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What a Trustee Cannot Do

what a trustee cannot do
Acting a trustee is a big responsibility, and one needs to be careful not to do the wrong thing. Here is a summary of what a trustee cannot do:

  • Steal from the trust
  • Fail to follow the terms of the trust
  • Mismanage trust assets including bank accounts, stock, bonds, retirement accounts, pensions
  • Fail to take inventory of assets, including personal and real property
  • Be negligent or careless in investing assets
  • Sell personal and real property below market price
  • Fail or refuse to distribute assets
  • Fail to pay creditors
  • Fail to pay funeral expenses
  • Fail to file an estate tax return if required, fail to pay estate taxes and back income taxes
  • Mismanage a testator’s business or sell it below market value, whether to himself or to someone else
  • Take over the testator’s business for the trustee’s own gain
  • Commingle trust funds with his own funds
  • Keep trust funds in a personal account (you need a trust account)
  • Ignore beneficiaries
  • Fail to communicate with beneficiaries
  • Keep beneficiaries misinformed about trust and financial matters
  • Favor one beneficiary over another
  • Fail to wind up and settle a trust
  • Refuse to distribute assets to the beneficiaries

A trustee is named by a settlor (the person who made the trust) at the time a trust is made. The trustee cannot fail to carry out the wishes and intent of the settlor and cannot act in bad faith, fail to represent the best interests of the beneficiaries at all times during the existence of the trust and fail to follow the terms of the trust. A trustee cannot fail to carry out their duties. And most importantly, the trustee cannot steal from the trust.

There are all sorts of other contractual or legal matters that may require a trustee’s attention. For instance, if the testator owned commercial property and had tenants, the trustee may have to collect rents, work with a property management company or hire one depending on the size of the building and the number of tenants. What a trustee cannot do is fail to work with attorneys and accountants in order to make sure assets are properly valued and contractual obligations are completed.

Stealing from the trust. There are significant penalties for stealing from a trust. The court can discharge the trustee and replace them with someone else, force them to return the money and take away their commissions. There can also be criminal a penalty, but most trust theft allegations do not escalate to criminal prosecution.

Taking more funds than the trustee is entitled to. It can be tempting for a trustee to take some extra cookies from the cookie jar. You have access to trust funds and the power to take some funds out. You don’t see anyone looking over your shoulder. But that sense of safety is false. Banks and courts have systems in place to detect fraud. Beneficiaries can get suspicious and hire a trust attorney or report the suspect to the police and hire a trust attorney to get the inheritance that they are entitled to.

Self-dealing. The trustee cannot transfer trust property to himself because the property belongs to someone else unless he pays the full price for it. As explained above, doing so can be interpreted as stealing and can lead to an array of legal woes. A smart trustee would want to avoid transferring trust assets to himself, even if paying fair and market value. If beneficiaries are getting more money than they would have, if not for the trustee buying them out, the trustee should explain it to the beneficiaries. For example, the trustee can explain the savings on transaction costs, such as not having to pay a broker. There must be a feeling that the trustee fulfilled his responsibilities to the beneficiaries.

Failure to Communicate with the beneficiaries. The trustee should communicate with the beneficiaries, be transparent about the money he is taking from the trust, explain the reasoning behind it and try to get on the same page with the beneficiaries. The trustee cannot fail to communicate.

Commingling funds. The trustee should place all trust funds into a trust account and not into his personal account. New York Consolidated Laws, Estates, Powers and Trusts Law – EPT § 11-1.6 states that “Every fiduciary shall keep property received as fiduciary separate from his individual property.  He cannot invest or deposit such property with any corporation or other person doing business under the banking law, or with any other person or institution, in his own name, but all transactions by him affecting such property shall be in his name as fiduciary.” Surrogate’s Court Procedure Act – SCP § 719 states that the court can take away a person’s power to manage the trust “where he mingles the funds of the estate with his own or deposits them with any person, association or corporation authorized to do business under the banking law in an account other than as fiduciary.”

