The person who sets up a trust appoints one or more trustees to manage the trust assets for the benefit of the trust’s beneficiaries. According to California Probate Code §16000, trustees have a legal obligation to follow the instructions outlined in the trust instrument when administering the trust.
The responsibilities are similar in Texas—according to Texas Prop. Code §113.051, a trustee is obligated to administer the trust in good faith according to its terms. As part of this duty, trustees must distribute money and other assets to beneficiaries according to the directives of the trust document.
Trustees need to thoroughly review the trust instructions to determine when distributions should or need to take place and how much money each beneficiary should receive. The requirements will vary widely among trusts, so we recommend that trustees review and discuss the terms of the instrument with a knowledgeable trust lawyer to ensure they comply.
Sometimes, a beneficiary demands money that a trustee is not permitted to distribute from the trust. Other times, however, trustees refuse to give a beneficiary money they are entitled to or the trustee has the discretion to distribute. If a trustee unjustifiably refuses to distribute assets to a beneficiary who is entitled to them, the failure to distribute likely would be a breach.
In the latter case, the failure to distribute might be a breach, depending on the nature of the discretion given to the trustee – e.g. discretion, sole discretion, or sole and absolute discretion. If a trustee is refusing to distribute funds or a beneficiary is demanding distributions a trustee is unsure should be made, each party should consult a trust distribution attorney to assess the rights of the beneficiaries and the responsibilities of the trustee.
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What are a trustee’s responsibilities after a trustor dies?
After a trustor dies, a trustee is responsible for administering the estate in accordance with the terms laid out in the trust document.
A trustee’s responsibilities include:
- Taking an inventory of assets and approximating their value
- Processing creditor claims and paying any debts or outstanding expenses or taxes for the estate
- Understanding the terms of the trust document, including beneficiaries and inheritance amounts
- Distributing assets according to the terms laid out in the trust document
- Maintaining accurate reporting and record-keeping surrounding trust assets
- Communicating with beneficiaries and maintaining transparency throughout the trust administration process
- A trustee may also play a part in resolving disputes between beneficiaries
Altogether, a trustee has a duty to act in the best interests of the estate. The trustee must follow the terms of the trust document and act in a manner that upholds the wishes of the trust creator.
Does a trustee have to follow the trust?
A trustee has a duty to follow the trust document. A trustee also has a fiduciary duty to act within the best interests of the estate by administering using the trust as laid out by the creator. The trust will outline who the beneficiaries are and how assets should be distributed among them, including amounts and timelines. It is the trustee’s responsibility to preserve the wishes of the trust creator by following the trust document.
If a trustee is not upholding these wishes by following the trust, beneficiaries and other interested parties involved in the estate have the right to pursue legal action against the trustee. Beneficiaries can petition the court for trustee removal if they do not follow the trust and have the trustee replaced.
What are situations when a trustee may refuse to distribute funds?
A trustee has a fiduciary duty to distribute funds in accordance with the trust and act in its best interests. Therefore, they do not have the right to arbitrarily withhold funds on their own. However, they can decide to refuse to distribute funds when it is either specified in the trust document or if it is in the best interest of the estate.
Condition precedent not met
If a trust document states that a beneficiary must meet specific conditions to receive their inheritance, a trustee has the right to refuse to distribute funds. Some trusts will outline criteria that a beneficiary must meet before receiving an inheritance, like the following examples:
- A beneficiary must reach a certain age
- A beneficiary must graduate from college
- A beneficiary must complete a specific task or milestone
If these conditions are not met, then a trustee has the right, per the trust, to withhold funds from the beneficiary in question.
Discretionary distributions
In a discretionary trust distribution, a trustee is given the authority by the trustor to distribute or withhold assets based on the trust terms. In a case like this, a trustee is given the authority to decide from a predetermined group of beneficiaries, which beneficiaries will inherit assets and how much they will inherit.
A trustee may decide to distribute or withhold funds at their own discretion depending on whether they feel it would be in a beneficiary’s best interest and in the best interest of the trust.
Financial mismanagement concerns
If a trustee has reason to believe a beneficiary will manage funds improperly or utilize poor financial decision-making, they may withhold funds to protect the beneficiary from irresponsibly spending their inheritance. This is common in situations where beneficiaries are worried to have serious mental illness, substance abuse issues, or a lack of capacity.
Trust provisions for emergency situations
A trustee is responsible not only for distributing the assets in a trust but also for administering other responsibilities involved in the estate. If a trustee has concerns over unforeseen emergencies, such as medical or educational expenses, they may withhold funds or allow early access to funds if the trust document provides the trustee with these powers.
Trust fund sufficiency concerns
Because a trustee is responsible for acting in the best interests of the trust, they must consider all expenses associated with the trust, not just distributions to beneficiaries. As a result, if a trustee has concerns about the amount in a trust fund and its ability to cover other expenses, they may withhold assets to protect the trust’s ability to meet future obligations. These concerns may arise if there is an economic downturn or if there are not enough trust assets to cover mandatory distributions.
Pending tax or legal issues
A trustee may withhold money or assets from a beneficiary if they must focus on other responsibilities surrounding the estate. For example, if the estate becomes subject to a tax audit or litigation arises, a trustee may refuse to give beneficiaries their share of the assets until these issues are resolved.
Compliance with spendthrift provisions
A spendthrift provision is one that helps protect an inheritance by preventing beneficiaries from distributing their share to someone else, like a creditor. For example, if a beneficiary has a debt of $25,000, and a trustor wants to leave the beneficiary $25,000, they can implement a spendthrift provision to keep this money in the trust so that it cannot be claimed by the creditor as part of the beneficiary’s assets.
