Blog Post

Can a Beneficiary Have Money Withheld by a Trustee?

Todd J. Preti
|

Are you a beneficiary of a trust? If so, you may spend a significant amount of time waiting as someone else takes care of the paperwork and legalities after the death of a loved one. While being a trust beneficiary may seem like an easy and smooth ride to inheritance, this is not always the case. If you do not actively pay attention to the trust, its assets and the trustee, you could be left without legal recourse.

Trust litigation occurs frequently, from the uber-wealthy to those with fewer assets. Money can make people greedy, even when it involves the passing of a loved one. If you are the beneficiary of the trust and are wondering about your rights, contact the Virginia Beach trust and estate litigation attorneys at Midgett Preti Olansen for legal advice and guidance.

Can a Trustee Withhold Funds From a Beneficiary?

While you wait to receive your share of a trust, you may have questions about timing and whether a trustee can withhold funds from you as a named beneficiary. The trustee is the individual selected by the decedent to administer the trust upon their death and distribute assets to beneficiaries according to their expressed wishes as written in the trust document. The trustee has legal obligations to both the decedent and to his or her loved ones who are to the beneficiaries of the trust.

Whether or not the trustee can withhold funds from you depends on the terms of the trust itself. If the trust requires withholding distributions under certain circumstances, such as the beneficiary reaching a specific age, the trustee must follow those stipulations. However, trustees cannot create stipulations for releasing or not releasing funds. Potential valid reasons written into the trust for withholding the distribution of funds may include:

  • The need to meet specific conditions stated in the trust, such as the beneficiary reaching a certain age
  • Belief by the trustee that the beneficiary will squander the distribution (e.g., the beneficiary has a substance abuse problem) or is not of sound mind to handle financial affairs on their own
  • Concern that the distribution will only go to the beneficiary’s creditors
  • Existence of a current trust contest or one that resulted in an invalidation of parts or all of the trust
  • It is a discretionary trust, meaning the trustee is granted the discretionary power to delay beneficiary distributions for any reason

In other words, if the trust document provides no directive to withhold funds under a specific condition, the trustee has no right to refuse to distribute assets. However, the timing of that distribution can vary and will depend upon the terms found within the trust instrument and applicable state laws.

What Rights Does a Beneficiary Have Over a Trustee?

As a beneficiary, you have rights regarding the trust and the trustee’s actions. First, you have the right to make sure you receive your rightful inheritance by staying in touch with the trustee for updates and timelines for payout.

A beneficiary also has the right to ensure the trust is administered correctly. Asking questions and receiving satisfying answers from the trustee will be important to assure you that the correct actions and steps are being taken as you wait.

If the trustee fails to establish communications with you early on, you can reach out and request information. If you believe that that trustee is evading you or refusing to distribute assets as outlined in the trust instrument, you do have legal options. These options might include:

  • Filing a lawsuit for breach of fiduciary duty
  • Petitioning to compel the trustee to make trust distributions
  • Petitioning to compel the trustee to provide an accounting
  • Petitioning the court for removal of the trustee

As soon as you begin to question the actions of a trustee or receive a refusal to distribute assets according to the specific terms of the trust, it is time to consult with a skilled trust and estate litigation attorney. The initial consultation and case evaluation will help you understand your rights, any conditions cited in the trust agreement, and your available legal options.

The attorneys with Midgett Preti Olansen have experience with each type of trust available in Virginia estate planning and thoroughly understand the fiduciary duties of a trustee and the rights of beneficiaries. The attorneys at our law firm have been selected for the Virginia Super Lawyers and Best Lawyers in America lists. We will give your case the care and personal attention it needs.

What Should You Know As a Beneficiary in Virginia Beach?

As a beneficiary in Virginia, you can take steps to help the process of asset distribution move along faster and with oversight.

Becoming proactive and staying involved when listed as a trust beneficiary are your first steps to ensuring the decedent’s wishes are followed and granted. While you are not responsible for administering the trust or distributing its assets, you are still part of the process.

To start, if you find out that you are a trust beneficiary, you should ensure you receive a physical copy of the trust document. Why? So that you know the details of how it will be administered and see who the trustee is who will be overseeing the process. You will also want this physical copy to understand if any conditions must be met before the trustee can release the funds.

Begin by determining what type of trust it is, as this will affect how the trustee will make distributions to beneficiaries. Examples of the types of trusts in estate planning include:

  • Revocable Living Trust
  • Irrevocable Trust
  • Testamentary Trust
  • Self-Settled Spendthrift Trust
  • Special Needs Trust
  • Discretionary Trust

Each of these types of trusts differ in various ways, and you will need to understand the hows and whys of the particular trust in which you are a designated beneficiary. You will also need to review the terms of the trust to understand how the distributions are to be made so you know what to expect.

