Can a Trustee Withhold Money from a Beneficiary?

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“You might be wondering, can a Trustee Withhold Money from a Beneficiary? A deceased relative set up the trust with guidelines for distribution times and milestones that the beneficiary must meet before they can receive the money. If you inherit money from a trust, you should know a few things to know what to expect.”

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Can a Trustee Withhold Money from a Beneficiary?

How Does a Trust Work?

A trust is a legal contract that allows heirs to inherit your assets when you die. An individual who establishes a trust is known as the grantor or trustor.

When you act as the grantor, you choose the trustees entrusted with managing the trust’s assets per its terms and guidelines. Trustees are responsible for distributing assets to beneficiaries following the grantor’s wishes.

Estate planning tools like trusts allow a grantor to distribute assets without consuming the grantor’s money. Trusts also protect a grantor’s assets from gift and estate taxes, so your heirs will receive as much money as possible after death.

 

Beneficiary: What Is It?

Beneficiaries inherit assets from the grantors. When establishing trusts, the grantors determine how assets pass to beneficiaries. The trust agreement outlines guidelines and terms for distribution.

Let’s say a grantor wants to set up a trust to benefit a child. In that case, they would create a revocable trust, and the assets would pass upon the child’s maturity. The beneficiary would then be free to use the assets as they wish, and the grantor can change beneficiaries and terms during their lifetime.

However, a grantor of an irrevocable trust generally has to alter the trust’s terms with the beneficiary’s approval. Yet the grantor can still decide what to do with the trust assets.

When the grantor wishes to provide a part of the assets for a child’s college expenses. They appoint a trustee to ensure the assets go as planned. It would help if you appointed trustees so your beneficiaries do not have full control over your wealth distribution.

 

Trustees’ powers and duties

Trustees must understand that their powers and duties are the same. They have certain rights that ensure they fulfill their obligations to the trust and the beneficiaries. Despite this, trust beneficiaries also have some rights, sometimes conflicting with the trustees.

The trustee must marshal, preserve, and protect trust assets specified in the trust instrument. The trustee’s powers include those listed in the California Probate Code sections 16200-16249.

Trustee rights ordinarily include the following unless a trust expressly prohibits them:

  • Having the right to repair trust property in a reasonable manner
  • Trust property insurance rights.
  • Having the right to sell trust assets
  • Making prudent investments is a right.
  • Among the rights is the right to pay for certain administrative expenses and bills. Such as using third-party professionals like lawyers, accountants, and real estate agents for help.
  • According to trust terms, trust beneficiaries have a right to distributions and payments.

It is unlikely that a trustee will be able to remove a beneficiary from a trust, but there are some exceptions. No explicit provision in the California Probate Code grants trustees this authority.

Still, a trust instrument may grant the trustee the authority to decide whether and when to distribute trust assets. It is possible to determine whether a trustee has the right to reduce or drop a beneficiary’s interest in a trust by seeking the help of a trust lawyer.

 

Can a trustee sue a beneficiary?

A trustee in the United States can sue a trust beneficiary under certain circumstances. This is especially true if the trustee believes that the beneficiary has violated trust terms, breached fiduciary duty, or taken actions that harm the trust and its assets.

 

Can a trustee remove a beneficiary from a trust?

A frequent probate lawyers receive from their beneficiaries is: Can a trustee remove a beneficiary from a trust? The answer is usually no, but some limited exceptions permit the trustee to alter or remove the beneficiary of a trust or defer their distribution. Here, we will look at the rights of trustees about the trust’s beneficiaries and how trust beneficiaries can exercise their rights.

 

The Broad Rights of Beneficiaries

As trust beneficiaries, we have broad rights to ensure we receive our rightful inheritance, and we can hold trustees accountable when they act wrongfully. However, trust beneficiaries will only enjoy these rights if they actively participate in the administration and keep themselves informed of every step of the process.

As a result, they can take appropriate steps to enforce their beneficiary rights if they do not meet their expectations. Beneficiary rights under a living trust include:

  • Trust instruments specify the payment and distribution rights.
  • Trust information rights
  • Accounting rights for trusts
  • Suspension, removal, and surcharge of trustees by the court
  • A beneficiary representation lawyer can help enforce a beneficiary’s rights and protect them against unlawful removal if they suspect the trustee is violating their rights, withholding trust fund distributions improperly, or attempting to reduce their trust interest.
  • The estate beneficiary may have rights if the decedent left no will or trust or died without a will or trust.

 

What are the methods of distributing assets by which a beneficiary gets money from a trust?

If the trust is revocable, the assets disappear after the grantor dies. In an irrevocable trust, the assets may not pass for years or even decades. If you distribute the trust assets within the specified period, you must avoid paying maintenance and trustee fees, resulting in more expenses.