Using trust funds for personal expenses. The trustee can only use trust funds to pay the legitimate expenses of the trust, taxes and legal fees.

Distributing property without getting signed releases from beneficiaries. Once the trustee collects the assets of the trust and pays out its debts, it’s time for the trustee or administrator of a New York trust to disburse the funds to the beneficiaries. But before the trustee does that, it is important to get a written release from the beneficiaries. The release states that the beneficiaries are satisfied with what they are getting and are never going to sue the trustee. The best release comes with an informal accounting, which provides a summary of what property went into the trust, what the expenses were, and what is the share of inheritance for each beneficiary.

A trustee is entitled to receive compensation for his or her services in accordance with the law. When a spouse or a family member acts as trustee, many times they do not take compensation for their services, especially when they are also a beneficiary receiving a distribution of assets under the will. A trustee cannot take compensation that is in excess of what they are allowed to take by law.

A trustee is held a higher standard of behavior and is expected to act in an honest, fair and ethical manner. A trustee cannot breach their fiduciary duty. They could be held legally liable for any losses suffered by the trust or beneficiaries. A trustee can be removed by the beneficiaries for breach of fiduciary duty and could be subject to restitution of any financial losses to the trust and beneficiaries, as well as face criminal charges if the trustee committed any crimes such as embezzlement of trust assets.

Because there are many things that a trustee cannot do, some family members decide they do not want to take on the job and end up resigning and hiring an attorney or another personal representative to replace them and administer the trust.

If you wish to speak to hire a New York trust attorney to assist you with your duties as trustee, call the Law Offices of Albert Goodwin at (212) 233-1233 or (718) 509-9774.

Irrevocable Trust New York

irrevocable trust New York

In New York, an irrevocable trust is a trust that cannot be revoked or modified without either a court order or written consent from all parties involved (all trustees, beneficiaries and people who made the trust).

Is a New York Trust Revocable or Irrevocable by Default?

A New York trust is irrevocable by default.  NY EPTL § 7-1.16. However, it is still a good idea to not leave the issue hanging in the air and to instead specify if a trust is revocable or irrevocable.

Even an irrevocable trust is only irrevocable if there is no consent of all the parties involved. It can be revoked with a written consent of all the parties involved, including grantors, trustees and beneficiaries. If some of the parties are not available or are minors, contact a New York estate attorney.

Even a trust that is expressly stated to be revocable becomes irrevocable upon the death of the settlor/grantor, the person who made the trust.

Can You Revoke or Modify a New York Irrevocable Trust?

As life circumstances change, a trust may need to be changed or updated. But what happens if the trust is irrevocable? Does that mean that the trust can never be revoked or changed?

Most irrevocable trusts in New York have a work-around that allows them to be changed or modified, even if they are irrevocable. We would have to look at the language of the trust and other circumstances, but most irrevocable trusts have a way out that allows us to have them revoked.

Usually, we are able to either use one of the powers of the trustee to “decant” the trust, or transfer it to a different trust, or we are able to use consents of beneficiaries, trustees and grantors to modify the trust and resignations of trustees if a trustee needs to be changed.

If a trust does not have a way out, or one of the people involved does not agree to sign the consent to modify the trust, then the only way to modify the trust, if any, it through the court. An estate attorney can draft a petition explaining to the court the reasons why changes need to be made to the trust. If the person who is not agreeing to the modification submits an opposition to the trust modification. It is not easy to get the court to modify an irrevocable trust, especially if one of the people involved objects. It will be up to the judge to decide whether or not to grant the trust modification, based on the arguments presented by the respective estate lawyers.

If you need an attorney to deal with an irrevocable trust in New York, call Albert Goodwin, Esq. at 212-233-1233 or 718-509-9774.

Can a Trustee Also be a Beneficiary

can a trustee also be a beneficiary

Yes, a trustee can also be a beneficiary, and they often are. But in some types of trusts, a trustee cannot be a beneficiary.

Many trusts have the same people fulfilling multiple roles. As lawyers like to say, the same person can “wear many hats.” We often have the person who made the trust fulfill multiple roles, the same person can be the maker of the trust, the trustee and the beneficiary.

