What Legal Rights Does a Trust Beneficiary Have?

At its most basic, a trust is a legal relationship between three parties: the grantor (also called the settlor or trustmaker), who creates the trust and funds it; the trustee, who is in charge of managing the trust and making distributions; and the beneficiary, for whose benefit the trust is maintained. This relationship is created by a document called the trust instrument. In order to understand the legal rights of a trust beneficiary, it’s important to talk about the relationship between the grantor, trustee, and beneficiary.

There are many kinds of trusts, but one of the most common is the revocable living trust, sometimes called simply a “living trust.” Living trusts are popular because they allow the grantor to use and enjoy trust property during their life just as if they owned it, and to pass trust property to their loved ones outside of probate after their death. During their life, the person who creates the trust often occupies all three roles: grantor, trustee, and beneficiary. The trust instrument provides for a successor trustee to take over when the grantor dies or becomes incapacitated, and “contingent” or “remainder” beneficiaries who will benefit from the trust after the grantor’s death.

Up until a grantor dies or becomes legally incapacitated, a living trust is revocable, meaning that the grantor can add, remove, or change beneficiaries, or revoke the trust altogether and take back the assets in it. After the grantor’s death or permanent incapacity, the revocable living trust becomes irrevocable. Other types of trusts may be irrevocable from the time of their creation.

What Rights Does a Beneficiary of a Revocable Trust Have?

The rights of a trust beneficiary are different depending on whether a trust is revocable or irrevocable. That makes sense, if you think about it: while the grantor of a living trust is alive, the interests of the remainder beneficiaries in a trust are contingent. Their interest in the trust during the grantor’s lifetime is a future interest that may never become a present interest if the grantor revokes the trust or changes beneficiaries. It is even possible that a remainder beneficiary of a trust wouldn’t know that they have been named as a beneficiary until after the grantor dies.

After the grantor of the living trust dies and the trust becomes irrevocable, the status of the beneficiaries changes. They are no longer remainder or contingent beneficiaries; they have a real, current interest in the trust that cannot be taken away (except under very limited circumstances). As current beneficiaries, they are entitled to certain rights. The trustee of the trust is obligated to manage the trust for the benefit of the beneficiaries, according to the terms of the trust instrument and Michigan law.

Rights of Current Beneficiaries of a Trust in Michigan

The Michigan Estates and Protected Individuals Code (EPIC) provides for qualified beneficiaries of a trust to have certain rights. The trust instrument may provide additional rights, but generally cannot eliminate any rights of a trust beneficiary under Michigan law. For instance, the trust instrument can provide that the beneficiaries receive more frequent trust accountings than the law requires.

You may be wondering how a trust beneficiary learns of their rights, especially if they had been unaware that they were named as the remainder beneficiary of a trust. The answer is that the trustee is required to tell them.

When a trustee becomes aware that a revocable trust has become irrevocable, or becomes aware of the creation of an irrevocable trust the trustee must inform the beneficiaries of certain information within 63 days. This information includes:

• The existence of the trust
• The grantor or grantors’ identity
• Which court the trust is registered in, if any
• The right to request a copy of the terms of the trust that describe or affect the beneficiaries’ interest in the trust

The trustee is also required to provide certain information within 63 days of accepting a trusteeship, including:

• The fact that they have agreed to serve as trustee of the trust
• Their name, address, and telephone number
• Which court the trust is registered in, if any
• The right to request a copy of the terms of the trust that describe or affect the beneficiaries’ interest in the trust

In addition to providing this initial information, trustees have other obligations to the beneficiaries of a trust in Michigan. Beneficiaries who have the right to receive distributions of income or principal from a trust are entitled to an annual report on the trust property, liabilities, receipts and disbursements, or more frequently if the trust instrument requires it. Beneficiaries may waive their right to this report, and they can also revoke that waiver at any time if they so choose.

The report must include:

• A listing of trust assets, including, if applicable, the market value of the assets
• Any disclosures required by MCL 700.7802(5)
• The source and amount of the trustee’s compensation

Trustees provide a valuable service to the trust, and they are entitled to compensation for their work. However, if there are changes to the amount or terms of their compensation, they are required to inform beneficiaries in advance of the change.

Other Rights of Michigan Trust Beneficiaries

In addition to the required annual report, trustees are obligated to keep qualified trust beneficiaries reasonably informed regarding trust administration, including providing such “material facts necessary for them to protect their interests. Beneficiaries who make reasonable requests for information about the administration of the trust are entitled to a prompt response from the trustee who, as a fiduciary, is obligated to act in their best interest.

Lastly, beneficiaries have the right to take legal action if they believe the trustee is not fulfilling their duties under the trust instrument of the law. Beneficiaries may petition the court for removal of the trustee, and in some cases for the termination of the trust.

If you are a beneficiary of a Michigan trust and have questions about your rights, or you are a trustee who wants to make sure you are properly carrying out your obligations, contact Estate Planning & Elder Law Services to schedule a consultation.