Getting Money Out of a Trust

Image of two sisters angry with each other

My Sister is the Trustee and She Refuses to Pay My Share

Trust terminology basics

A trust is created by a written document known as a declaration of trust, and is then funded by transfer of money into trust bank accounts and/or deeding or transferring of properties to the trust.   The creator of the trust is known as the “Trustor” or the “Settlor.”  Trusts are usually prepared by attorneys because each trust is custom for the situation and there are many types of trusts.  The persons who are to receive money and property out of the trust are known as the “Beneficiaries.” The person or institution that takes care of the money and property of the trust is the “Trustee”.  The trustee is bound by law to follow the directions contained in the declaration of trust.

Getting Money Out of a Trust – the typical process

Payout events – When do the beneficiaries get paid?

In a typical trust the beneficiaries are scheduled to be paid their share after the trustors’ death.  Because declarations of trust are custom prepared, some are better than others as far as payout instructions. If there are not any instructions as to the exact payment dates, then the trustee is simply required to pay out the shares in a reasonable period of time.  In smaller estates I typically require payouts to occur within less than a year or maybe even 60 to 90 days.  I also typically require that all personal property and furniture be divided up and distributed within 60 days so that it is not held up with the rest of the estate. In larger estates, especially where a business or property is involved in which need to be sold it may be reasonable to give the trustee a year or more to distribute. The first step in getting a beneficiary’s share paid is to obtain a copy of the declaration of trust and see what it says.

Preliminary distributions advisable

With a custom prepared trust you can provide for preliminary distributions so that the beneficiaries don’t have to wait a long time to get something. Even in a living trust where the bulk of the assets are to remain in trust on the death of the first spouse, I recommend some payout to the children who are the ultimate trust beneficiaries on the death of the first spouse. If the payout is to be only after both trustors have died, reasonable distributions at certain intervals beginning about 60 days after death help a great deal with trust administration and family politics.

Real Life Example:  ”Getting Even” for being tied up to a tree at age 7

I’ve had various instances where trust distribution fights stemmed from childhood events.  The most unusual case I have ever handled is where there were three sisters who were trust beneficiaries of their dad’s trust. One of the sisters was the trustee and administered their dad’s trust after he passed away.  When the trustee sister was seven years old, her other two older sisters tied her up to a tree in the backyard and left her out there all night. She never forgot about that traumatic ordeal was finally able to “get even” when she was administering the trust. She refused to make any distributions for several years and failed to account for rents that were collected on apartments and failed to provide any accounting for the money until the other beneficiaries through my office filed a breach of trust petition with the probate court.  The trust petition case was ultimately settled by requiring the trust assets to be distributed and requiring the trustee sister to pay back to the trust money that she had wrongfully taken.

What is the trustee required to do?

When a person becomes the trustee of a trust, typically when the trustors pass away, California probate and trust law requires certain things to be done.  The trustee must notify all the trust beneficiaries with a specific legal notice, send the beneficiaries a copy of the trust, inventory all the assets, get things appraised, do various things for tax compliance and provide a formal accounting to the beneficiaries at least once per year. The law also requires the trustee to provide information about the trust assets and liabilities at any time to the beneficiaries upon within 60 days of a written request.  The trustee of course also must follow all instructions in the trust including the payment of money and assets to the beneficiaries.

What if the trustee is not doing his or her job?

The short answer is that the trustee can be removed for violating the trust instructions and for refusing to provide accountings or give out information.  The trustee can also be surcharged which means ordered to pay back any money wrongfully spent or wrongfully taken from the trust.  The reality of the situation is that it is not easy to have a trustee removed or surcharged. To do that requires the filing of a court petition with the probate court which is the equivalent of a lawsuit. Trust petitions often take a year or more to get decided and/or settled unless there is a genuine provable emergency in which case sometimes earlier court orders can be obtained.

Prior to filing any probate court petition, people typically will have their attorneys send demand letters and requests for information to the trustee spelling out their complaints.  The attorneys representing beneficiaries can also do asset searches and real estate title searches to find out what is happening with trust assets if the trustee is not forthcoming with information.  As with most of situations, the sooner the beneficiaries insist on the trust being properly administered, the more likely for a positive outcome. Don’t wait if there’s trouble.  If money or assets are disappearing from the trust they are not always recoverable because there is not insurance to cover losses or theft.  I have seen cases where trustees were given responsibility over large amounts of assets and they simply transferred them out of the country to offshore accounts, moved away, change their identity, and spent all the money.

Beneficiaries should understand that they do have rights to file lawsuits (probate court petitions) against a trustee but if the trustee has no assets or the assets cannot be found then winning a court lawsuit judgment would be a hollow victory.

CALL  (949) 851-1771  to speak with Lawyer  David L. Crockett

Bonding as insurance against losses

In probate and trust Law there is a special type of insurance contract known as a bond. If an estate goes through probate, the executor who is appointed by the court to handle the estate is required to obtain a bond from a licensed bonding company. The bond is an insurance policy that protects the heirs if the trustee runs off with the money.  A bond can also be obtained for trust administration so if the trustee steals money from the trust the trust beneficiaries can get the bonding company to reimburse the trust. Using a bond for a trust is very rare as most trustors appoint trusted close relatives or children to be the trustees after they are gone. Most people think that in such instances the bonding is unnecessary.

Real Life Example:

I once handled an unfortunate case where the bonding company did have to pay off for the loss of money in an estate.  The person who died had a young person appointed as the estate executor but that young person succumbed to the temptation of spending the money that was in the est
ate bank account. He took his girlfriend on an extended vacation to Paris, stayed in a five-star hotel and wined and dined at the estate’s expense until the money ran out. He then took his life afterwards because he knew he could never pay back the money. However, fortunately for the heirs, there was the bond and I was able to secure reimbursement to the estate from the bonding company.