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Tuesday, January 22, 2013

I'm over 21 and competent - can my money still be held in trust just because the will said so?

This reader wrote to me to ask about his inheritance that is being held in trust. It's not that unusual for people to want to receive their inheritances outright, rather than having them held in trust. However, collapsing a trust through the courts is not necessarily easy.

Here's the question:

"When my grandfather died about 7 years ago, he left me a large sum amd specified in the will that it must go into a trust that my mother controls. However I would gain control of it once she dies. I was over the age of 21 at the time the will was created, and I am not mentally incompetent. Is it legal for my mother to still maintain control of my money just because it said that in the will? If I hired a lawyer to try to gain control of my own money, what is the likelihood of winning?"

Is it legal for your mother to follow a legally valid will? Of course it is.

Generally speaking, we can't just pick the parts of the will we like (such as getting money) and ignore the parts we don't like (such as having the money held in trust).

You mentioned a couple of common reasons that money is held in trust. One is that a beneficiary might be a minor, though the age of 21 that you mentioned seems random. Another is that a beneficiary might be mentally incompetent. However, these are not the only reasons that trusts are set up. Perhaps your grandfather was worried that you might blow the money. Maybe he worried that your marriage was shaky and he didn't want you to lose your inheritance to a divorce. Perhaps you have creditors or a gambling problem or an addiction.

Keep in mind that your grandfather is not obligated to explain to you why he wanted to set up a trust, nor does he need your approval. He gave you a gift and this is the gift he chose to give, for his own reasons.

One part of your question makes me wonder if you really understand this trust, or even if there is a trust for you at all. It's possible that the will leaves a share of the estate to your mother, and you would only have inherited if she had passed away before your grandfather did. This is how the majority of wills are set up. You talk about control of the money, which is what trustees do, not what beneficiaries do. It's odd that your grandfather would give you "control of" a trust for yourself.

It's also odd that a trust that's all about you would be focused on the death of another individual (your mother) unless you're a contingent beneficiary. By that I mean that it's possible that your grandfather did set up a trust for you by leaving your mother a life interest in some assets, with you to receive anything that's left at the time she passes away, as opposed to you "controlling" assets left at her death. I'd need a little more information to be confident that I understand your situation.

Assuming that you are correct and there is a trust for you, before making any decisions about trying to collapse the trust in court, check the wording in the will carefully. There will be clauses that impact the administration of the trust, and perhaps some that specifically address closing the trust early. For example, some trusts are written so that if the sum becomes quite small, the trust can be wound up.

You don't say whether the trust gives you a fixed monthly amount, or whether your mother has the discretion to pay money out to you on an "as-needed" basis. The amount of discretion given to the trustee is important, as sometimes the trust is written so that the trustee can decide to pay out the capital of the trust in full if she feels like it.

There might be other relevant information, such as the trust being established to pay for your education. If you've already completed your education, you might argue that there is no reason to hold it in trust any longer.

There is quite a lot of legal detail and argument involved in determining the point at which a beneficiary's interest in a trust vests in the beneficiary. The exact wording of the trust will matter. Whether there are any beneficiaries after you will be relevant too.

If you do hire a lawyer, why not start by having the lawyer read the will and interpret for you exactly what you inherited, and the terms on which it was inherited? Often the only lawyer involved in an estate acts for the executor, not the beneficiary, so you may never have received legal advice on your situation. You might just find, as I mentioned, that the will already contains wording that will help you without having to resort to long, difficult, expensive litigation.

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