You are a beneficiary of your mom's living trust. The house has been sold, the investment accounts have been liquidated, and the money is sitting in the trust bank account.
So when do you get paid? And if the trustee will not make a distribution, can you force the issue?
Maybe.
As a beneficiary, you have the right to receive your inheritance as spelled out in the trust, but at the appropriate time. The trustee has a job to do first. But, the trustee cannot hold your inheritance indefinitely. The issue is whether there is still a legitimate reason for the trustee to hold off on making the distributions.
Read the trust. The trust tells the trustee who gets what.
Most family living trusts provide that after the parents die, the trust assets are divided among their children, often in equal shares. But not always. The trust may require a beneficiary's share to remain in trust, it may provide distributions at certain ages, or it may give the trustee discretion over distributions.
So before demanding a distribution, make sure the trust actually says you are entitled to receive one now. The trustee's job is to follow the trust as it was written.
It’s the trustee’s job to administer the trust. We explain the job in What Is a Successor Trustee in California? We discussed the beneficiary side of this in our article on beneficiary rights in a California trust administration.
There is a trustee lane and a beneficiary lane. The trustee administers the trust; the beneficiary does not. That means you do not get to call the trustee three weeks after Mom dies and demand your inheritance because you want the money now.
The trustee will need to identify and value the assets, send the required notices, sell the house, liquidate accounts, pay expenses, deal with taxes, prepare an accounting, and decide how much money needs to remain in reserve. That takes time. As we explain in our California Trustee Timeline, California does not impose a magic 30-day, 60-day, or six-month distribution deadline. The trustee gets a reasonable amount of time to do the job.
This comes up all the time. A beneficiary needs his money immediately: the mortgage is due, the credit cards are maxed out, his business needs cash, his wife is going to leave him, his dog may run away. We hear versions of this more often than you would think.
But what would he have done if Mom had not died? Mom's death did not suddenly create a legal obligation for the trustee to solve the beneficiary's financial problems. The trustee has a fiduciary duty to all of the beneficiaries, not just the one making the most noise.
We made this same point in Can a Trustee Make Partial Distributions?: the point is not to distribute money because a beneficiary is asking for it. The point is to make the distributions at the right time.
There are plenty of legitimate reasons why a trustee may not be ready to distribute the trust assets. The house may still need to be sold. A brokerage account may still be in the process of being liquidated. There may be unpaid bills, or the trustee may be waiting for tax information. The 120-day trust contest period may still be running, there may be a dispute over an asset, or the trustee may need to keep money in reserve for expenses that have not yet been paid.
Under California Probate Code section 16061.8, a person who receives the required trust notification generally has 120 days from the notice to contest the trust. If a copy of the trust terms is provided during that period, the deadline may be extended to 60 days after delivery of those terms, whichever is later. We explained California Probate Code section 16061.7 in a recent article.
That does not mean the trustee is legally prohibited from making a distribution during the contest period. Distributing substantial assets while someone still has the right to challenge the trust can create problems if someone later files a contest.
The trustee may have a perfectly good reason for not making the distribution yet.
Trust administrations do not always proceed in a straight line. One asset may be tied up while everything else is ready to go. Suppose the trustee has $900,000 sitting in the trust bank account, but the family home cannot be sold for another six months. There may be no reason to leave all $900,000 sitting there.
The trustee may be able to make a partial distribution to the beneficiaries and keep enough money in reserve to finish the administration. We discuss this in detail in Can a Trustee Make Partial Distributions?. A problem with one part of the trust administration does not necessarily mean everything else has to stop.
Now we have a different problem. Suppose the house was sold months ago, the investment accounts have been liquidated, the bills have been paid, and the 120-day contest period has expired. The trustee has prepared the accounting, and there is plenty of money to keep a reasonable reserve. And the trustee still will not make a distribution.
Why? That is a fair question. The trustee does not own the money. The trustee is holding the trust assets for the beneficiaries and has a duty to administer and distribute those assets according to the trust. The trustee cannot sit on the money forever simply because she likes being in control or hasn't gotten around to finishing the job.
Before you hire a lawyer, ask the trustee a simple question: What remains to be done before distributions can be made?
Maybe there is a good answer. Maybe the CPA is working out a complex tax liability. Maybe a brokerage company is taking forever to process paperwork. Maybe an unexpected bill came in, or there is a problem with the sale of the house.
If the trustee can explain what remains to be done and is moving the administration forward, you may simply need to be patient. But if the trustee has shut off communication, then there could be a problem.
