When is successor trustee obliged to pay inheritance?

[oohlalaw]

Hello.

Successor trustee is a family member. The only asset is a piece of land with a house (no cash or other items) in California. House has not sold and will probably be rented for some years. Can ST wait until house sells before paying the heirs, even if this takes many years?

I saw a similar question below, but this situation is somewhat different. I just want to find out the time frame requirement for disbursements.

TIA

OL

 

[anteater]

It really depends upon the terms of the trust.

But, if I were the trustee and assuming that the trust permits, I would distribute the asset from the trust to the beneficiaries that are intended to receive it - sale or no sale. Let the beneficiaries decide what they want to do.

 

[oohlalaw]

Thank you for your reply.

OL

 

[curb1]

What do the beneficiaries want? Are they at least getting a timely distribution of the rent? Is the successor trustee also a beneficiary?

 

[oohlalaw]

What do the beneficiaries want? Are they at least getting a timely distribution of the rent? Is the successor trustee also a beneficiary?

Yes, ST is also a beneficiary. Two siblings are the main beneficiaries in that they can split the proceeds when the property sells. The other beneficiaries are four grandchildren who get a fixed amount each. One of them asked for an advance but was refused since the property has not sold. A tenant just moved in this month. The two main beneficiaries (siblings) will split the rent.

There is no dispute involved. We are trying to figure out the rights of beneficiaries and duties of ST.

OL

 

[anteater]

I think that the trustee better hope that one or more of those grandchildren don't decide to force the trustee's hand.

 

[curb1]

What is the problem with the Grandchildren getting a prorated share of the rent to keep everyone happy.

 

[oohlalaw]

Quote from anteater: "if I were the trustee and assuming that the trust permits, I would distribute the asset from the trust to the beneficiaries that are intended to receive it - sale or no sale."

I looked at the trust documents. There is no specification of when to make asset distributions, and it does not say that this is contingent upon the sale of the property.

If the grandchildren are to receive $40,000 each, that seems like a lot for the ST to pay out, without first selling the property. What should happen in a situation like this? Remember, the only asset is the property (no cash, stocks, etc.).

OL

 

[TrustUser]

there should be specific instructions - that is what normally happens.

it should be well-outlined as how to make distributions.

the assets can certainly be left in the trust, or distributed outright, or distributed in parts, etc.

but whatever, it should be spelled out in the trust.

if it is not, the trust simply was not written well, and you guys may need to come to some sort of agreement, if you dont want it taken to court.

i tend to like trusts, so i would probably tend to take the opposite course from anteater, and want to leave it in the trust, if the trust permits.

i would think that at a bare minimum, a bank account should be opened up in the trustee's name, so that rents can be deposited, insurance and taxes can be paid, as well as repairs.

 

[anteater]

My initial response presumed that there was a simple equal distribution between the beneficiaries rather than fixed amounts going to some. I now presume that the trust calls for those fixed amounts and the remainder being split between what you call the "main beneficiaries." (?)

A couple comments:

1) I don't know if the trustor thought that there would be other assets in the trust with which to pay those fixed amounts or not. But, only having the property in the trust and that sort of distribution scheme does the successor trustee no favors.

2) As far as I can see. the only people with a possible upside to this rent decision are the trustee and the other main beneficiary. That means that the trustee has a real conflict of interest staring him/herself in the face. The trustee has a fiduciary duty to all the interested parties.

3) When someone says, "The house did not sell", what they are really saying is "Nobody made an offer for what I think the house is worth." The real estate market is not perfectly efficient, but it is close enough. At the right price, there will be buyers.

Trusts are privately administered and the legal system does not get involved unless an interested party brings a matter before the courts. Now, maybe the grandchildren will be patient and say, "Ho-hum, we'll wait 5 or 10 years to receive our distributions." But $40K each is not a trivial amount. And, if one or more of the grandchildren bring the issue to court and I were to be an involved attorney... well ... I believe that I would want to be on the plaintiff side.

If the trustee and the other beneficiary can come up with $160K to pay off the grandchildren, that would take care of any potential problem.

If the trustee has not retained an attorney, it would certainly be worthwhile to at least have a consult with one.

 

[oohlalaw]

Thanks, TrustUser and anteater.

there should be specific instructions - that is what normally happens. it should be well-outlined as how to make distributions.

The trust doc was written in the early nineties and not updated. One parent died about 10 years ago; the other about a year ago, at which point ST took over.

In the doc that established the revocable trust, there is a section that outlines the powers of the ST. Many things are listed, most with respect to assets (investment accounts) that were all depleted over the course of many years, spent on day-to-day living and med costs (as anteater surmised). There is no mention of any time frames for distribution in the document. Handwritten at the end is a message that again states that the grandchildren should get $40,000 each, and the balance should be split between the siblings (one of which is ST), but no time frame given.

if it is not, the trust simply was not written well, and you guys may need to come to some sort of agreement, if you dont want it taken to court.

The parents trusted ST and so do all the heirs. Unless something egregious happens, no one will go to court. We are hopeful that it won't come to this.

