Does the Beneficiary of a Living Trust Need to Know That the Trust Exists?
A trust is a common estate plan that offers certain advantages, such as probate avoidance and privacy. The beneficiaries benefit from the terms of the trust; they are entitled to the equitable interests in the trust. While the grantor (the trust creator) is still living, beneficiaries do not need to know about the existence of the trust. Keeping the trust private may avoid potential problems, such as a beneficiary staking his interest in the trust to secure a loan.
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Trust Elements
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State laws govern estate matters, such as the elements required for a valid trust. In general, a trust requires four main things: a grantor, trust property, identifiable beneficiaries and a trustee. The grantor creates the trust by drafting a declaration of trust. In the declaration he names a trustee and describes who the beneficiaries are. Beneficiaries do not need to be specifically named; it is enough to say “my grandchildren living at the time of my death,” for example. The grantor must also transfer property into the name of the trust.
Informing Beneficiaries
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In general, beneficiaries do not need to know the trust exists until after the trust comes into effect. Trustees do not have a duty to disclose the terms of the trust or the existence of the trust. For example, assume a person named Grant creates a living trust and names his sons the beneficiaries. While Grant is still living, the beneficiaries do not need to know about the existence of the trust. When Grant dies, and the trust takes effect, the trustee must notify the beneficiaries about the trust’s existence and comply with the terms in the declaration of trust.
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Trustee’s Duties
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The declaration of trust describes the trustee’s duties. Typically, the declaration explains how the trustee must distribute property and generally manage the trust. Eventually, the beneficiaries of the trust must know about the trust’s existence. If the grantor did not tell the beneficiaries about the existence of the trust, then the beneficiary must notify the beneficiaries when the trust becomes effective. The trustee must know certain things about the beneficiaries, including their names, addresses and Social Security numbers. This information is necessary to comply with any tax obligations of the trust.
Other Issues
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State laws may vary with regard to a trustee’s duty to disclose. In Missouri, for example, the trustee of a revocable or irrevocable trust must inform beneficiaries about the trust’s existence and the terms of its administration after it becomes effective. In addition, the trustee must furnish a copy of the trust declaration to any beneficiary who requests it. Because of the legal nature of this matter, readers should speak to an attorney for independent advice.
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