Estate-planning documents such as wills and trusts are confidential prior to the person’s death, and living trusts are no exception. Unless a person is the designated trustee, they likely won’t see the documents until they stand to benefit from them. However, beneficiaries do have rights and they don’t necessarily have to accept their unexpected windfall.
Definition of Trusts
A person can leave their property to whomever they choose as long as the person can legally inherit. However, complications arise when their chosen beneficiary is a minor or otherwise unable to manage the inheritance. The trust fund is an instrument whereby a third party watches over the funds on behalf of the beneficiary. A trust involves three basic parties, the settlor or person donating the money, the trustee or person in charge of guarding the money, and the beneficiary, who inherits the money.
A Living Trust
A living trust (or inter vivos trust) becomes effective during the settlor’s lifetime and is either revocable (can be amended or canceled) or irrevocable. The property in trust immediately becomes the possession of the trust and transfers to the beneficiary without probate after the settlor dies. Living trusts are commonly used to set aside funds for the care of loved ones after someone dies.
A Beneficiary's Right to View the Trust
A beneficiary, as an interested party, has a right to see the living trust—after the settlor dies. What about during the settlor’s lifetime? If a person suspects they are the intended beneficiary of a living trust, they may not have the right to see the document before they stand to inherit or before the donor dies; the answer lies in each state’s laws. A beneficiary’s request to see a living trust prior to the donor’s death may require a court’s intervention and a valid reason.
Disclaiming a Trust
One would think the beneficiary of a trust would welcome the unexpected windfall; however, there are times when the terms of a trust and the gift, itself, represent hardship to the beneficiary. Beneficiaries can “disclaim” a trust, thereby refusing to accept the gift in the first place using a “qualified disclaimer.” This written document refuses the trust and passes it to the next beneficiary in line.
The Pros and Cons
Legal experts warn consumers not to fall prey to the tax myths associated with living trusts. Property inherited through a living trust avoids very little taxation, if any. In addition, these trusts can be complex and expensive to plan.
Why would a person choose a living trust? Avoiding the delays of probate court is a definite advantage, especially when the funds are immediately needed to care for someone. In addition, living trusts are confidential and allow a person to determine the distribution of their property after their death.