A significant portion of your duties as a trustee consists of distributing trust assets to trust beneficiaries. When making these distributions, it’s essential that you follow the directives in the trust instrument.
What is a trust distribution?
A trust distribution is a payment or other distribution of trust assets made by a trustee to one or more trust beneficiary.
Under California Probate Code §16000, trustees have a duty to administer the trust according to the trust instrument, which includes following the asset distributions outlined in the document. A trustee must carefully review the trust instrument to determine the directives that must be followed prior to making any distribution.
Since the specific language of a trust document varies between trustees, we recommend that trustees consult with an experienced trust attorney if they have any questions about what, when, how and to whom you can make distributions.
What should I do when beneficiaries demand distributions?
Fielding beneficiary distribution demands is probably the single request trustees face. As trustee, you generally will have the discretion to approve or deny distribution requests.
If a beneficiary requests a distribution that would violate the terms of the trust agreement, you must decline the request. However, many trust documents grant the trustee discretion to make distributions they deem necessary. When deciding whether to grant a request for a discretionary distribution, keep in mind that you have a fiduciary duty to all of the beneficiaries, not just the beneficiary demanding the distribution. This can be a difficult balancing act filled with potential current and future problems.
Some issues you might consider when evaluating a request for a discretionary distribution include:
- The reason the beneficiary is requesting the distribution
- The beneficiary’s financial and distribution history
- Whether the beneficiary has other assets available to cover the expense at issue
- How making the distribution would impact the trust as a whole and the other beneficiaries
- The purpose of the trust
Once you determine whether to approve the request, you will be best-served to clearly document the request, the decision, and the reasons why you approved or denied it.
What is a partial distribution?
A partial distribution, sometimes called a preliminary distribution, is a distribution of some of the trust assets before the trust administration is complete and the trust assets are fully distributed.
A trustee is required to complete trust distributions within a reasonable time. However, sometimes there are estate tax or other tax issues, property or other assets that need to be sold, beneficiary disputes or other issues that slow down the process. In these situations, the trustee may want to make partial distributions well before a final distribution will be made. A trustee can generally make preliminary distributions if assets are available to be distributed and the trustee will be able to manage the trust’s affairs with the assets that will remain post-distribution.
What should I do if a beneficiary demands as illegal distribution?
If a beneficiary demands an illegal distribution that violates the terms of the trust, you must refuse to honor the request.
Start by referring the beneficiary to the distributive provisions stated in the trust instrument and explain why you cannot provide the distribution the beneficiary is demanding. However, if the beneficiary persists in their demands, you may need to get the court involved.
California Probate Code §17200 allows trustees and beneficiaries to petition the probate court concerning management of the internal affairs of the trust. If a beneficiary continues to demand an illegal distribution and will not accept no for an answer, you should consult with a trust litigation lawyer to determine the best course of action, particularly if the beneficiary threatens to take or has taken legal action to try and force a distribution.
How do I handle problem beneficiaries?
Being a trustee can be a thankless task, and part of the reason for that is because when you serve as a trustee beneficiaries can sometimes become what you might call “problem beneficiaries.” These beneficiaries can be anxious, needy, demanding, argumentative, and aggressive. However, it is our experience that problem beneficiaries are sometimes just simply uninformed or nervous beneficiaries. Some might not be familiar with trusts or understand how they operate. Others might not understand your role as trustee or resent that you have been given authority over management of the trust property.
Even when you do everything right, if you don’t inform beneficiaries of what you are doing and why you are doing it, they may quickly become problem beneficiaries.
Here are a few tips on how to handle a problem beneficiary:
- Establish a line of communication with each beneficiary early in the administration process.
- Explain your role to the beneficiaries and help them form realistic expectations for how long the administrations will take.
- Don’t hide trust instruments, assets, or any other information from the beneficiaries.
- Be as transparent and open as you can.
- Keep beneficiaries in the know about what you are doing with trust assets and why.
Following these suggestions and communicating as much as possible can keep beneficiaries happy, and happy beneficiaries rarely become problem beneficiaries. Courts are also much more likely to side with you in any disputes over your administration of the trust if you’ve kept the beneficiaries well-informed.
When should I contact a trust litigation attorney?
Trustees should contact a trust litigation attorney as soon as they are appointed to ensure they administer the trust and make distributions according to the trust instrument. Retaining legal assistance is particularly important if it is the first time you’ve served as a trustee.
Even if you didn’t hire an attorney when you were appointed as a trustee, you can reach out to a lawyer at any time during the administration as issues arise. If you’re being sued by a beneficiary or a beneficiary is threatening to take legal action against you, you should contact a trust litigation attorney as soon as possible to ensure you are protected.
Have questions? We’re happy to discuss.
Call (424) 320-9444 or email [email protected]
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About RMO, LLP
RMO LLP provides personal and efficient inheritance dispute services to individual and institutional clients. The firm’s attorneys focus on probate litigation involving contested trust, estate, probate, and conservatorship matters. Serving California and Texas, with offices in Los Angeles, Pasadena, Orange County, San Diego, Fresno, the Bay Area, Dallas, and Houston. For more information, please visit https://rmolawyers.com/.