How to Get Trust Fund Distributions When the Trustee Is Not Paying Beneficiaries

If you have been named as a beneficiary of a trust, you probably have some questions, such as: How long before the distribution of trust assets to beneficiaries takes place? Are distributions from a trust taxable to the recipient? What are some remedies if the trustee is not paying beneficiaries? What is required in order to complete the transfer of trust property to a beneficiary?

Trusts can be complicated, and by extension, so can trust distributions. Unlike estate distributions, which generally are made as one-time payments by the executor or administrator of an estate, trust distributions can take a variety of forms (e.g., they can be one-time payments or multiple payments made over time).

For instance, some trusts provide for trust fund distributions to beneficiaries to be made as one-time payments, whereas others provide for trust fund distributions to be made on a regular schedule for years or decades into the future.

Similarly, trust distributions can be made from the income the trust generates, from the principal (assets the trust owned at the time of the settlor’s death), or from both.

Ultimately, the trust distribution rules a trustee must abide by will come down to the terms of the trust. Unless trust provisions expressly authorize the trustee to use their own discretion when making distributions of trust assets to beneficiaries, their straying from the terms of the trust is considered a breach of duty for which they potentially could be removed and/or surcharged.

If you’ve been informed that you will be inheriting a trust fund, there are steps you can take as a trust beneficiary to ensure you get what you’re owed from a loved one’s trust. It is always better to take proactive steps to protect your inheritance than to try recover your inheritance after it has been wrongfully withheld, reduced or eliminated.

The first thing beneficiaries should do upon learning that they are inheriting a trust fund is to secure a copy of the trust instrument from the trustee.  

Next, beneficiaries should carefully review the terms of the trust to determine what type of trust it is (e.g., revocable trust, irrevocable trust, special needs trust, discretionary trust), which can play a role in how trust fund distributions to beneficiaries will be made.  

For example, family trust distribution rules may be structured differently than the rules governing discretionary trusts. In the same vein, irrevocable trust disbursements can have different tax implications than disbursements from revocable living trusts (even though these trusts usually become irrevocable upon the settlor’s death or incapacitation).  

Finally, trust beneficiaries should figure out whether any conditions must be met in order for them to receive their inheritance, and whether the trust fund distributions will be made all at once or over time.  

By finding out the aforementioned information, trust beneficiaries will have a clearer picture of what they are entitled to in the way of trust distributions. If the terms of a trust are ambiguous or difficult to understand, a probate lawyer can help you interpret them, and if necessary, seek clarification from the court. 

One of the most common questions trust lawyers receive from trust beneficiaries is: How long can a trustee hold funds? 

Unfortunately, there is not a one-size-fits-all response to this question, as every trust is different.  

As an example, some trusts consist primarily of real properties (which can make them more complex to administer), whereas others consist entirely of liquid assets. Similarly, some trusts have no creditors (which may enable beneficiaries to receive their inheritances faster), whereas others have many.  

Trust beneficiaries should remember that the trustee generally cannot make distributions of trust assets to beneficiaries after death until the following trust administration steps have been completed:

There may be exceptions to this rule. For example, it is not uncommon for trustees to issue preliminary trust fund distributions to beneficiaries when there are sufficient assets remaining in the trust to cover the trust’s liabilities.

If a trust runs out of funds before any trust fund distributions to beneficiaries are made, it’s unlikely beneficiaries will receive an inheritance, as creditor rights generally will trump beneficiaries’ inheritance rights in this situation.  

On the other hand, if the debt belongs to the decedent and not to the trust itself, creditors usually will first try to seek repayment of the debt from the decedent’s estate. If the estate does not have enough funds to cover the decedent’s debts, then the creditors can try to pursue non-probated assets, such as the decedent’s bank accounts and trust. 

The key is for beneficiaries – regardless of whether they are trust beneficiaries or estate beneficiaries – to play an active role in administration. By doing so, they will know when to expect a distribution of trust assets and can take action if the executor or trustee is not paying beneficiaries in a timely fashion. 

It is the trustee’s duty to act in the best interests of trust beneficiaries at all times. While acting in a beneficiary’s best interest can have a variety of implications for trustees, in the context of trust distributions, it means not straying from the terms of the trust and making distributions of trust assets to beneficiaries on time.  

Unfortunately, trustees are not always mindful of this duty, which can cause trust beneficiaries to have to chase after the inheritances they’re due.

When trustees breach their duties by not paying beneficiaries in a timely fashion, beneficiaries can utilize the courts to compel the trustee to immediately make due and payable trust distributions. The best way for beneficiaries to do this is with help from a probate lawyer, who can file a petition with the court on their behalf.  

While trustees can temporarily 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.

While a trust may give the trustee the right to delay trust fund distributions for valid reasons, they are rarely entitled to permanently hold on to a beneficiary’s interest in a trust.

As previously mentioned, trustees generally cannot withhold money from a beneficiary for no reason or indefinitely. Similarly, trustees cannot withdraw money from a trust to benefit themselves, even if the trustee is also a beneficiary.  

If a trustee does not have valid reasons for failing to make due and payable distributions, beneficiaries should get in touch with a probate attorney, who can help them claim their rightful inheritances from the trustee. 

