Many people do not even know they are a beneficiary until after the death of someone they loved and, whilst they may be aware that they are then entitled to receive the benefits allotted to them under the particular instrument referred to, they may not be aware of the many avenues open to them to ensure that the estate or trust is properly administered and that they receive their benefits in a fair and timely manner.
What is the legal meaning of a beneficiary?
A beneficiary is someone who has the legal right to receive the benefits of an instrument or contract. We will concentrate in this blog on three main types of beneficiaries:
- A beneficiary of a will or an estate – A person entitled to receive assets of the deceased upon a grant of probate or based on the laws of intestacy
- A beneficiary of a trust – A person who receives the benefit of a trust in the form of disbursements of trust assets or income.
- A beneficiary of a life insurance policy, a retirement account, a Payment on Death (POD) or a Transfer on Death (TOD).
A beneficiary of a will or an estate
The person with responsibilities in terms of the administration of an estate after a person’s death is the executor or personal representative. A beneficiary does not have the responsibilities that an executor does. The beneficiary is supposed to collect the assets allotted to them and play a minimal role in the estate administration process. In most cases, a beneficiary just has to wait for the administration process to be over and for the Personal Representative to distribute the assets. Beneficiaries don’t have to contribute to the administration process, and they do not have to pay any money to the executor or anyone else to receive their inheritance from the estate.
However, if there are discrepancies, non-fulfilment of duties and responsibilities or actual wrongdoing on the part of the Personal Representative or failure to administer the estate, the beneficiaries are the ones who are able to take action to ensure the administration of the estate is properly carried out and that everyone receives their just entitlements.
A beneficiary has a right to obtain a copy of the Will and they have a right to receive a Notice of Administration.
Beneficiaries have a right to see the inventory and to receive a detailed accounting filed by the Personal Representative and to receive the inventory of safe deposit boxes. If the Personal Representative has not filed an accounting, the beneficiaries have a right to compel the personal representative to do so. If a beneficiary believes that improper or inaccurate accounts have been filed they have a right to object to the accounting.
A beneficiary also has the right to petition for determination of homestead status of real property. This can be used to protect the primary residence of the deceased from the claims of creditors.
A trust beneficiary
A beneficiary must ensure that the trustee is administering the trust in good faith, in accordance with the best interests of beneficiaries and according to the purpose of the trust. A trustee must avoid conflicts of interest and self-dealing, and to reasonably limit trust expenses. A trustee owes a fiduciary duty to the beneficiary.
In order to accomplish the above, a beneficiary must participate actively in trust affairs. They must understand the purpose, nature and composition of the trust. A beneficiary generally has the right to be kept “reasonably informed of the trust and its administration.” This includes the right to receive an annual accounting from the trustee, which must provide a record of all transactions involving the trust and a statement of all gains, losses, distributions, and fees. The required disclosure of fees includes all fees paid by the trust to the trustee and any professionals hired by the trustee on the trust’s behalf. With this knowledge, a beneficiary should expect the trustee to be accountable to them for any breaches, improper management of the trust or improper dealings concerning trust assets or expenses.
A beneficiary may petition a court to void inappropriate transactions or to hold the trustee liable for losses incurred by the trust. They have the right to insist that the trustee protect trust assets—through appropriate legal action when necessary—and invest prudently. This may lead to the beneficiary to seek the removal of the trustee or to petition a court for appointment of a different trustee.
A beneficiary of a life insurance policy, a retirement account, a Payment on Death (POD) or a Transfer on Death (TOD)
The POD and TOD are instruments by which assets are vested in the beneficiary automatically after the owner dies without the need for probate or similar designations allowing an asset’s title to automatically pass to a named beneficiary upon the current owner’s death. In Florida, POD designations are commonly used for bank and money-market accounts and CD’s. TOD designations are typically associated with stocks, bonds, and brokerage accounts.
Retirement accounts, such as 401k’s and IRAs in Florida, also allow the owners to name a beneficiary to receive the contents of the accounts automatically after the owner’s death so that probate would not be necessary.
Life insurance beneficiaries have the right to receive a policy’s payout upon the death of the insured. With most policies, the beneficiary may choose amongst several payout options from single, lump-sum payment to an annuitized “life income” payout that provides regular guaranteed distributions for the rest of the beneficiary’s life.
If you are a beneficiary of a will, an estate, a trust, a retirement account or other such instruments it may be prudent to contact an Attorney-at-Law to be sure of your rights and responsibilities under your particular instrument and how best to ensure that your rights are being respected and your benefits are being distributed to you in a timely and proper manner.