For example, trust distributions may occur as multiple payments over time or come to you as one lump-sum payment. Distributions may be made based on the principal itself or the trust income, which is generated by the assets in the trust. It is also possible that your distribution is a fixed, periodic amount of money, that acts like an annuity.

Prior to the distribution of assets, however, the trustee must complete trust administration, which may include paying outstanding creditors and other administrative expenses associated with the trust. Also, you may not be the only beneficiary in the trust, and the trustee will need to resolve any trust disputes that may arise from someone other than you.

In some cases, a trust may not contain enough funds to pay all associated liabilities, administrative costs, and beneficiary distributions. If the trustee informs you that the trust does not have sufficient assets to make a distribution, you have the right to ask for an accounting report so you can see for yourself. You can request this report yourself, and if it is not forthcoming, you will need to proceed formally through the court system with the help of an experienced Virginia trust litigation attorney.

If you find that the content in the trust is confusing, or difficult to completely understand because of its legal terminology and concepts, seek the guidance of one of Midgett Preti Olansen’s attorneys experienced with trust terms who can explain and clarify these. This way, you do not miss anything important to your particular inheritance.

What are the Trustee’s Duties to a Beneficiary?

A trustee serves the fiduciary role when they oversee a trust. Their duties include trust administration, distribution, and management. Following the death of your loved one, a successor trustee takes over. They must act in the best interests of the beneficiaries and the terms of the trust itself while also complying with the Code of Virginia. These best interests include effectively administering the trust from start to closure and fulfilling all the requirements listed within.

Before asset distribution to beneficiaries, the trustee will usually take any or all of the following actions.

  • Compile all trust assets
  • Make reasonable repairs to any trust property, if required
  • Sell trust assets as instructed, if necessary
  • Facilitate prudent investments, if applicable
  • Pay any income tax and estate taxes
  • Pay any required administrative expenses, including trust lawyer or accountant fees
  • Determine amounts to be distributed to each beneficiary

Once the final asset amount is determined, percentages may apply to different beneficiaries. For instance, children of the deceased may receive 25 percent each, while a nephew may receive a smaller percentage.

What If Real Property is Included in a Trust?

person handing over house keys

Virginia state law allows residents to transfer real property into a revocable or irrevocable trust as part of their estate planning.

If the trust does contain real property, such as a house or commercial office building, the trustee will need to take additional steps to manage the asset. To distribute such real estate to a beneficiary, the trustee must adhere to state laws to transfer the property’s title from under the name of the trust to the designated beneficiary. The particular county where the property is located may also require the submission of specific forms to complete the proper transfer of legal title.

If the real estate has an active mortgage, the responsibility for paying the remainder of the debt may fall to the beneficiary. In some cases, the trust will specify that the mortgage should be paid with the assets in the trust, and the trustee will be responsible for ensuring this happens before the distribution of any remaining assets to all beneficiaries. When the property is ready for distribution, the beneficiary will claim the property by signing a deed transfer.

It is important to note here that mortgage holders may include a “due-on-sale” clause, which will apply upon ownership transfer. However, in 1982, the Gam-St. Germain Act became federal law and created specific exemptions, including one that declared that lenders cannot enforce the due-on-sale clause in certain situations.

One such situation involves the circumstances where ownership of the property mortgaged has been transferred through a trust. Still, other situations under this act may prohibit the owner from transferring a mortgaged property without penalty. Due to this, both the trustee and the beneficiary should seek legal advice before taking any action to transfer real estate.

Removing a Beneficiary From a Trust

In some trust administration cases, issues may arise that require the trustee to consider removing a beneficiary. In these cases, a trustee or other “interested party” can file a lawsuit against a certain beneficiary. Interested parties include the trustee, the grantor’s family members, and the designated trust beneficiaries. This lawsuit commonly happens when it is believed that the beneficiary in question somehow influenced the decedent into altering the trust to their own benefit.

Such contests seek to invalidate the portion of the trust relating to that particular beneficiary. Examples of valid grounds for contesting a trust beneficiary include:

  • Undue influence, causing the grantor to alter their trust in drastic ways
  • Creation of the trust at the hands of another while the grantor lacked the mental capacity to do so themselves
  • Elder abuse, forcing the decedent to take a preferred action

In addition, attempts to invalidate the entire trust can occur. If an interested party believes misconduct is behind the formation of the trust, they might choose to take action to invalidate the trust it in its entirety, thus eliminating designated beneficiaries altogether.

If the court agrees and invalidates the trust by court order and no previous trust document exists, the trust assets may enter into probate and estate administration, where they may pass to the decedent‘s statutory heirs rather than the trust beneficiaries. The probate court follows Virginia intestate succession statutes to determine who will receive what assets.

