Can the Beneficiaries of an Irrevocable Trust Be Sued for the Trust?

  Reviewed by: Ryan Cockerham, CISI Capital Markets and Corporate Finance      Updated November 06, 2018
  Written by: Mary Frazier
Can the Beneficiaries of an Irrevocable Trust Be Sued for the Trust?

A beneficiary is usually an interested party to an irrevocable trust, since a revocable trust grantor is directly responsible for his trust. The beneficiary of an irrevocable trust is not responsible for the management and administration of a trust. These duties are the sole responsibility of the trustee, and, as a result, the beneficiary is not liable for actions the trust takes. The trustee or trustees are solely responsible for trust management.

Tips

  • The beneficiaries of an irrevocable trust can rarely be held liable for actions undertaken by the trustee. With that in mind, it is very unlikely that a beneficiary can be sued on behalf of the trust.

Beneficiary Limited Liability

Irrevocable trust beneficiaries have limited liability on trust matters and are not generally parties in lawsuits against the trust unless they were direct participants in the action causing the lawsuit. For example, if a trust owns a piece of real estate where a person was injured, the lawsuit would be directly against the trust and not the trust beneficiaries since the trust owns the real property.

Understanding Beneficiary Liability

If an irrevocable trust beneficiary is involved with trust activity that causes a lawsuit, then the beneficiary can be an individual party to the lawsuit. This is rare, and the beneficiary would typically be overstepping into the trust management for this situation to occur or have an unusual relationship with a trust asset. For example, if a beneficiary owns a business located on property owned by a trust and someone gets hurt at the business, the beneficiary would have individual liability along with the trust.

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Evaluating Trustee Liability

The trustee of the trust has personal liability with regards to the trust and the office of trustee. If the trustee acts improperly in a manner that causes lawsuit filing against the trust, then the possibility exists that the trustee as an individual will be party to the lawsuit along with the trust. For example, a trustee can improperly mix their funds with trust funds and be sued for this This does not include the trust beneficiaries, as they have no standing to be a party to a lawsuit where they are not responsible for trust administration.

Beneficiary Sued Directly

A lawsuit filed against a trust beneficiary individually for a matter outside of the trust may try to pierce the protection of the trust to obtain assets in trust for the benefit of the beneficiary in settlement of the lawsuit. Most irrevocable trusts have language that prevents the trust from being responsible for a beneficiary’s debts and creditors, which makes it difficult for a lawsuit to penetrate the protection of the trust. The exceptions to this are child support, alimony and taxes. Regardless of the language in the trust, the courts have held that payment of irrevocable trusts assets is possible for these purposes.

About the Author

Mary Frazier began writing in 2011 for various websites and has over 20 years of experience as a bank vice president and senior trust officer. Frazier is a Certified Trust and Financial Advisor, holds a Bachelor of Arts in economics from the University of North Florida and holds a Master of Science in finance from the College for Financial Planning.

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