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.
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.
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.
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
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.
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
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
a final consideration, where parties are open to compromise, is to seek
qualified mediation services. This can
avoid costly litigation, emotional turmoil and protactyed delays in reaching an