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Sunday, August 23, 2020

My son just turned 21. How long will it take for the trustee to pay out his inheritance?

I receive questions almost every day about time limits. Most of the time, people want to know how long they have to wait for money that is coming their way. It's a legitimate question, particularly when there is a real need for the funds. I find, too, that often people feel pretty anxious about money that is held in an estate or a trust because they don't have a lot of exposure to that sort of legal arrangement, and they haven't been given much information about how it all works.

I recently received a question from a reader along these lines. Here is the question and my reply:

"My son recently turned 21 and is to receive an inheritance being held on trust. Is there an amount of time the executor has to pay it out?"

If you are looking for a rule that says "ten days" or "30 days" or any other specific number of days,  you aren't going to find one. That type of specific rule is impossible to work with in estates because the estates and trusts themselves vary so widely. A rule that applies to a sum of, say $50,000 cash in a trust is not likely to work for a trust consisting of shares in a company or real estate. The rules are necessarily general.

What we have to rely on instead is reasonableness. First of all, there is the interpretation of the words in the will. Let's say the will says to hold your son's share in trust "until his 21st birthday". Does that mean he receives a cheque on his 21st birthday? Because if so, the investment was actually withdrawn days or possibly weeks before so that there is time to instruct the bank, wait for them to cash in the funds, do the paperwork, calculate the interest, and prepare an accounting, all by his 21st birthday. Or does the clause mean that the funds stay invested, earning interest, until the very day he reaches 21, meaning that he will receive a cheque a month or two later?

While it may not make a lot of difference to the amount of interest earned, most trustees will play it safe and keep the investment in place right up to the day of the birthday. This is so they can follow the terms of the will or trust exactly.

This brings us back to the idea of reasonableness. How long does it take the trustee to take all the steps I listed above? Partly it will depend on how long the bank takes to release the funds, which may depend on the type of investment. But, being reasonable, let's realize that this is not a surprise to the trustee; he or she already knew the money had to be available after the 21st birthday so the funds should not be locked into something that cannot be cashed at that time. 

It could also be the case that your son is not the only beneficiary receiving his trust on that day. There are often groups of beneficiaries who receive a bequest when the youngest of the group hits a certain age.This would add to the trustee's workload as he or she ensured that the income of the trust is properly allocated among the beneficiaries.

When the trustee pays your son his trust funds, the trustee should also be providing an accounting of why the funds are the exact amount of the cheque. He should give your son an accounting that shows what the trust started with and all of the interest that was added over the years. If it's the kind of trust that allowed encroachment, the accounting should show every dollar that came out of the trust and where it went. It should also show any fees or expenses paid to the trustee. So give the trustee a bit of time to prepare that.

In my mind, a trustee should be able to pay the funds within a month of your son's birthday. That should allow plenty of time for the trustee to receive and examine all bank records, prepare an accounting, and get the funds out. 



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