Let’s say John made a trust, becoming its first trustee and beneficiary. After John’s death, his son Tom becomes the trustee and beneficiary. That is a perfectly reasonable scenario.

However, although a trustee can also be a beneficiary in many types of trusts, for some types of trusts the rules about trustees and beneficiaries get more complicated and you would need to speak to a New York trust attorney to find out the details.

For example, in a Medicaid trust, the person who made the trust has limitations on becoming the trustee and beneficiary, so that the trust complies with Medicaid rules. As another example, in some spendthrift trusts, the trustee cannot be a beneficiary, so  that creditors don’t have access to the principle of the trust.

As a beneficiary, the beneficiary-trustee is entitled to distributions of trust assets if the trust authorizes such distributions. Here are some examples of the different types of trust distribution arrangements for beneficiaries:

  • An immediate distribution upon the death of the person who made the trust
  • An immediate distribution upon reaching a certain age (for example, 18 or 25)
  • A distribution of principal
  • A distribution of income
  • A monthly distribution
  • A distribution in some point in time

Just like any other trustee, the beneficiary trustee has a duty of utmost fiduciary responsibility to the other beneficiaries of the trust. Just like any other trustee, a trustee-beneficiary is not supposed to intermingle his assets with estate assets, withdraw funds from the trust for his own use not in accordance with trust terms and steal from the other beneficiaries of the trust in any way. When a trustee takes money from the trust that they are not supposed to take, that’s called stealing even though some of the money they took ultimately belong to them. For example, a man left a trust for his four children, and one of the children is a trustee. Can the trustee-child withdraw cash from the trust and say that he is just withdrawing his own cash? The answer to that is absolutely not. Even though the trustee is one of the beneficiaries of the trust, at the end of the day the trust is not his. The trust belongs to all the beneficiaries. So if a trustee uses the trust’s money for his own needs in any way or transfers trust money to himself, he is considered by the law to be taking everyone’s money, not just his own. As an example, if he takes four thousand dollars, he is not taking four thousand dollars of his own money. He is stealing a thousand dollars from each of his siblings. If he takes a penny, most of that penny belongs to the other beneficiaries of the trust.

What can happen if a trustee who is the beneficiary neglects good advice and does withdraw cash from the trust account? Nothing good. The trustee can be removed by the court. The court will force the trustee to return the money. The court might order the trustee to pay for his own attorneys’ fees as opposed to using trust funds to pay for his attorney’s fees. The judge may even order the trustee to pay the beneficiaries’ attorneys’ fees. What is scarier is that the trustee can even be criminally prosecuted for stealing. That’s right, a criminal prosecution even if the trustee is one of the beneficiaries of the trust and even if the amount he took is less than his stake in the trust account. The judge can refer the case to the District Attorney’s office, which has the power to prosecute the case in criminal court, although that rarely happens.

To sum up, in some trusts a trustee can also be a beneficiary, and in some trusts that cannot be done. And always remember that whether a beneficiary or not, a trustee has to always be careful to follow fiduciary rules of the trust.

If you need the services of a New York trust attorney, you can contact Albert Goodwin, Esq. at (212) 233-1233 or (718) 509-9774.

Distributions of Trust Assets to Beneficiaries

distributions of trust assets to beneficiaries

A beneficiary is entitled to distributions of trust assets if the trust authorizes such distributions. Here are some examples of the different types of trust distribution arrangements for beneficiaries:

  • An immediate distribution upon the death of the person who made the trust
  • An immediate distribution upon reaching a certain age (for example, 18 or 25)
  • A distribution of principal
  • A distribution of income
  • A monthly distribution
  • A distribution in some point in time

Keep in mind that distributions are not the same in every trust – some trust authorize distributions to beneficiaries, some do not. You would have to have an attorney read the trust document to find out for sure, presuming that the trust document is not unclear (as some are). Some beneficiaries are entitled to distribution of assets, some are entitled only to distributions of income, and some are not entitled to any distributions, possibly for a long time. Some beneficiaries are not entitled to any distributions at all, such as contingent beneficiaries.

