- Dennis Fordham
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Estate Planning: Rights of trust contingent remainder beneficiaries
A trust beneficiary with a future right to part or all of the remaining balance of a trust estate provided they survive the current beneficiary is called a contingent remainder beneficiary.
Before the remainder beneficiary’s future rights in the trust can vest, however, he or she must first survive the current beneficiary.
This situation can create tensions between the current and remainder beneficiaries over the use and investment of trust assets while the current beneficiary is alive.
What present rights then do contingent remainder beneficiaries have to protect their future interests in the interim while they are still waiting to inherit?
Consider, for example, a deceased husband whose trust provides lifetime benefits for his surviving second wife and also provides that at her death the remainder goes to those of his children (from his first wife) who survive her.
Here the surviving second wife is the current beneficiary and the deceased husband’s children who survive him are contingent remainder beneficiaries. That is, the children’s right to inherit depends upon their still being alive when the surviving wife later dies; at that time each child’s rights vest provided he or she is still alive.
Under California statutory law contingent beneficiaries do not have an automatic right to receive an annual trust accounting from the trustee, unless the trust provides otherwise. Nonetheless they still have important rights.
All beneficiaries, including contingent beneficiaries, have the right to request the trustee to provide them with information about the trust’s assets, liabilities, receipts (income) and disbursements (expenses) of the trust, the acts of the trustee and the administration of the trust relevant to the beneficiary’s interest, including a complete copy of the trust.
Requesting such information is a preliminary step to showing that there is a problem with the trustee’s administration. The trustee’s response or lack thereof provides the grounds for petitioning the court for relief.
A contingent beneficiary can petition the court to order an accounting, to change the trustee, and/or to instruct the trustee (or successor trustee) as to the proper administration of the trust.
Furthermore, a contingent beneficiary has standing to petition the court to recover trust property that belongs to the trust.
For example, if the trustee improperly distributes assets to himself in violation of the trust, the contingent beneficiary can petition the court to recover the assets for the trust.
The contingent beneficiary does not have to stand by idly while the current beneficiary as a self-serving trustee plunders or misuses the assets of the trust to the detriment of the contingent remainder beneficiaries.
Nonetheless, contingent beneficiaries often fail to act for a variety of reasons, such as, they lack the money to pursue legal action; they do not know their legal rights; or they believe that any court petition would trigger the trust’s “no contest” clause and forfeit their inheritance rights.
A good faith meritorious petition to remove a trustee who is improperly administering the trust, however, will not trigger a no-contest clause that includes an attempt by a beneficiary to remove the trustee.
Conflicts between current and contingent beneficiaries can sometimes be prevented, or at least lessened, by good estate planning before the benefactor dies.
Alternative estate planning approaches vary with each situation. In the above example the deceased husband might have provided some assets or rights of occupancy and/or life insurance to his second wife but left the balance of his estate to his children immediately at his death.
Alternatively, the deceased husband might have at least appointed an impartial trustee (i.e., not his wife or children) to administer his trust estate.
Lastly, a final consideration, where parties are open to compromise, is to seek qualified mediation services. This can avoid costly litigation, emotional turmoil and protracted delays in reaching an outcome.
Dennis A. Fordham, attorney (LL.M. tax studies), is a State Bar Certified Specialist in Estate Planning, Probate and Trust Law. His office is at 55 First St., Lakeport, California. Dennis can be reached by e-mail at This email address is being protected from spambots. You need JavaScript enabled to view it. or by phone at 707-263-3235. Visit his Web site at www.dennisfordhamlaw.com .