Trust Fund Distributions to Beneficiaries: Can a Trustee Withhold Money From a Beneficiary? (2024)

FAQs

Trust Fund Distributions to Beneficiaries: Can a Trustee Withhold Money From a Beneficiary? ›

Can a Trustee Withhold Trust Funds From Beneficiaries? The simple answer is no. A trustee has a fiduciary responsibility to uphold the wishes of the grantor and the terms of the trust. Therefore, they must do what the trust says.

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.

The trustee generally has the authority to withdraw money from a trust to cover the cost of third-party professionals, as well as any other expenses arising as a result of administration.

Legally, the executor cannot change the will or refuse payment, but executors can breach their fiduciary duty, as explained below, leaving beneficiaries vulnerable to creditors.

When trustees refuse to act to bring or defend a property dispute, trust beneficiaries may have a right to sue the trustee to compel them to litigate, or they may be able to litigate the claim themselves.

A trust or, for its final tax year, a decedent's estate may elect under section 643(g) to have any part of its estimated tax payments (but not income tax withheld) treated as made by a beneficiary or beneficiaries. The fiduciary files Form 1041-T to make the election. Once made, the election is irrevocable.

While trustees may temporarily be able to delay trust distributions if a valid reason exists for them doing so, they are rarely entitled to hold trust assets indefinitely or refuse beneficiaries the gifts they were left through the trust.

If a beneficiary requests access to financial institution statements and the executor refuses to provide them, the beneficiary can take legal action. They can follow the court for an order compelling the executor to reveal the requested information.

An executor can override a beneficiary if they need to do so to follow the terms of the will or the probate laws of the state in which they are administering the estate. Executors are legally required to distribute estate assets according to what the will says and follow state probate laws.

Dealing with a problem beneficiary

California executors can overrule beneficiary wishes based on the decedent's will or court orders, and align actions with legal requirements. Before making such decisions, it's wise to consult a probate attorney in order to comply with regulations and avoid potential disputes.

What cannot a trustee do? ›

A trustee cannot make decisions based on a conflict of interest. They must act in the best interests of their beneficiaries and not let personal desires or relationships dictate their choices.

Yes, a trustee can override a beneficiary if the beneficiary requests something that is not permitted under the law or by the terms of the trust. Under California Probate Code §16000, trustees must administer the trust according to the terms of the trust instrument.

What is trustee malfeasance? Trustee malfeasance refers to any type of negligent, self-serving, erroneous, or retaliatory conduct committed by the trustee of a trust resulting in harm to trust assets or beneficiaries.

Trustees owe their fiduciary duties to the beneficiaries of the trust, consistent with the trust instrument. Conceptually, there are two distinct groups of trust beneficiaries. The first group consists of beneficiaries who are entitled or permitted to receive distributions currently.

The trustee(s) (there may be more than one) of a trust may be a person or a company (the latter is known as a corporate trustee). In either case, the trustee must be legally capable of holding trust property in their own right. The trustee holds the trust property for the benefit of the beneficiaries.

The grantor can opt to have the beneficiaries receive trust property directly without any restrictions. The trustee can write the beneficiary a check, give them cash, and transfer real estate by drawing up a new deed or selling the house and giving them the proceeds.

Shoddy record-keeping and failure to account for decisions that open the door to malfeasance. Mismanaged trust assets, resulting in beneficiary lawsuits and steep legal expenses.