Every month of delay costs the beneficiary loss of use and enjoyment of their share of the trust. If the trustee is taking too long, a trust attorney can go a long way in showing them that distributing the trust to the beneficiaries should be a priority.

As we said, a distribution to beneficiaries of a trust depends on the trust language. If you don’t have a copy of the trust, you can ask the trustee to provide a copy of the trust to you. If the trustee refuses, you can bring a court proceeding to compel the production of a trust.

On one hand, it is understandable that the trustee has things to do. On the other hand, a diligent beneficiary should not sit by idly for this entire temporal period, especially if he believes that an trustee is failing the nonwaivable duty to “exercise reasonable care, diligence, and prudence.”[5] For example, a court may disqualify an trustee on grounds such as commingling funds, mismanagement, dishonesty, and substance abuse.[6] Although, New York courts will generally give a long leash, and will only step in if the trustee “endanger[ed] the trust” or “seriously impede[d] its administration.”[7] If the trustee is non-responsive, however, a beneficiary should send a written demand for an accounting and distributions of trust assets to beneficiaries. This request serves two purposes. First, it may be a requirement to commence any proceeding in court against the trustee.[8] And second, it gives the trustee notice that you are serious—which may give way to a faster distribution. If the trustee does not respond to this written demand, the beneficiary may then commence a motion to compel accounting with the court.[9] Although even here, the New York courts generally compel such an accounting only for good cause.

It is a fine line between giving the trustee deference and desiring to receive the inheritance promptly. When a beneficiary knows that a trustee is mishandling the trust, a court should immediately get involved. In many cases, however, a quarrel with the trustee is not in the best interests for either the beneficiary or the trust. Therefore, it is best for a beneficiary, like Jimmy, to discuss such matters with a competent New York trust attorney.

Call the Law Offices of Albert Goodwin at (212) 233-1233 or (718) 509-9774 and make an appointment to discuss your rights regarding your share of the trust.

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References

[1] N.Y. Est. Powers & Trusts Law § 11-1.5 (McKinney 2018). This excludes the statutory exclusion of up to $25,000 from the trust for a surviving spouse or children under twenty-one. Id§ 5-3.1.

[2] N.Y. Surr. Ct. Proc. Act Law § 1802 (McKinney 2018); N.Y. Est. Powers & Trusts Law § 11-1.5(c).

[3] 26 U.S.C. § 2204 (2012); N.Y. Tax Law § 972 (McKinney 2018).

[4] Frequently Asked Questions on Trust Taxes: When can I expect an Trust Tax Closing Letter?,IRS, https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-trust-taxes#1 (last updated May 11, 2018).

[5] N.Y. Est. Powers & Trusts Law § 11-1.7(a)(1).

[6] N.Y. Surr. Ct. Proc. Act Law § 711.

[7] In re Braloff, 162 N.Y.S.2d 620, 623 (2d Dep’t 1957), affirmed, 173 N.Y.S.2d 817 (1958).

[8] N.Y. Surr. Ct. Proc. Act Law § 2102(1).

[9] See id.§ 2205, 2206.

 

What to Do if a Trustee Refuses to Act

trustee refuses to act

While the majority of trustees handle trust administration timely and adequately, there are times where a trustee refuses to act. There are steps that you can take to hurry the trustee along and protect your interest in a trust. You are entitled to a full accounting of the trust’s assets and to the timely distribution of the trust’s assets.

Through compelling a trustee to provide a full accounting and fulfill the bequests in the trust, a New York trust attorney can help you protect your rights.

Organizational Delays

It may take some time for the trustee to figure out what the trust needs him to do, hire an attorney and come up with a game-plan.

Delays in Marshaling Assets

Before the trustee can distribute assets, the trustee has to find the assets first. If the decedent did not leave a detailed list of the assets in the trust, then the trustee will have to perform multiple searches.

