Beneficiary Issues: Breaking a Trust
Trusts are legal documents that are prepared by a trustee with the advice of an attorney or a financial planner. Trusts enable the trustee to pass assets directly to beneficiaries in a manner that is consistent with the wishes of the maker without the requirement of probate. When setting up a financial account for a trust, the account is established as a beneficiary account at a brokerage or bank. Generally speaking, the resulting account would read like this:
Jane Doe Trustee
The Doe Family Trust
FBO Mulitple Beneficiaries
The trust document typically specify how the assets of the trust are to be divided among the beneficiaries and in some cases, how the assets are to be used. The specification of division of assets and use of assets are what may cause some issues with an irrevocable trust. Can a majority of beneficiaries force one out if they are not acting within the terms of the trust? Yes, they can, however it will require intervention from the courts.
When trusts are created they must have a purpose stated. If the purpose of the trust is to provide for the financial security of the beneficiaries, a single beneficiary cannot object to having assets liquidated without causing financial problems for the other beneficiaries. In this instance, beneficiaries may petition the court to have a beneficiary removed to allow the other beneficiaries to act in the best interest of the trust purpose.
Other legal reasons to replace or remove a beneficiary may include legal problems, financial problems or incapacity. Judges will review the executed trust documents carefully before deciding if it is legally appropriate to removing a beneficiary. The court may order the trust be broken and that the other beneficiaries be required to buy out the beneficiaries share of the trust.
Changing the terms of an irrevocable trust is very difficult to do unless there is a legally valid reason for taking this drastic action. Those who are facing challenges with trust beneficiaries will need the assistance of a qualified trust attorney in order to remove a beneficiary from an irrevocable trust.