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Wednesday, November 12, 2014

What if a trustee of a trust won't pay a beneficiary?

What if the trustee of a trust refuses to pay the beneficiary? Most individuals would not know where to start, as trust law is pretty foreign to most people. A reader recently asked me about this. Below, I outline the steps a person might wish to take in order to address the situation.

"My daughter was left as a beneficiary on a trust fund. The executor will not pay my daughter. What can we do?"

I assume for the purposes of answering this question that you want your daughter to be paid in accordance with the terms of the trust, as opposed to being paid immediately and ignoring the trust. I'm also assuming from the word "left" that this was a trust set up by a will.

You need to start by gathering facts and information. Get a copy of the document or will that sets up the trust, and make sure you understand exactly what it means for your daughter. The first question to be answered is the amount of discretion the trustee has in deciding whether or not to make payments to the beneficiaries. This will be set out in the document. Most wills provide for "an absolute, unfettered discretion", meaning that the trustee can pay the beneficiaries or not, as he sees fit, and in any amounts he sees fit.

Also make sure that you understand the type of expense that is meant to be covered by the trust. For example, was the trust set up to pay for your daughter's education? Was it set up to cover basic living expenses? Medical emergencies? Some trusts are restricted so that payments may only be made for the purposes named, while others do not limit the type of expense that may be covered.

You do not mention whether your daughter is disabled. If she is, make sure that you understand how the trust will affect her in terms of her government benefits.

Determine whether payments to your daughter must come from the income of the trust only, or from the capital as well. This may make a difference in terms of what is available to be paid.

Find out by reading the trust whether there are conditions that need to be met before she may be paid. For example, does she have to reach a certain age? Perhaps all of the beneficiaries must reach a certain age before anyone is paid. Does the trust provide for an annual payment (which would mean waiting a year after the deceased's death)? It could also be that your daughter is a contingent beneficiary, meaning that she only receives a share of the trust if another beneficiary has passed away or has failed to meet a condition.

If you find that you simply cannot glean all of this information from the will by yourself, sit down with an experienced estate lawyer to read the will and talk about the trust. You simply have to understand the terms of the trust thoroughly before you go any further.

Assuming that you have established that your daughter is eligible to be paid, and the expenses she wants covered do fall within the intent of the trust, it's time to talk frankly with the trustee. If he is refusing to make payments, he must have a reason. Has the estate proceeded to the point that all debts are paid, a clearance certificate has been received, and the trust has been funded? If all of that hasn't happened, the trustee may simply not yet be ready to make payments, and rightly so. In that case, you must simply wait a little longer before funds are available to be paid out. Understand that this could easily be 18 months after the death of the deceased.

If funding the trust is not the issue, is there a procedural difficulty that may be addressed? For example, if your daughter is a  minor, she cannot receive money directly so perhaps the trustee is not sure how to proceed. Even if your daughter is not a minor, the trustee may want a written budget from your daughter. If it's a specific purpose trust (such as for education), he may want your daughter to produce receipts. Most trustees want some kind of paper trail.

If it turns out that your daughter meets all requirements and the trustee is withholding legitimate payments for no apparent reason - or simply refuses to discuss any of this with you - your daughter may take the trustee to court to compel payments. She will need a lawyer for that, and if she is a minor she will need a parent or the Public Trustee to speak for her. She should be prepared to cover the costs. If she is successful in court and the judge orders the trustee to make payments, the judge may also order the trustee to pay some of your daughter's legal bill (from the trustee's own money, not the trust funds), but that is not a given. Don't be too hasty to proceed to court, as your daughter could be penalized if the judge thinks this is a dispute that could have been settled without the courts.

Finally, is there any bad blood between the trustee and your daughter, or between the trustee and you? Is this all happening because of personality clashes? If so, and if it appears that your daughter is never going to get future payments without resorting to the courts for help, perhaps she should ask the court to appoint a different trustee. This could be a trust company, or the Office of the Public Trustee, depending on the amount of the trust, your daughter's age, and the terms of the trust.

4 comments:

  1. The three executors of my mother's estate are also beneficiaries and they owed money to my mother before she died. They want me to forgive the debts.

    They also want me to agree to expenses such as daycare fess while dropping off a document and a bill for a broken car mirror that was damaged in the parking lot of the funeral home as well as cellphone bills while arranging the funeral with me long distance. I incurred the same cellphone charges while arranging the funeral and I incurred expenses for a flight and time off from work to help out with clearing out my mother's house but it never occurred to me to expense these to the estate as it seems petty to me and I am not one of the executors.

    They want me to agree to "forgive" their debts against the estate. I am considering that I should forgive these debts just to keep the peace but would like to at the very least document the debts in the final accounting of the estate because they refuse to show proof of what they owe. They just want me to just acknowledge these debts verbally. They also want me to approve of the expenses that I have questioned because they consider them minor expenses.

    I am the only one who doesn't owe money to the estate. I'm feeling bullied and pressured into agreeing to these expenses because they feel that I am trying to create conflict. They also think that I am going to hold up the distribution of the estate if I don't agree with what they want. What would be the most reasonable thing be to do - agree to their terms in order to keep the peace or stand my ground and insist on fairness and honesty?

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    Replies
    1. If you are looking for ammunition you can use to stand your ground, here it is. I assume that the will doesn't say anything about forgiving their debts, because otherwise they wouldn't be asking you to forgive the debts. Your argument should be that if your mother had wanted those debts to be forgiven, she would have said so in her will.

      By asking you to forgive the debts, they are asking you to change the will and change your mother's wishes, all for their own financial purposes.

      The fact that they will not divulge the amount of their debts suggests to me that the amounts are substantial. If they were only small amounts, they'd have told you that. In other words, you stand to lose a lot of money that your mother wanted you to have.

      This is not an easy decision you have to make. I understand your point about keeping the peace, but you are in no way responsible for the conflict here. You are the only one who actually wants to follow the will.

      What will be easier for you to live with? The knowledge that you let them get away with this, or that you kicked up a fuss to uphold your mother's will? Everyone has a different tolerance for the stress, time, and mental energy it takes for a dispute.

      Lynne

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  2. Thank you very much Lynne. You have been given me another way to look at this that I hadn't thought of.

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  3. Hi, Lynne. I own your book and it is very helpful. I have a question that I don't see the answer to in your book. The will leaves everything to the deceased's minor child to inherit half at 18 and the remainder at 21. If he dies before 21, it goes to the deceased's mother. Do I have to give notice to the mother as a contingent beneficiary? If so, what form do I use? Thank you.

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