If you are a beneficiary and have concerns about the validity of a trust document, seek legal advice from a law firm specializing in estate planning and litigation. Midgett Preti Olansen can advise you on the likely outcomes of your case and create a plan for trust litigation.

What Steps Should a Beneficiary Take to Determine if a Trustee Has Breached Their Duty?

If there was a breach of fiduciary duty by the trustee, the beneficiaries will likely be able to sue. However, you will need to take the following steps first to determine the existence of a breach of the trustee’s duty.

  1. Request a copy of the trust document and review it thoroughly.
  2. Request a copy of the most recent annual trust accounting. If you think there are older problems, request previous accountings also. You may also request a copy of the tax returns for the trust.
  3. Review the trust and accounting documents with a qualified trust and estate attorney.
  4. With the help of your attorney, ask the trustee to explain (and provide backup information) any questionable actions or transactions.
  5. If you are satisfied with the explanation, do nothing.
  6. If you are dissatisfied with the explanation or do not see a justification for questionable actions or transactions, consider filing a lawsuit for breach of fiduciary duty.

If the trustee refuses to provide you with copies of the trust document, annual accountings, or tax records for your review, you can seek help from the court to compel them to uphold their responsibilities and duties.

Timing is Important When Contesting a Trust

stop watch

Taking legal action against a trustee in Virginia requires that you follow all deadlines for filing. More specifically, the Virginia Code outlines the timeline you have to contest a trust as a beneficiary.

For a revocable trust that becomes irrevocable at the death of its creator any interested party may contest the trust’s validity by commencing with a judicial proceeding within the earlier of the two following timeframes.

  • Two years from the date of the trust owner’s death
  • Twelve months from the date that the trustee sent you a copy of the trust document with a notice informing you of its existence, the trustee’s name and address, and details on the timing allowed for taking legal action

Failing to adhere to the legal deadline may prevent you from contesting a trust at all, and you can lose out on any additional inheritance you may be entitled to.

When Should I Contact a Virginia Beach Trust Litigation Attorney?

Seeking legal advice and representation in a trust case can be beneficial at any stage. However, depending on whether you are a beneficiary or the trustee, there are different times when seeking the advice of a trust litigation attorney will be critical to a successful outcome.

As the beneficiary, you should consider contacting a Virginia trust litigation attorney when you suspect the trustee of a breach of fiduciary duty. You may also want to take this action if you suspect that another beneficiary unduly influenced the decedent and caused them to alter the trust in their favor.

While there are certain instances where trust funds might be withheld, as the trustee, you should consider contacting an attorney to guide you through the process of determining when and how to make distributions to beneficiaries. 

Whether you are the trustee or a beneficiary, you should consider contacting a trust litigation attorney if there is a cause to dispute a trust. These disputes may occur due to the following.

  • The trust was revoked by the decedent before death.
  • The trust document is a forgery.
  • Proper procedure was not followed in the execution of the trust.
  • The trust was executed by mistake.

The Midgett Preti Olansen legal team can review the trust document, compile evidence, and provide legal representation before the court.

Worried About the Trustee Keeping the Trust?

Following the death of a family member or other individual, you may find yourself designated as a trust beneficiary. As such, you will be entitled to a distribution of assets by the trustee identified by the decedent in the document. 

If you have concerns that that trustee is not meeting fiduciary duties or continues to delay distribution for unknown reasons, contact the skilled estate and trust attorneys with the Midgett Preti Olansen law firm. We serve clients in Virginia Beach and throughout Hampton Roads, including Norfolk, Chesapeake, Suffolk, Hampton, Newport News, and the Eastern Shore.

Our attorneys will provide accurate and competent service and personal attention to your case. We are a boutique estate planning, corporate, and tax law firm with dedicated trusts and estates litigation lawyers who are ready to help. Schedule a consultation today by calling 757-687-8888 or submitting the online contact form on our website.

Todd headhshot

Written By Todd J. Preti

Shareholder

Todd J. Preti is a Founding Shareholder in the Law Firm of Midgett Preti Olansen. Mr. Preti is a graduate of Randolph-Macon College in Ashland, Virginia, and earned his Juris Doctor degree from the T.C. Williams School of Law at the University of Richmond. While at the T.C. Williams School of Law, Mr. Preti was a merit scholar and was named to the University of Richmond Law Review and the Moot Court Board.

Our Blog

Latest Resource Articles

The materials on this website were prepared by Midgett Preti Olansen PC. They are for informational purposes only. They are not intended to constitute, nor do they constitute, legal advice. Neither use of this website, nor an initial call or communication to an attorney is intended to create or creates an attorney-client relationship. The only way to become a Midgett Preti Olansen PC client is through mutual agreement. Do not act on any information on this website without first seeking professional advice.