  • Look through the decedent’s documents
  • Find decedent’s safe deposit boxes
  • Search for real estate
  • Search for other assets

As long as the trustee is performing their duties, they are not refusing to act, even if they are not yet ready to distribute the assets.

Litigation Delays

If there is litigation involved, then there could be a more extended period going by before you can collect your inheritance. Different types of litigation can affect a trust.

  • A medical malpractice claim
  • A business dispute
  • Real estate eviction
  • The validity of the decedent’s will
  • The qualification of the trustee

Litigation can add years to a trust proceeding and may give an impression that the trustee is refusing to act.

If the Trustee Refuses to Act

Once a few months have passed and the trustee is still not releasing money or property left by the trust, then the trustee may be refusing to act.

We would first file a petition or an accounting of a trust, to get an idea of what the trustee is claiming is left for distribution. If there are disagreements over what is in the trust, we resolve those disagreements before moving on to the distribution stage.

Once the accounting is resolved, we file a petition to compel a distribution, to ask the court to force the trustee to stop refusing to act and to release the inheritance. This law is meant to protect you from a trustee who either is lax in handling their duties or is purposefully refusing to distribute the inheritance. The law lets you ask the court through a New York trust attorney to force the trustee to turn over property that you are entitled to.

If you would like to know more about your options when the trustee is refusing to act, you can call the Law Offices of Albert Goodwin at (212) 233-1233. You are welcome to make an appointment to discuss your situation.

Too Slow: Getting the Trustee to Distribute Your Share of the Trust

Jimmy found out that his favorite aunt, Linda, made him a beneficiary of her trust prior to her passing. Jimmy waited patiently for the trustee to do what has to be done and distribute his share of the trust. Reasoning that Linda would have wanted him to do so, Jimmy decided to splurge on an expensive vacation. Yet, the trust’s trustee is not distributing Linda’s inheritance. With his credit card bills piling up, Jimmy started to reach the trustee for periodic updates. The trustee replied “hopefully soon” to the first email, but stopped responding to the subsequent ones. Is there anything that Jimmy can do to speed things up?

A situation as described above is not uncommon. The beneficiaries obviously desire to receive their share of the trust as soon as possible. But possible is not always soon.

On one hand, it is understandable that the trustee has things to do. On the other hand, a diligent beneficiary should not sit by idly for this entire temporal period, especially if he believes that an trustee is failing the nonwaivable duty to “exercise reasonable care, diligence, and prudence.”[5] For example, a court may disqualify an trustee on grounds such as commingling funds, mismanagement, dishonesty, and substance abuse.[6] Although, New York courts will generally give a long leash, and will only step in if the trustee “endanger[ed] the trust” or “seriously impede[d] its administration.”[7] If the trustee is non-responsive, however, a beneficiary should send a written demand for an accounting. This request serves two purposes. First, it may be a requirement to commence any proceeding in court against the trustee.[8] And second, it gives the trustee notice that you are serious—which may give way to a faster distribution. If the trustee does not respond to this written demand, the beneficiary may then commence a motion to compel accounting with the court.[9] Although even here, the New York courts generally compel such an accounting only for good cause.[10]

It is a fine line between giving the trustee deference and desiring to receive the inheritance promptly. When a beneficiary knows that a trustee is mishandling the trust, a court should immediately get involved. In many cases, however, a quarrel with the trustee is not in the best interests for either the beneficiary or the trust. Therefore, it is best for a beneficiary, like Jimmy, to discuss such matters with a competent New York trust attorney.

Call the Law Offices of Albert Goodwin at (212) 233-1233 or (718) 509-9774 and make an appointment to discuss your rights regarding your share of the trust.

[1] N.Y. Est. Powers & Trusts Law § 11-1.5 (McKinney 2018). This excludes the statutory exclusion of up to $25,000 from the trust for a surviving spouse or children under twenty-one. Id§ 5-3.1.

[2] N.Y. Surr. Ct. Proc. Act Law § 1802 (McKinney 2018); N.Y. Est. Powers & Trusts Law § 11-1.5(c).