My question arose when ST paid one grandchild (his own child) early from his personal funds. A second grandchild (not one of ST’s) asked if it would be possible to be paid before the property is sold and ST said no. A family friend said that as far as he knows, the ST has a duty to pay the grandchildren now or at least when they need their inheritance. That's what prompted me to post here. As anteater wrote, The trustee has a fiduciary duty to all the interested parties. Everyone trusts that ST will pay the rest of the grandchildren once the property has sold. But if there is a long delay of several years, we wonder if the grandchildren might have any recourse.

i would think that at a bare minimum, a bank account should be opened up in the trustee's name, so that rents can be deposited, insurance and taxes can be paid, as well as repairs.

There is indeed a bank account; ST is keeping very good records and is honest. There is just this one situation that we wonder about. It was hurtful for one grandchild to be paid right away and another refused. I suppose the advance made to ST’s child would be seen as a private loan, and ST feels no obligation to loan to grandchildren of the other sibling.

Thanks again.

OL

 

[TrustUser]

normally it is not a good idea to leave a dollar amount, because one never knows how much is gonna be in the trust.

i think a better way is to give a percentage, up to a certain dollar amount.

but it sounds like the 40,000 figure wont break the bank, so to speak.

you do have a sticky situation.

the st has a perfect right to pay his child anything he wants, at any time, when he is using his personal funds. i suspect that from a legal standpoint, that would be easily argued that a parent is simply giving his own funds to his own child.

however, has the st considered taking half that 40 that he gave to his own child, and giving it to the other grandchild ? i suspect that that would make everyone happy enough that no one would attempt to bring the law into it.

 

[anteater]

but it sounds like the 40,000 figure wont break the bank, so to speak.

But, does the trustee and/or the other main beneficiary have $120K to pay off the other grandchildren.

My question arose when ST paid one grandchild (his own child) early from his personal funds.

I realize that it is a child and all... but I hope that the ST had the child execute an acknowledgement and release.


There is something kicking around in my head that there is a California statute that requires payment of interest to beneficiaries if a distribution is delayed past some reasonable time frame. Maybe it only applies to probate estates. Maybe there are a bunch of other conditions that I don't remember. Maybe I'll try to find it when I have more time. Maybe...

 

[oohlalaw]

But, does the trustee and/or the other main beneficiary have $120K to pay off the other grandchildren.

I realize that it is a child and all... but I hope that the ST had the child execute an acknowledgement and release.

There is something kicking around in my head that there is a California statute that requires payment of interest to beneficiaries if a distribution is delayed past some reasonable time frame. Maybe it only applies to probate estates. Maybe there are a bunch of other conditions that I don't remember. Maybe I'll try to find it when I have more time. Maybe...

Anteater: I did not see your reply until now; the email notification for your last message didn't reach me.

I heard today that ST has now paid his children (half of the grandchildren owed inheritance) but not the grandchildren from the other side of the family. He probably could pay the others, but I think it would be somewhat of a burden -- he'd rather leave the money in his investments.

If you find out about interest owed on delayed distribution, please let us know what you find. Thanks.

In the meantime, another situation related to this topic has arisen. I wasn't sure whether to start a new thread or post the questions here, so for now, I'll include them here. If it's better to start a new thread, I'd be happy to.

For tax purposes, ST now wants to dissolve the trust and make himself and the second main beneficiary tenants-in-common (upon advice from his CPA), or perhaps form an LLC with the other main beneficiary.

My questions are:

1) Since some of the grandchildren haven’t been paid their inheritance yet, can ST dissolve the trust if (a) the two main beneficiaries agree and (b) ST writes a promissory note for the amount of inheritance due to each of the grandchildren who have not been paid their inheritance? I could not find any provision addressing this in the trust documents

2) What are the main differences between holding the property in a trust or as tenants in common, bearing in mind that the only asset is the home?

Thanks!

 

[LdiJ]

Anteater: I did not see your reply until now; the email notification for your last message didn't reach me.

I heard today that ST has now paid his children (half of the grandchildren owed inheritance) but not the grandchildren from the other side of the family. He probably could pay the others, but I think it would be somewhat of a burden -- he'd rather leave the money in his investments.

If you find out about interest owed on delayed distribution, please let us know what you find. Thanks.

In the meantime, another situation related to this topic has arisen. I wasn't sure whether to start a new thread or post the questions here, so for now, I'll include them here. If it's better to start a new thread, I'd be happy to.

For tax purposes, ST now wants to dissolve the trust and make himself and the second main beneficiary tenants-in-common (upon advice from his CPA), or perhaps form an LLC with the other main beneficiary.

My questions are:

1) Since some of the grandchildren haven’t been paid their inheritance yet, can ST dissolve the trust if (a) the two main beneficiaries agree and (b) ST writes a promissory note for the amount of inheritance due to each of the grandchildren who have not been paid their inheritance? I could not find any provision addressing this in the trust documents

2) What are the main differences between holding the property in a trust or as tenants in common, bearing in mind that the only asset is the home?

Thanks!

If ST did what he wants to do that would be a major breach of fiduciary responsibility. The trust cannot be dissolved until the assets can be distributed to ALL the beneficiaries. Him signing a promissory note will not do that without the express agreement of the grandchildren who have not been paid...and even that is a conflict of interest in my opinion.