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Emily Belfer:

In this video, we're going to discuss five key things that every beneficiary should understand or do. Number one, it may sound obvious, but you need to know what a trust is and why it's a helpful tool. We covered this topic in our "What Is a Trust?" video. If you haven't had a chance to watch that, now might be a good time.

Number two, you should understand why the grantor set up the trust in the first place. Try to see through their eyes.

Maybe your grandparents never had the opportunity to attend college, but they want you to have that opportunity. So that's why they created a trust that's directed to pay only for an undergraduate education for you. Or maybe your aunt wants to give her wealth to you as a gift, but she also wants to make sure that you're independent and industrious. So that's why she set up a trust that gives the trustee discretion to withhold some money until you're a bit older to receive it.

The point is this: whether you agree with the grantor's intentions or not, it's helpful to at least understand why they created the trust in the first place.

Number three, you need to know what the trust actually says. Read it. Learn some of the specifics. How many beneficiaries are there? This is going to make a big difference in how the trustee ultimately makes decisions.

How long is the trust supposed to last? Is it going to pass to you in the year 2030? In the year 2050? Or maybe it was designed to last well beyond your lifetime.

And then there are the distributions. Every trust states the standards by which a trustee can distribute assets to beneficiaries. Generally speaking, these standards fall into one of three categories.

The first is mandatory. This one is pretty straightforward. The trustee has to give, let's say, $1,000 per month to each beneficiary, period.

The second type of standard is called discretionary, or fully discretionary, which basically means it's totally up to the trustee. The grantor has given the trustee the leeway to make decisions as it deems best after weighing the needs of the beneficiaries and the wishes of the grantor.

The third type of standard is what's known as an ascertainable standard. This is where a grantor sets a certain condition that the beneficiary has to meet in order to receive money or assets from the trust.

The condition can be very strict. It could be, say, only for medical school, period. But more often, there is a little more flexibility. One of the more common ascertainable standards permits trust distributions for health, education, maintenance, and support.

How these terms are defined depends entirely on the terms of each individual trust. For instance, education could mean only undergraduate education for one trust, or it could mean any type of schooling for another. Similarly, maintenance and support can mean many things. It could include travel, buying a car, or helping with a down payment on a home.

The point is every trust is unique. To understand what a particular trust covers, you have to read it and ask questions.

The fourth thing a beneficiary needs to know is what the trustee's role is. Remember, the trustee is the person or organization whom the donor entrusts to carry out his or her wishes. By law, a trustee can only make an investment decision or distribution if the terms of the trust allow it.

The trustee will weigh a variety of factors in making decisions, including the needs of the beneficiaries, the wishes of the grantor, and the trustee's own experienced judgment.

The fifth and final thing that a beneficiary should know is how to communicate well with the trustee. At its heart, the trustee-beneficiary relationship is a partnership, and any partnership depends on good, open, and honest communication.

So to summarize, the five key questions that every beneficiary should be able to answer are: What is a trust? Why did the grantor set it up in the first place? What does the trust actually say? What's the trustee's role? And how will you and the trustee communicate?

If you can answer these questions, then everybody benefits.

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