Generally, a trustee holds the power to administer the trust and make decisions in the best interest of the trust and all beneficiaries, but beneficiaries have the right to hold trustees accountable for abuses of power or breaches of their fiduciary duties.
Naming a trust as a beneficiary is a good idea if beneficiaries are minors, have a disability, or can't be trusted with a large sum of money. The major disadvantage of naming a trust as a beneficiary is required minimum distribution payouts.
When the trustee has discretionary authority, they can be within their rights to refuse to pay a beneficiary. There are situations when the trustee does not have grounds to refuse to pay a beneficiary. If a mandatory provision promises trust funds to a beneficiary then the trustee must comply.
What types of fiduciary duties does a trustee have to the beneficiaries? The fundamental duties of a trustee are as follows: (1) the duty of good faith and loyalty; (2) the duty of reasonable skill and diligence; (3) the duty to give personal attention; and (4) the duty to keep and render accounts.
Trust beneficiary rights include: The right to a copy of the trust instrument. The right to be kept reasonably informed about the trust and its administration. The right to trust accounting.
Selecting the wrong trustee is easily the biggest blunder parents can make when setting up a trust fund. As estate planning attorneys, we've seen first-hand how this critical error undermines so many parents' good intentions.
Ultimately, trustees can only withdraw money from a trust account for specific expenses within certain limitations. Their duties require them to comply with the grantor's wishes. If they breach their fiduciary duties, they will be removed as the trustee and face a surcharge for compensatory damages.
A trustee must abide by the trust document and the California Probate Code. They are prohibited from using trust assets for personal gain and must act in the best interest of the beneficiaries. Trust assets are meant for the benefit of the trust beneficiaries and not for the personal use of the trustee.
While a trustee may not legally withhold trust assets based on their own discretion, they may withhold assets if the power and discretion is afforded to them by the terms laid out in the trust document.
Parents and other family members who want to pass on assets during their lifetimes may be tempted to gift the assets. Although setting up an irrevocable trust lacks the simplicity of giving a gift, it may be a better way to preserve assets for the future.
Naming the same person as trustee and beneficiary can be problematic. Not only can it lead to a trustee and beneficiary conflict of interest, but it can make it difficult for the trustee to uphold their duty to treat all beneficiaries equally.
Once your home is in the trust, it's no longer considered part of your personal assets, thereby protecting it from being used to pay for nursing home care. However, this must be done in compliance with Medicaid's look-back period, typically 5 years before applying for Medicaid benefits.
In general, the steps to this process are: The trustee must send a written notice to the beneficiary to vacate the real property. Under California law, if the beneficiary has been in possession of the property for less than a year, then a 30-day notice is sufficient.
Being a trustee is also a role that can be quite time consuming, more so than most people assume. Depending on the nature of the estate, being a trustee can require quite a few hours, which can be hard to come by if the trustee also has a full-time job, a family, and/or other obligations.
Trusts can provide many valuable benefits to wealthy younger families including: Providing for family members if something should happen to you. Dictating the distribution of your assets to specific beneficiaries. Helping transfer highly-appreciated assets tax efficiently.
Common Breaches of Trustee Duties in California. Too often, trustees breach their duties. Some of the most common ways they do this include breaches of trust, funds misappropriation, poor management, fraudulent acts, failure to act, and engagement with a competitor.
Trustees are personally liable for all decisions they take in that capacity, and their liability is not automatically limited to the value of the trust fund. Typically, the trust deed will limit trustees' liability in some way and these clauses should be checked, as well as any existing trustee insurance.
This is a fundamental concept of trust law: the separation of legal and equitable title. In other words, while the trustee has the legal authority to manage and control the assets, they do so not for their own benefit, but for the beneficiaries.
If the trustee is not paying beneficiaries accurately or on time, legal action can be taken against them.
Key Takeaways. Funds received from a trust are subject to different taxation rules than funds from ordinary investment accounts. Trust beneficiaries must pay taxes on income and other distributions from a trust. Trust beneficiaries don't have to pay taxes on principal from the trust's assets.
Anyone 16 and over (18 for an Unincorporated Association or Charitable Trust) who is not 'disqualified' can be a Trustee. The reasons for disqualification were set down by the Charities Act 2011, and were designed to prevent people convicted of financial crimes, or who made serious financial errors, becoming trustees.
Trusts offer amazing benefits, but they also come with potential downsides like loss of control, limited access to assets, costs, and recordkeeping difficulties.
Although a trustee can withdraw money from a trust account for specific things, there are limits. A trustee's fiduciary duty requires them to comply with the grantor's wishes, even if they are well-intentioned. If they violate their fiduciary duties by disregarding a grantor's wishes they could be removed as a trustee.
There are a variety of assets that you cannot or should not place in a living trust. These include: Retirement accounts. Accounts such as a 401(k), IRA, 403(b) and certain qualified annuities should not be transferred into your living trust.