Most people know if they’re beneficiaries of a trust. But once in a while, it comes as a surprise, as in a Dickens novel. If that’s the case, here’s what you need to know.
Say you get a letter that says: “Your grandfather John Doe has established a trust for your benefit.” You might be wondering: Why am I getting this – is it a scam? What’s a trust? Can I quit my job?
Why am I getting this?
Since 2012, Washington State has required trustees, LNWM included, to notify everyone with an interest in all trusts administered by them. So if you’ve received the notification from a reputable Trustee (googling the Trustee is a start), it’s highly likely that you are indeed a trust beneficiary.
The notice is just the start; it makes you aware of a potential gift or inheritance. As beneficiary, you are then entitled to have a copy of the trust document, which some Trustees don’t provide unless you ask for it. We encourage you not only to get a copy of the trust document but to look at it closely. Along with the trust document, you should also expect a statement showing the assets in the trust and any transactions posted. At LNWM, we provide beneficiaries with annual trust statements, unless otherwise requested.
What’s a trust?
Here’s the official definition from the Barron’s Dictionary of Financial and Investment Terms sitting on my desk:
“Trust: Fiduciary relationship in which a person, called a trustee, holds title to property for the benefit of another person called a beneficiary. The agreement that establishes the trust, contains its provisions and sets forth the powers of the trustee…”
Of course there’s more, but that’s really the gist of it. A trust is basically instructions from the Grantor, the person who funded the trust, to the Trustee, the person or entity that carries out those instructions for the good of the beneficiaries – in this case you. The trust outlines the “provisions” regarding why, when, and how you as beneficiary will have access to the funds – and there’s huge variety in the terms.
There are many types of trusts. For example, a Living Trust is set up while the grantor is alive and can be changed quite easily. An Irrevocable Trust is typically created to achieve a tax benefit or to manage assets for a person the Grantor thinks cannot do that on his/her own. For the most part, an irrevocable trust cannot easily be changed.
What does this mean for me?
Maybe plenty! But when? If you’re a beneficiary but unfamiliar with trusts, you might want to consult an attorney specializing in trust law. Along with the many different types of trusts, there are different types of beneficiaries and provisions. You’ll want to know:
(1) What type of trust is this?
(2) At what point do the provisions actually benefit you?
It could be that you’re one of many beneficiaries with current access to the funds (a “current” beneficiary) or a single beneficiary who’s last in line after all other beneficiaries have exhausted their benefits (a “remainder” beneficiary).
Before you consult an attorney, though, it might make sense to try reading the document and coming up with some questions. Here at LNWM, we actually do detailed diagrams of the construction of trusts.
You can start to do this yourself by asking these questions:
1. Who funded this trust? (Who is the Grantor?)
2. Who currently benefits from this trust? (Is this you, or someone else?)
3. Who benefits from this trust once the current beneficiary passes away? (Maybe this is you?)
4. How does a beneficiary obtain funds from the trust?
5. Are there any mandatory distributions now, or when a beneficiary turns a certain age?
See if you can answer these questions while you’re reading the document. A highlighter helps!
Should I quit my job?
Probably not. It’s a good idea to go about your life–keep working, going to school, or whatever else makes you happy. Once you know for sure how the trust could benefit you, it’ll be easier to make financial decisions. You might use the trust to supplement your finances, turn it into a great retirement nest egg, or possibly to benefit your children down the road.
Quitting your job or taking a trip around the word, before you know the facts, is not a good idea. Neither is spending the funds, before you know when — or if — you’ll have access to them.