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. 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 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. In the first case, the failure to distribute likely would be a breach. In the second, 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, trust dispute counsel should be consulted.
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.
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.
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 beneficiaries of the trust. 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 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.
Have questions? We’re happy to discuss.
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About RMO, LLP
RMO LLP serves clients in Los Angeles, Santa Monica, Ventura, Santa Barbara, San Francisco, Orange County, San Diego, Kansas City, Miami, and communities throughout California, Florida, Missouri, and Kansas. Our founder, Scott E. Rahn, has been named “Top 100 – Trust and Estate Litigation” by SuperLawyers, Trusts and Estates Litigator of the Year, and Best Lawyers in America for Litigation – Trusts and Estates. For a free consultation, call (424) 320-9444 or visit: https://rmolawyers.com.