While a will is an essential estate planning document, it is not the best option for every situation. A trust can be a more effective, efficient way for someone to pass down assets to their heirs. A trust is a legal relationship between three parties: 1) The creator (trustor), 2) The individual or entity responsible for overseeing the (trustee), and 3) the person(s) who the trust is for (beneficiary). The trustee must ensure that the trust is managed properly.
This raises an important question: Can a trustee remove a beneficiary from a trust? In most cases, the answer is ‘no’—but there are exceptions. It is sometimes possible for a trustee to remove a beneficiary from a trust. In this article, our Massachusetts estate planning lawyers explain the most important things to know about a trustee’s duties, a beneficiary’s rights, and a trustee’s ability to remove a beneficiary from a trust.
What Is a Trustee of a Trust?
A trustee is the person or entity that is responsible for overseeing and managing a trust. Many different parties can serve as a trustee. In some cases, a trustee is a family member or close friend. In other cases, a trustee is a professional—such as an attorney. You can also appoint an entity (bank, financial institution, etc) as a trustee. The key thing to remember is that a trustee has been placed in a position of “trust.” They are responsible for holding property/assets and ensuring that transfers happen for beneficiaries at the appropriate time.
What Is a Trust Beneficiary?
The beneficiary of a trust is the person, persons, or entity for whom the trust was created. In other words, the beneficiary is the one who will eventually receive the property/assets held by the trust. A trust can have more than one beneficiary. In fact, it is relatively common for trusts to have multiple beneficiaries.
What Are the Trustee’s Responsibilities?
Broadly speaking, a trustee’s responsibilities are to oversee the trust and ensure that assets are transferred to the proper beneficiaries in accordance with the instructions/wishes of the creator of the trust. Trustees generally also have a duty to maintain reasonable communication with the trust’s beneficiaries. A trustee may also have some additional responsibilities based on the specific terms of the trust documents.
Note: Trustees are fiduciaries. The highest standard of care of U.S. law, a fiduciary duty is a requirement to act in the best interests of another person or entity. In managing a trust, a trustee must put the beneficiary’s interest above their own.
What Are the Powers/Duties of a Trustee?
Trust administration is complicated. It is imperative that trustees have a full understanding of their powers and duties under the law. Trusts are generally governed by state law. Under Massachusetts law (Mass. Gen. Laws ch. 203E Article 8), trustees have certain duties and powers. Here are six specific things to know about the powers and duties of trustees in Massachusetts:
- Duty to Administer: Trustees are responsible for administering the trust. When they accept their position, they act in “good faith” to administer the trust in accordance with its terms and purposes.
- Duty of Loyalty: Trustees owe a duty of loyalty to the beneficiaries or the trust. They are legally required to manage the trust “solely in the interests of the beneficiaries.”
- Prudent Administration: A general level of competence is required. Trustees “shall exercise reasonable care, skill and caution” when carrying out their responsibilities.
- Limit Costs: In managing a trust, state law requires trustees to only incur costs and expenses that are “appropriate and reasonable” given the specific circumstances.
- Duty to Inform: Beneficiaries should not be kept in the dark about their interest. Massachusetts law states that trustees have a duty to keep beneficiaries “reasonably informed about the administration of the trust.”
- Power to Direct (Revocable Trusts): When a trust is revocable, a trustee has the legal power to “follow a direction of the settlor that is contrary to the terms of the trust.”
What Are the Rights of Beneficiaries?
As the beneficiary of a trust, you have important legal rights under state law. Beneficiaries should know their rights. Some of the most notable legal rights of trust beneficiaries include:
- Best Interests Protected: As the beneficiary of a trust, you are owed a fiduciary duty. You have the right to have your best interests considered and protected by the trustee.
- Transparency and Communication: You have the right to be informed about the status of the trust. Among other things, this includes the right to an annual financial report.
- Receive Distributions: Finally, beneficiaries also have the right to receive distributions in accordance with the terms of the trust. If the trust calls for distributions, you should receive those distributions without any unreasonable delay.
Can a Trustee Remove a Beneficiary from a Trust?
In many cases, a trustee cannot remove a beneficiary from a trust. Trustees often do not have that authority. However, it is possible in some limited circumstances. To know whether a trustee can lawfully remove a beneficiary, you first need to know what type of trust you are dealing with. While there are many different types of trusts, they generally fit into two broad categories:
- An irrevocable trust is a type of trust that cannot be changed for cancellation after it has been created. Once the documents are signed, the irrevocable trust cannot be altered without the permission of the beneficiary or beneficiaries.
- A revocable trust is a type of trust that can be modified (or even terminated) by the grantor. As explained by the American Bar Association (ABA), the person who creates a revocable trust retains control over it during their lifetime.
As a revocable trust can be altered at any time by its creator, it is sometimes possible for a trustee to remove a beneficiary from this type of trust. On the other hand, it is extremely unusual for a trustee to be able to remove a beneficiary from an irrevocable trust. In general, a trustee does not have the power to remove a trust from an irrevocable. At BK Estate Planning Attorneys, we can help you on how to set up a living trust.