If a trust contains a spendthrift provision, a trustee will have the discretion to withhold the money from the beneficiary by keeping it in the trust until the beneficiary is in a better financial position so that creditors cannot place a claim against the inheritance.
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Can a trustee refuse to pay a beneficiary?
Yes, a trustee can refuse to pay a beneficiary if the trust allows them to do so.
Whether a trustee can refuse to pay a beneficiary depends on how the trust document is written. Trustees are legally obligated to comply with the terms of the trust when distributing assets. Some trusts give trustees considerable discretion to determine when to make distributions and how much to distribute. In most cases, trustees with this level of authority would be able to refuse to pay a beneficiary if they reasonably believed the request was unreasonable.
Other trusts place restrictions on when trustees can make distributions, such as the beneficiary satisfying certain conditions or reaching a particular age. If a beneficiary demands a distribution when the trust instructions preclude it, the trustee must refuse to pay the beneficiary.
What if a trustee won’t distribute assets?
There are several circumstances in which a trustee may not distribute assets. While a trustee may not legally withhold trust assets based on their own discretion, they may withhold assets if the power and discretion is afforded to them by the terms laid out in the trust document.
However, if the trustee’s refusal to pay a beneficiary is not allowed or justified by the trust’s instructions, beneficiaries have legal options. They may be able to pursue a lawsuit for breach of fiduciary duty, petition to instruct the trustee to make the requested distribution, or petition the court to have the trustee removed.
Often, we hear that a trust does not have sufficient assets to make a requested distribution, in which case it may be necessary to ask the trustee to provide an accounting report to the trust beneficiaries, either informally or formally, through the courts.
What if a trustee refuses to give an accounting of assets?
A trustee is legally required to give an accounting of assets to beneficiaries and other interested parties when requested and at least once a year. This accounting should include information such as the trust’s assets, gains, losses, investments, and debts. Beneficiaries can use this accounting to hold a trustee accountable and ensure that they are abiding by the rules set by the trust.
If a trustee refuses to give an accounting of assets, beneficiaries have multiple options. A beneficiary can petition the court for an accounting from the trustee. If a reporting of the trustee’s accounting appears to be inaccurate or contains any red flags, a beneficiary may also petition the court for trustee removal or seek legal recourse for a breach of fiduciary duty, including seeking to surcharge the trustee for damages they may have caused or inappropriate trustee’s fees they may have paid themselves.
In any situation where there are concerns about whether a trustee is reporting accurately or maintaining accurate reports, a beneficiary should seek the support of an experienced trust administration attorney.
What if a trustee is not communicating with beneficiaries?
A trustee has a responsibility to communicate with beneficiaries regularly regarding important updates surrounding the trust, and beneficiaries have a right to information. If a trustee is unresponsive, beneficiaries have several options.
They may petition the court to urge the trustee to take action. If the trustee continues to maintain poor communication, beneficiaries can petition for the removal and replacement of a trustee with one who will respect and uphold the interests of the trust.
When can a beneficiary sue a trustee?
A beneficiary can sue a trustee for breach of fiduciary duty if the trustee fails to distribute trust assets as required by the trust instrument.
When a trustee accepts an appointment, a “fiduciary” relationship is created between the trustee and the trust’s beneficiaries. Fiduciaries are subject to the most demanding legal standard, known as a fiduciary duty, which requires them to administer the trust for the sole benefit of the beneficiaries and exercise reasonable care when doing so. Due to this fiduciary relationship, a beneficiary can sue a trustee when the trustee has breached their fiduciary duty.
One of the most common reasons we see beneficiaries sue trustees is a failure or refusal to make distributions according to the terms of the trust. Some other ways that trustees can breach their fiduciary duties include:
- Embezzling or mishandling trust assets.
- Failing to provide a financial accounting of trust management.
- Engaging in self-dealing or another conflict of interest.
- Paying taxes late.
- Incurring avoidable expenses and fees.
- Showing a preference for one beneficiary over another.
In addition to filing a civil lawsuit, a beneficiary can also file a petition in the probate court to have the trustee removed from their position. When the judge agrees that the trustee should be removed, they will appoint a replacement and potentially order the former trustee to pay money damages, legal fees, court costs, and other expenses.
When should I contact a trust litigation attorney?
If you are the beneficiary of a trust and the trustee is refusing to make distributions you are entitled to receive, or if you are a trustee who is being asked to make distributions you are unsure can or should be made, you should contact a trust litigation attorney as soon as possible to determine the best course of action in your situation.
In some cases, simply filing a petition for instructions with the court may be sufficient. A knowledgeable trust litigation lawyer will be able to review the circumstances of your case and advise you on the best path forward.
Involved in a trust dispute?
RMO offers professional legal representation to protect your interests.
Serving clients across California and Texas
Seek the support of a trust litigation attorney
A trustee cannot refuse to give a beneficiary money under just any circumstances—if they do not have authority or a reason to do so, it could be grounds for a legal contest. If you are a beneficiary and a trustee is refusing to distribute assets without reason, you should seek the support and guidance of an experienced attorney.
Our team will take the time to understand the details of your case and lay out the options available to you based on the given circumstances. With our decades of experience in handling a variety of unique trust administration cases, we’ll create a winning strategy to secure your rightful inheritance as soon as possible.
Schedule a consultation with our team at RMO so that we can help you determine the best possible path forward.