Can a Trustee Remove a Beneficiary from a Trust?

• August 6, 2021
• CLLB Law
• Estate & Elder Law

In most cases, a trustee cannot remove a beneficiary from a trust. The trustee’s job is to administer the trust and act in a fiduciary capacity. However, there are at least two instances in which a trustee could remove a beneficiary:

1. The trustee is the creator (grantor) of their own revokable living trust.
2. The trust document explicitly and clearly grants this power to the trustee.

If the grantor of a revokable living trust wants to make changes at any time to his or her own trust, they can. This is one of the reasons this type of trust is created: it gives the grantor a lot of flexibility in changing, expanding, or contracting the terms of the trust while the grantor is still alive.

In a modified yet similar example, sometimes married couples who create a revokable living trust also give the surviving spouse (after the death of the grantor) the role of trustee, and with it a general or limited power of appointment. This allows the surviving spouse, as trustee, to make changes to a trust, including removing a beneficiary.

In other trusts, it is possible that the creator of a trust included language in the document itself allowing a trustee broader discretion than is typical, including the right to remove a beneficiary from a trust. While such language is rare, it is possible.

Generally, the role of a trustee is to astutely and effectively follow the wording of a trust to make sure the grantor’s directions are carried out. A trustee has a legal obligation (fiduciary duty) to act in the best interest of the trust by executing the written terms of the trust. The role of a trustee generally does not include making decisions about who benefits from the trust.

The fiduciary role of a trustee includes:

• Fully following instructions as laid out in the trust
• Not treating trust assets or income improperly (such as misappropriation or fraud)
• Maintaining records to establish that trust assets are appropriately managed and spent
• Releasing this information to beneficiaries when requested
• Paying taxes as required.

While a trustee most often does not have the right to remove a beneficiary, in the alternative, beneficiaries have the legal right to remove a trustee in certain circumstances, such as when the trustee mismanages or misuses trust funds, is no longer cognitively capable of being a trustee, has a conflict of interest, or isn’t otherwise living up to his or her fiduciary obligations.

If you have a specific question about a trust or trustee, the best thing to do is speak to a trust attorney at Church, Langdon, Lopp, Banet Law in New Albany, IN. We would be happy to discuss your concerns and guide you to answers.  Call us at 812-725-8224.

What are the different kinds of trusts?

You may be asking yourself, “What is a trust?”  That’s a meaningful question, especially for individuals who do not have a lot of experience with estate planning.

A trust is a financial arrangement that you (the grantor) create allowing a third party (the trustee) to manage and spend assets to benefit a person, group of people, charity or charitable cause (the beneficiary or beneficiaries). Trusts can be set up in any number of ways and can state specifically how and when you want the assets (or income from the assets) to pass to the beneficiaries.

Revocable or Living Trust

This type of trust allows you to modify or end it. A revocable or living trust can help transfer assets outside of probate after your death and allow you to retain control of the assets during your life. The trust can be dissolved at any time if your circumstances or desires change. These trusts often become irrevocable (see below) when the grantor dies. You can be the trustee (or co-trustee with another person), maintain control over the trust and make provisions for a successor trustee if you become incapacitated or die. These trusts can help avoid the probate process when assets are transferred, but they can be subject to estate taxes and will be treated as one of your assets during your lifetime.

Irrevocable Trust

This type of trust can’t be changed by the grantor after it’s created. While this loss of control is a negative factor, the benefits are that it generally transfers your assets out of your estate and potentially out of the reach of estate taxes and probate. If your goal is to reduce your estate tax liability, this is an option you should consider. It may also shelter your assets from legal judgments against you and can be part of Medicaid planning.

Who chooses the trustee?

The creator (grantor) of a trust chooses its trustee. For example, when someone creates an estate plan that includes one or more trusts, he or she will decide who will serve in the capacity of trustee(s). The trustee could be a spouse, family member, accountant, lawyer or other individual. It is possible to have co-trustees (two or more people), and grantors sometimes also name a successor trustee who will take over in the event that the original trustee passes away or can no longer fulfill that role.

Contact Church, Langdon, Lopp, Banet Law Today

If you have specific questions about trustees and beneficiaries, or if you would like to learn more about creating a customized estate plan for your family, we would be happy to serve you.  Our trust attorneys have decades of experience helping clients manage assets and provide for future generations.  We receive outstanding testimonials from our clients, and we invite you to read the bios of our attorneys to learn more about who will be serving you.  We offer a welcoming, warm atmosphere in our law firm and focus on making our clients feel comfortable.  Our goal is to inform clients about legal matters and listen closely to their wishes and concerns.  To find out more, call us at 812-725-8224.

In addition to New Albany, Indiana, we proudly serve communities throughout the Kentuckiana area with estate planning lawyers in Louisville (KY) and estate planning attorneys in Jeffersonville (IN), Corydon (IN), and Clarksville (IN).