Can a Trustee Remove a Beneficiary from a Revocable Trust?
A beneficiary may be removed from a revocable trust by a trustee. The Cornell Legal Information Institute defines a revocable trust as one that “can be revoked by the donor at any time during the donor’s lifetime.” It is not uncommon for the person who creates a revocable trust to serve as the trustee. In this scenario, the trustee (also the trustor) retains full authority to revise the terms of the trust. They can even remove one of the beneficiaries if they choose to do so. If you have any specific questions about revocable trusts, an experienced attorney can help.
Can a Trustee Remove a Beneficiary from an Irrevocable Trust?
A beneficiary typically cannot be removed from an irrevocable trust. As noted previously, the creator loses their control over the trust when they create an irrevocable trust. A trustee also usually lacks the authority to make explicit changes (such as removal of a beneficiary) to an irrevocable living trust.
Exception: A trustee that has been granted a reserved power of appointment for an irrevocable trust may have the authority to effectively remove a beneficiary.
What Is the Power of Appointment and How Does It Work?
The power of appointment is a specialized trust provision that grants the trustee additional authority to alter the terms of the trust—potentially even allowing them to remove a beneficiary. Trust documents must explicitly grant power of appointment.
Who Can Be Granted the Power of Appointment for a Trust?
Power of appointment can be granted to a trustee in a number of different circumstances. That being said, it is most often given to a surviving spouse. A person who names their spouses as a trustee may want to prove him or her the maximum amount of authority to alter the terms of the trust.
Why Would a Trustee Use Power of Appointment to Remove a Beneficiary?
A trustee with power of appointment could try to remove a beneficiary in many different circumstances. In some cases, the trustee with power of appointment could have some genuine, good faith reason to do so. In other cases, it could simply be a matter of interpersonal conflict (such as a remarriage or other family dispute).
Is It Difficult for a Trustee to Remove a Beneficiary?
The difficulty of removing a beneficiary by a trustee depends entirely on the situation. A trustor who is serving a trustee for their own revocable living trust can easily remove a beneficiary. A trustee without power of appointment for an irrevocable trust has virtually no authority to do so.
What Are the Valid Grounds for Contesting a Trust?
Prior to the start of trust administration—and the distribution of assets—any interested party can challenge (contest) a trust. However, they will need valid grounds to do so in order to get their desired results. Here are five of the most common grounds for contesting the validity of a trust:
- The trustor altered the trust because undue influence was applied by another party;
- The trustor lacked legal capacity when they created or changed the trust;
- The trust was created as a consequence of fraud;
- The trust documents are a forgery or otherwise materially legally flawed; or
- The trust was actually already revoked by the decedent.
Trust challenges are time-sensitive legal cases. A contest of a trust must be initiated before the applicable deadline expires. For example, under Mass. Gen. Laws ch. 203E § 604, a revocable trust must be contested within one year of the trustor’s death or 60 days of the date they received official notice from the trustee, whichever comes first.
Can a Beneficiary Remove a Trustee from a Trust?
You may be wondering: Does a beneficiary ever have the right to remove a trustee? The answer is ‘yes’—there are circumstances in which a beneficiary can have a trustee removed from their position. To do so, a beneficiary typically needs to prove that the trustee failed to abide by their responsibilities under the terms of the trust or state law. Some examples of conduct that could warrant the removal of a trustee include:
- Failure to comply with the terms of the trust;
- Mismanagement of property or assets;
- Self-dealing or other bad faith conduct; and
- Breach of fiduciary duty.
Who Has More Rights, a Trustee or the Beneficiary?
The answer depends entirely on the specific circumstances of the case. On one side of the spectrum, there is a revocable living trust where the grantor (trust creator) also serves as the trustee. In that situation, the trustee has considerable power/rights over the beneficiary. On the other hand, a financial institution serving as the trustee of an irrevocable trust has owed a clear fiduciary duty to the beneficiary. If you have any questions about your duties/powers as a trustee or your rights as a beneficiary, contact an experienced Massachusetts trust lawyer for help.
As a Beneficiary, What Should I Do If I Suspect a Trustee Is Trying to Remove Me?
If you are a beneficiary and you suspect that a trustee is trying to remove you, it is imperative that you take immediate action to protect your rights. As explained above, trustees only have the authority to remove beneficiaries in limited circumstances. If you believe that your legal rights as a beneficiary have been or are at risk of being violated, you should speak to an experienced Massachusetts trusts attorney as soon as possible. A lawyer will be able to review your case, answer your questions, and determine the best course of action to protect your legal rights and financial interests.
Schedule a Confidential Consultation with a Trust Planning Attorney in Massachusetts
At BK Estate Planning Attorneys, our Massachusetts estate planning lawyers have deep experience helping clients navigate trusts. If you have any questions about removing a beneficiary from a trust or any related matter, we are here as a resource. Give us a call now or contact us online to set up your strictly confidential consultation. From our law offices in Gloucester, Boston, and Plymouth, we provide estate planning and estate administration services throughout Eastern Massachusetts.