[3] 26 U.S.C. § 2204 (2012); N.Y. Tax Law § 972 (McKinney 2018).

[4] Frequently Asked Questions on Trust Taxes: When can I expect an Trust Tax Closing Letter?,IRS, https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-trust-taxes#1 (last updated May 11, 2018).

[5] N.Y. Est. Powers & Trusts Law § 11-1.7(a)(1).

[6] N.Y. Surr. Ct. Proc. Act Law § 711.

[7] In re Braloff, 162 N.Y.S.2d 620, 623 (2d Dep’t 1957), affirmed, 173 N.Y.S.2d 817 (1958).

[8] N.Y. Surr. Ct. Proc. Act Law § 2102(1).

[9] See id.§ 2205, 2206.

[10] See, e.g., In re Sherburne, 464 N.Y.S.2d 531, 531 (1983) (holding that in a proceeding in which it was determined that trustees did not have authority to sell decedent’s home, ordering trustees to render and file a final account was appropriate exercise of discretion).

Rights of Beneficiaries of a Trust

rights of beneficiaries of a trust
Beneficiaries of a trust have the right to:

      • Receive current and truthful information about the trust
      • Get the entire share of the trust that they are entitled to
      • Receive a timely distribution of their share of the trust
      • Compel the trustee to provide a formal judicial accounting
      • Have the court remove a trustee who is using the trust for their own gain

Information About the Trust

If the trustee is not giving you information about the trust when asked, they may be hiding something. If you have that suspicion, it’s best to consult with a New York trust attorney. We might send them a letter on your behalf, explaining that you have rights and that failure to provide information can result in the removal of the trustee from the trust.

The Entire Share of the Trust

It does not matter how the Trustee feels about it. The trust is not their personal property or business. They are just there to do a job – to find all of the assets of the trust and promptly distribute the assets to creditors and beneficiaries of the decedent. The trustee cannot keep any of it or give it away to their friends or relatives. They are only entitled to commissions and their own share as a beneficiary.

Rights of Beneficiaries to Receive a Timely Distribution of  Their Share

Every month of delay costs the beneficiary loss of use and enjoyment of their share of the trust. If the trustee is taking too long, a trust attorney can go a long way in showing them that distributing the trust to the beneficiaries should be a priority.

Inventory of the Trust

Beneficiaries have the right to receive an Inventory of the trust (not to be confused with a formal accounting) within nine months of the appointment of the trustee of the trust. An Inventory is something that should just be filed – the beneficiary should not have to ask for it. Some trustees s make a mistake of just filing the Inventory with the Court and not automatically sending a copy to the beneficiaries. It’s always a good idea to ask the trustee for an inventory before deciding whether or not to proceed to the next step.

Rights of Beneficiaries to Compel a Trust Accounting

A trust accounting is a document that details every transaction that occurred in the trust and provides some summaries and explanations of the transactions. The document consists of various schedules in a court-approved format and complying with general accounting standards. At a minimum, the trust accounting includes schedules listing line by line all of the assets that are a part of the trust, all of the expenses of the trust, all income of the trust, and proposed distributions of the trust.

Trustees s of a trust do not have an automatic obligation to file an accounting of the trust. But once the beneficiaries request an accounting, in many trusts trustees have to provide one.

If a beneficiary and a trustee agree to an informal accounting, it might work, as long as the beneficiary is satisfied, they have all the information. When a trustee files an informal accounting, they don’t have to file it with the court. They can just provide it to the beneficiaries. A trustee may ask a beneficiary to approve an informal accounting before the trustee makes distributions of trust funds.

If the beneficiary is not satisfied with an informal accounting, they can ask for a formal accounting. If the trustee fails to provide one, the beneficiaries can compel the trustee to provide one. If the trustee is ordered by the court to provide an accounting, they usually do or get removed by the court. Sometimes they provide an incomplete or fraudulent accounting. Beneficiaries can sue to challenge those accountings and get the money that the trustee may be keeping from the beneficiaries.