Good communication prevents a lot of trust disputes. Our experience has been that most trust administrations go smoothly when the trustee and beneficiaries trust each other and communicate. Problems start when beneficiaries hear nothing, start to become suspicious, and then begin questioning every decision the trustee makes.
The accounting usually tells you a lot. It should show what the trust owned, what money came in, what expenses were paid, what assets remain, how much money the trustee proposes to keep in reserve, and what each beneficiary is expected to receive. As we explain in How to Prepare a California Trust Accounting, the accounting should tell the story of the trust assets and transactions in a way the beneficiaries can understand and trust.
If the accounting shows that everything is essentially done and the money is ready to distribute, it becomes harder for the trustee to explain why the beneficiaries are still waiting.
However, in reality, if the trustee is stalling and has shut off communication, she probably hasn’t even provided an accounting.
Most trust administrations do not need probate court involvement, especially if the significant assets are titled in the trust, or they have beneficiary designation. Avoiding probate is one of the reasons Mom created the living trust in the first place. Trust administration is usually much simpler, faster, and less expensive than probate, especially when the trustee and beneficiaries work together.
But beneficiaries sometimes make things worse by assuming every delay means the trustee is doing something wrong. They hire a lawyer, who starts sending demands; the trustee has to loop in her own attorney; fees go up; everyone gets defensive, and what might have been finished in a few months becomes a long, drawn-out fight.
We have seen beneficiaries fight over every move the trustee makes until the trustee finally has no choice but to ask the probate court to step in. At that point, everybody loses time and money. So do not hire a lawyer just to create pressure if the trustee is doing a good job and moving the administration forward.
On the other hand, as someone who usually represents the trustee, I can confirm that it’s easier and more efficient to deal with a reasonable attorney who understands how a trust administration works than with an unreasonable beneficiary. In those situations, the beneficiary is better off hiring an attorney.
But sometimes there really is a problem. If the trustee will not communicate, refuses to provide an accounting, has no explanation for the delay, or simply will not distribute assets that are ready to be distributed, the beneficiary may need independent counsel.
Usually the first step is not to run to court. A trust litigation attorney can contact the trustee or the trustee's attorney, ask what is holding things up, and demand that the administration move forward. Sometimes a few phone calls and letters are enough to rattle the cage.
I had a case many years ago where a beneficiary asked me to contact her sister, the trustee of her father’s trust, to find out why the administration had ground to a halt. The father had died several years ago. The trustee liquidated his accounts, distributed about $300,000 of the $2M estate, and then shut down. The beneficiaries were the trustee and her two sisters.
After several weeks of back and forth, we learned that the trustee had stopped doing her job. She was over her head, didn't know what to do, and she froze up.
We were able to get the administration and the trustee finally made the distributions. It was an odd case, made even stranger by the fact that the two sisters waited two years to hire an attorney.
As a last resort, a beneficiary can ask the probate court to get involved. California Probate Code section 17200 allows a beneficiary to petition the court about trust administration. Section 16420 also allows a beneficiary to ask the court to compel a trustee to perform her duties when the trustee has breached the trust.
That means a beneficiary entitled to receive a distribution may obtain a court order requiring the trustee to make it. The court will consider what the trust requires and whether the trustee has a legitimate reason for withholding the distribution. A beneficiary does not win simply because he is tired of waiting.
The court can also require an accounting, instruct the trustee, address a breach of trust, order appropriate relief, and in a serious case remove the trustee.
Another practical issue: even when the trustee is ready to distribute the assets, she needs to keep some money in reserve. There may still be income taxes, property taxes, CPA fees, attorney fees, trustee fees, or miscellaneous bills to pay. If the trustee distributes every dollar and a $25,000 tax bill arrives three months later, where does the money come from to pay it? The trustee may have to ask the beneficiaries to give some of their inheritance back.
Good luck with that.
Instead of asking whether you can force the trustee to distribute your inheritance now, ask whether the trustee has a legitimate reason not to.
If there is work left to do, the trustee should explain what that work is and keep moving the administration forward. If most of the administration is complete, the trustee should consider whether a partial distribution can safely be made. And if everything is done and there is no legitimate reason to continue holding the money, it is time to make the distribution.
The beneficiary is not the boss of the trust. But the trustee does not get to use that as an excuse to slow-roll the trust administration.
If you are serving as successor trustee, we can help you understand your role and help you get the job done in a timely and efficient manner.
Contact us for a free, 15-minute initial call with one of our attorneys.