and administer the trust in the beneficiaries' best interests.
Similar to good faith, this duty means that the beneficiaries can expect the personal representative or successor trustee to place their interests first and foremost. This doesn't mean that as a beneficiary, you can expect the personal representative or successor trustee to accommodate any request you may have, especially if it contravenes the interests of other beneficiaries. However, it does mean that the personal representative or successor trustee must act in a way that promotes your collective best interests, preserving and protecting the assets while also timely distributing them.
For a personal representative or successor trustee, this again means placing a premium on beneficiary interests with every action that you take in this capacity.
4. To operate outside of any self-interests, avoiding any conflict of interest and providing full disclosure of any potential conflicts.
With any action the personal representation or successor trustee takes, it is critical that the motivation and/or result are not self-serving. While people who serve in these roles are are entitled to fees for their work, they are not permitted to take any action that serves personal interests. And if there is any potential conflict of interest, he or she must disclose that in order to remain acting in good faith.
For those serving as personal representative or trustee, it is important to know that you are entitled to reasonable fees for your service. This does not violate the rule against self-enrichment, and it is only fair given the amount of time and energy it takes to carry out these important duties. However, it is important to ensure that decisions regarding investment, asset protection and sale and every other aspect of administration are all taken with the interests of the beneficiaries front and center. And if there is any potential issue where your self-interests could be viewed as conflicting with any other party's interests, then you should take care to disclose the potential conflict to avoid accusations of acting in bad faith, or even litigation based on that assumption.
5. To protect and preserve the trust or estate property while defending the assets and beneficiaries against any challenges or claims.
Beneficiaries can also expect the personal representative or successor trustee to be proactive in protecting and preserving the assets held in trust or in the estate. This means that as a beneficiary, you can presume that the person managing the assets will defend the estate or trust from claims against it. It also means that they will take action against any will contests or challenges to trust distributions that do not align with the creator's intent.
For a personal representative or trustee, this means that they must act in such a way as to preserve the value of the assets and protect them from such contests or challenges. For those facing this situation, it would be very helpful to consult an experienced legal professional. An attorney with expertise in will contests and trust distribution challenges will be invaluable for ensuring that you can effectively carry out this important duty.
6. To keep the trust or estate property separate from his or her own property.
This is a very straightforward duty, as the beneficiary can expect the personal representative or successor trustee to maintain a strict separation between trust or estate assets and their own personal assets.
For those serving in either capacity, it is critical to maintain separate accounts and keep records evidencing all transactions and proving that you have adhered to this duty. Otherwise, you could be accused of commingling funds, which is expressly disallowed for any personal representative or successor trustee to do.
7. To file required accountings and provide copies to beneficiaries.
In general, the successor trustee or personal representative has a duty to provide periodic accountings showing financial transactions for trust assets and inventory of all assets of value contained within the estate. The specific requirements will depend on state law and the terms of the trust, but either way, the beneficiaries are entitled to a copy of these filings in order to review the actions taken by the personal representative or successor trustee.
If you are serving in this capacity, then it's important to know the requirements for your accountings and other court filings. You will certainly want to be fully versed in the requirements provided in the trust documents as successor trustee, and you'll need to be informed about state legal requirements for either trust settlement or will probate.
8. To ensure timely distributions of assets.
As a beneficiary, you have the right to receive the assets or distributions to which you are entitled within a reasonable amount of time. Although the probate process can be lengthy and arduous, the personal representative must distribute the inheritances provided in the will as soon as they are able. Similarly, in the trust settlement process, the successor trustee must timely distribute the trust assets according to the terms of the trust instrument.
As a personal representative or successor trustee, this duty makes it crucial that you adhere to court filing deadlines and move the probate or trust settlement process forward as quickly as possible given the circumstances of the estate. While a sale of property, inherent delays in the probate process, or even legal challenges can cause unavoidable delays, you will want to ensure that no delay is caused by your failure to act timely.
Beneficiary Right No. 2: Information
Beneficiaries also have the right to receive relevant information about the estate. In general, this means that the beneficiary of a trust or estate can request an accounting so that they can review the actions of the personal representative or successor trustee. As mentioned, it also means that as a beneficiary, you have a right to receive copies of accountings and other court documents as they are filed.
In addition, several states have beneficiary notice requirements that trustees must follow. These laws provide how and when a beneficiary must be notified about matters relating to the trust. Many require notice to be provided when the person who created the trust (the “grantor”) passes away. Often, the law states a time frame in which this notice must be given.
Beyond the legal requirements, however, it is good practice to keep beneficiaries informed of any updates, especially regarding how and when distributions will be made. This can foster a positive relationship between successor trustee and beneficiary, creating a smoother and less contentious process for all involved.
Beneficiary Right No. 3: Timely Receipt of Assets
As mentioned above, beneficiaries have the right to receive their assets from the trust or estate in a timely manner. While the personal representative or successor trustee cannot help delays caused by the probate process, financial institution requirements, etc., beyond those outside of their control, the beneficiary is entitled to receive their inheritance as soon as possible given the distribution terms.
If the trust instrument provides the successor trustee broad discretion in terms of the timing of distributions, however, then they do have the power to decide when the beneficiaries will receive their assets. In this instance, it would be wise for those beneficiaries to foster a positive relationship with the successor trustee, as they will have authority to delay distributions upon the belief that it would be in the beneficiary's best interests.
As a successor trustee with this discretionary power, it is still important to serve the beneficiaries' interests above all. So, any potential interpersonal conflict should be set aside when determining the timing of distributions. Keeping an objective view of the situation and assets will be key should this circumstance arise.
Beneficiary Right No. 4: Receive a Copy of the Will or Trust
Another clear beneficiary right is to receive a copy of the estate planning document containing their inheritance. So, if you are the beneficiary of a will or trust, then you have the absolute right to request a copy of the will or trust instrument.
If you are a personal representative or successor trustee, you can expect that the beneficiaries will want to receive this documentation. As a result, it could save you a lot of hassle and prevent ill will to provide a copy with the initial notice you send to the beneficiaries.
Beneficiary Right No. 5: Petition for Removal
As a beneficiary, you also have the right to petition the court for removal of a personal representative or trustee. If you believe that the person administrating the trust or estate is acting in bad faith, not following the terms of the instrument, or committing any other illegal act in their capacity as trustee or personal representative, then you do have recourse in the form of a petition for removal.
However, it is useful for both beneficiaries and personal representatives/successor trustees to know that the standards for granting a removal can be quite high depending on your state. Common grounds for removal include:
- Failure to comply with a court order
- Failure to provide accountings
- Intentional or grossly negligent maladministration of the estate or trust
- Conflict of interest
A disagreement between the beneficiaries and the personal representative or trustee is not enough for a removal, and several minor acts of negligence may be overlooked by the court, depending on the case law in your state.
Regardless of whether you are a beneficiary expecting an inheritance or a personal representative or successor trustee tasked with the administration and distribution of that inheritance, it is critical to know beneficiary rights and administrator duties.
With this knowledge, beneficiaries can ensure that they are receiving the information to which they are entitled, the standard of care they are legally permitted to expect, and ultimately, the timely receipt of the assets that their loved ones thoughtfully chose to leave to them.
For personal representatives and successor trustees, it is equally important to know what beneficiaries may ask of you, as well as the duties you owe to them throughout your appointment.
By having a greater understanding of this topic, each side of the estate administration process can better work with the other to carry out the seamless estate or trust settlement that the person who passed envisioned when he or she created her estate plans.