In general, the three methods of distributing assets:

 

Outright distribution of assets.

Upon setting up the trust, the grantor can ensure that the money is distributed directly to the beneficiaries without restrictions. A trustee can transfer real estate to a beneficiary by preparing a new deed, selling the property, transferring the proceeds, writing a check, or giving them cash.

Even though this is a straightforward way to distribute the trust, it needs more protection; individuals with poor money management skills may quickly reduce their inheritance.

 

Asset distribution over time.

Grantors can also space out trust distributions so the beneficiaries receive the assets over time by their rules. For example, the grantor might decide to administer the trust at a particular time, such as after reaching a certain age, through monthly payments, or after reaching a certain milestone.

 

Asset distribution at the trustee’s discretion.

Finally, the grantor may grant the trustee the authority to decide what the beneficiary will receive from the trust and when. Creating discretionary trusts for young beneficiaries with difficulty managing money is common. Special needs trusts and spendthrift trusts are examples of these types of trusts.

 

Does the trustee have the right to refuse a beneficiary’s accounting?

You can receive money from a trust if you are a beneficiary. If the trust terms stipulate that you should receive a gift outright, then the trustee should give you that money.

You should keep the money for a while. If the trustee has money to give you, they should do so. There is no way the trustee can refuse to provide you with accounting information or financial information. They can also speak with you.

Nevertheless, many beneficiaries are struggling with these horror stories. People come to us every day with their version of this horror story. It’s important to know that you can take action, but it will require you to go to court.

The judge will not let a trustee get away with doing the wrong thing if you take your case to court and stand up for your rights. This is especially true if it violates the trust terms.

 

Some ideas to resolve the conflicts

To end your beneficiary horror story, you can file a lawsuit in court and ask the judge to order your trustee to do what’s right. This is what ultimately will happen in your case. Ultimately, the trustee is the one who is guaranteed a fair trial, so your case ends if the trustee doesn’t respond.

 

Some ideas to resolve the conflicts

 

The judge can order the trustee to act when the trustee fails to respond to your complaint. When you take the trustee to court, and they refuse to act, the judge will hold the trustee in contempt.

 

Can a beneficiary sue a trustee?

Trustees may be sued if they fail to fulfill their fiduciary duty or recklessly manage trust assets. This type of estate litigation occurs when trustees misuse trust funds for their expenses or give assets to beneficiaries they shouldn’t receive. In these cases, the burden of proof is on beneficiaries. This means that lawsuits against trustees will be dismissed unless they prove negligence or wrongdoing.

 

The maximum time for a beneficiary to sue the trustee.

If a trustee fails to distribute trust assets by the trust instrument, the beneficiary may sue the trustee for breach of fiduciary duty.

A trustee’s relationship with the trust beneficiaries becomes a “fiduciary” when they accept an appointment. It is the fiduciary duty of a fiduciary to administer the trust solely for the beneficiaries’ benefit, exercising reasonable care in doing so, which is the most rigorous legal standard. This fiduciary relationship allows for a beneficiary to sue a trustee if that trustee breaches their fiduciary obligation.

We see beneficiaries sue trustees often when they fail or refuse to make distributions by the trust agreement. Other ways a trustee can breach their fiduciary duties include:

  • Mismanagement of trust assets or embezzlement.
  • Management of trusts without a financial accounting.
  • Conflict of interest or self-dealing.
  • Late tax payments.
  • Fees and expenses that are avoidable.
  • Making a distinction between beneficiaries.

To remove the trustee from their position, the beneficiary may also file a petition in the probate court and file a civil lawsuit. The judge will appoint a new trustee if the former is unfit to serve.

 

What to do if trustee not paying beneficiaries?

In just about all circumstances, if a trustee refuses to pay a beneficiary based on the trust’s guidelines.

Beneficiaries may be forced to sue trustees who have violated their fiduciary duty, ask the judge to order them to execute the payment sought, or fire them. You should be aware as a beneficiary that the trust might need more assets to distribute. 

Obtaining a statement from the trustee is essential to eliminate any doubts. Trust accounting is a part of communication that trustees shouldn’t keep to themselves. 

 

What happens if a trustee refuses to give beneficiary money?

A probate lawyer should be consulted if a trustee fails to distribute assets fairly and reasonably. This professional can help enforce their inheritance rights, possibly through court action. They will ensure the trustee fulfills the terms of the trust and the relevant laws as of September 2023.

 

Bottom line

When a trustee refuses to distribute funds to a beneficiary who is entitled to receive them, or when you are a trustee who needs to make distributions that you do not know should or can’t be made, you need to consult with a lawyer ASAP to determine the best course of action.

You may request instructions from the court simply by filing a petition—a trust litigation lawyer who can guide you on the course of action.

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