Legal Rights of Living Trust Beneficiaries
In a living trust, the beneficiary is the equitable owner, the individual who theoretically has all right to the benefit of the trust. The trustee, however, is the legal owner of the assets. Beneficiaries have a number of rights they can enforce against the trustee in dealing with the assets. Those with questions about their rights regarding a specific trust should seek legal guidance.
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Trust Structure
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Someone creates a trust by transferring certain assets to another individual or entity, a trustee, and stipulating that those assets must be used only for the benefit of a third party. This third party, known as the beneficiary, must meet certain requirements. At the time of trust creation, the beneficiary must be an easily identifiable individual (or group, in the case of charitable trusts). Corporations can be trust beneficiaries, and many modern jurisidictions allow unincorporated associations as trust beneficiaries also.
Beneficiary's Equitable Interest
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Trusts create a relationship in which the trustee is basically caretaker of the assets for the beneficiary. The trustee holds legal title, meaning he has the power to control and transfer the assets. The beneficiary holds equitable title, meaning that he holds all rights to enjoy the benefits of the assets. The legal titleholder (the trustee) must manage the assets in a way that benefits the equitable titleholder and must manage the assets in any specific manner detailed in the language of the trust document.
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Fiduciary Duties
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Trustees exist in a fiduciary relationship to beneficiaries. The trustee owes the beneficiary a duty of loyalty; the trustee has no right to use the assets for his own benefit, or deal with them in any manner that he reasonably believes might disadvantage the beneficiary. Trustees cannot delegate any significant decisions about the trust to any party except for another trustee for that trust. Most jurisdictions include a duty of prudent investment, which mandates that the trustee act to protect the assets and make them grow at a reasonable rate of investment. Even if the trustee's breach of fiduciary duty should incidentally benefit the trust, beneficiaries can hold the trustee responsible for that breach of fiduciary duty.
Accounting Rights
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Among trustee fiduciary duties is a duty to earmark the trust property; the trustee must keep all trust assets both physically and financially separate from his own assets. The assets must also be titled in the name of the trust, not in the trustee's name. To enforce these earmarking rules, beneficiaries have the right to demand that the trustee render a full accounting of the trust assets. If a court finds any violation of the earmarking duties, many jurisdictions allow the court to hold the trustee personally liable, meaning that he must make up resulting losses with his own funds.
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References
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