If trustees have reached a point where they can start making distributions of trust funds to beneficiaries, it means they either already have paid the trust’s debts and taxes or have determined that there are sufficient funds in the trust to cover these liabilities after making preliminary trust fund distributions.   

This is not the time for trustees to get lazy or negligent, as trust distributions should be made in a timely manner and in accordance with the terms of the trust and state laws; otherwise, the trustee could be held personally liable.

Distribution of trust assets to beneficiaries can vary considerably from trust to trust. Trusts can be straightforward and easy to distribute, or complex and complicated to distribute.

As we’ve already discussed, trust fund distributions can be made to beneficiaries in a variety of ways. However, it is not up to the trustee to decide the manner in which to distribute the trust; they will need to abide by the instructions provided by the trust document. 

Many trustees wonder whether distributing assets in an irrevocable trust is different from distributing assets in a revocable trust, but differences usually arise only in terms of tax implications, not in terms of how distributions are made.

Outright trust distributions are usually the simplest types of trust distributions and can save the trust a substantial amount of money in administrative costs. They consist of the trustee releasing each beneficiary’s inheritance  without any restrictions. Outright distributions can either be made as a single lump sum, or periodically. 

Prior to making outright trust distributions, the trustee will need to pay the trust’s debts and taxes. Once all of the outright trust distributions have been made and the trust has no more assets remaining in it, the trustee can close the trust. At this point, the trustee’s administrative duties will be complete. 

Compared to outright trust distributions, distributions in trust  are more complex and can significantly raise the cost of administration. In comparison to outright distributions, distributions in trust will require the trustee to hold trust assets so they can be distributed to beneficiaries over time.  

For example, a trust could call for equal shares of a trust estate to be distributed to separate trusts created for each of a settlor’s children. The trust may further provide for the trustee to distribute a percentage of each beneficiary’s trust to the beneficiary every year on the anniversary of the settlor’s death until the trust has no more assets remaining in it, or it may provide for the trustee to make partial distributions of the trust’s principal to each beneficiary when they reach a certain age (e.g., 50% of the principal upon turning 25 and the remaining 50% upon turning 35). 

Despite the higher administrative costs of making distributions in trust, there are benefits to these kinds of distributions. Suppose that a decedent is survived by their children, all of whom are young adults. Because these beneficiaries likely lack the financial expertise to manage large sums of money, it may be preferable to release only a portion of their inheritances to them every year, so they do not spend their inheritances all at once. 

Discretionary trust distributions are unique because they are the only type of trust distribution in which the trustee has the authority to decide which beneficiaries among a group of predetermined beneficiaries will inherit, how much they will inherit, when they will inherit, and whether they will inherit from the principal or income of the trust. 

In order for a trustee to be able to make discretionary trust distributions, the settlor should have expressly granted them the authority to do so within the terms of the trust. 

Making distributions of trust assets to beneficiaries is not always an easy process, but trustees can always turn to a probate lawyer for help. In fact, it often is preferable to enlist the help of a lawyer to ensure trust distributions are made properly, on time and in accordance with the provisions of the trust, because if they’re not, the trustee could be held personally liable. Additionally, trustees generally can use trust funds to pay for the services of professionals. 

In the following subsections, you will find steps trustees can take to ensure the proper distribution of trust assets to beneficiaries. 

It is impossible to distribute percentages of trust assets without first knowing the value of the trust as a whole, as well as the value of each of its assets. To determine these values, it’s recommended that trustees consult with professionals (e.g., accountants, appraisers, real estate agents). 

Trustees should create an inventory of trust assets and their value at the time of the settlor’s death. They can update the inventory as necessary if the value of an asset changes, or if an asset enters or leaves the trust. 

Once trustees know what the trust and its assets are worth, it is advisable for them to meet with beneficiaries to determine how to proceed.  

For example, if assets are supposed to be divided 50/50 among two beneficiaries, one beneficiary may agree to inherit a car worth $100,000 and another beneficiary may agree to inherit a real property worth $100,000. An arrangement like this would eliminate the need for the trustee to sell either piece of property. If the beneficiaries would rather sell trust properties and divide the proceeds between them, the trustee can move forward with facilitating sales. The trustee can also transfer a 50% interest in each asset to each of the beneficiaries.  

While the trust may provide the trustee with the discretion to proceed in whatever way they feel is best, it is always a good idea for them to take the beneficiaries’ preferences into account. If there are any property disputes, the trustee can turn to a lawyer for help resolving them. 

There will always be some trust assets that are not specifically designated to beneficiaries. The leftover property is known as the trust “residue.” Trustees can discuss these assets with beneficiaries to determine which beneficiaries want them to be included as a part of their share of the trust estate. 

Whether you’re a beneficiary or a trustee, it is wise to have an experienced probate lawyer on hand in case any questions or concerns arise around trust fund distributions.  

A probate lawyer can help trustees understand and navigate trust distribution rules, and they can help beneficiaries enforce their inheritance rights. Beneficiaries should keep in mind that the trustee’s lawyer is not their lawyer. If they want a lawyer to represent them during administration, they will need to hire one themselves.