If you are looking for a New York trust attorney who protects the rights of beneficiaries of a New York trust, you can call Albert Goodwin, Esq. at (212) 233-1233.

Stealing from a Trust: What is the Penalty

the penalty for stealing from a trust

There are significant penalties for stealing from a trust. The court can discharge the trustee and replace them with someone else, force them to return the money and take away their commissions. There can also be criminal a penalty, but most trust theft allegations do not escalate to criminal prosecution.

Civil Penalties for Stealing from a trust

Surcharge. Beneficiaries will ask the court to surcharge the trustee who they are claiming took more than they are entitled to. If the trustee is one of the beneficiaries, then the court can surcharge the trustee’s share of the trust, giving some or all of the trustee’s share to the other beneficiaries.

Turnover. Beneficiaries can bring a proceeding for Discovery and Turnover. If the court grants the turnover, then it will force the trustee to return property that he wrongfully transferred.

Discharge of trustee. If the person caught stealing from the trust is the trustee or administrator, the judge of the Surrogate’s Court can discharge them from their position, taking away their power to manage the trust. The judge can discharge and remove the trustee “by reason of his having wasted or improperly applied the assets of the trust.”[1] The court can appoint someone else as the trustee instead, typically one of the beneficiaries who brought the proceeding to remove the misbehaving trustee.

Attorneys’ fees. Trustees use trust funds for their defense. If the court finds that the trustee improperly took funds from the trust, the court can order the trustee to reimburse the trust for their attorneys’ fees. In some rare cases, the court can even order the trustee to pay the beneficiaries’ attorneys’ fees.

Waiver of commission. A trustee is entitled to a commission for their services. As a penalty for stealing from the trust, the court can take away the trustee’s right to receive the commission.

Criminal Penalties for Stealing from a trust

It is not common for a trustee of a trust to be criminally prosecuted, but it does happen. A trustee or anyone else improperly taking money from a trust can be subject to criminal prosecution for theft from the trust, even if they are one of the beneficiaries. Taking more than you are entitled to by law can be interpreted as stealing from the other beneficiaries of the trust. Everyone has their side of the story, and it could be that the beneficiaries’ allegations of theft are unfounded. But if the District Attorney’s office decides to bring charges, then the potential penalties can be significant.

The alleged thief’s side of the story. Trustees or others who are accused of stealing have their own side of the story. They say that they are paying for trust expenses, taking their legal fees, taking their share as a beneficiary, or comingling funds by mistake. Whether the trustee is caught stealing and is now making an excuse or the trustee did have a valid reason to transfer trust property to themselves is up to the court to decide, unless the trustee makes a plea agreement with the District Attorney’s office.

The Penal Law. The trust is the owner of the property. When a trustee is stealing from the trust, he commits larceny. New York’s Penal Law (the Criminal Law) states that “A person steals property and commits larceny when, with intent to deprive another of property or to appropriate the same to himself or to a third person, he wrongfully takes, obtains or withholds such property from an owner thereof.” [2] New York Penal Law continues to say that “Larceny includes a wrongful taking, obtaining or withholding of another’s property, with the intent prescribed in subdivision one of this section, committed … by conduct heretofore defined or known as common law larceny by trespassory taking, common-law larceny by trick, embezzlement, or obtaining property by false pretenses.” [3]

Sentencing guidelines. New York Penal Law 155 describes the sentencing guidelines for someone stealing from a trust. The sentence depends on the amount that the trustee steals. A trustee convicted of larceny can incur a sentence of up to twenty-five years in prison.

Amount Stolen Type of Grand Larceny Section of Penal Code Felony Class Penalty
In excess of $1,000 but not more than $3,000 Fourth Degree PL 155.30(1) Class E Felony up to 4 years in prison
In excess of $3,000 but not greater than $50,000 Third Degree PL 155.35 Class D Felony up to 7 years in prison
In excess of $50,000 but is not more than $1 million Second Degree PL 155.40(1) Class C Felony up to 15 years in prison
In excess of $1 million First Degree PL 155.42 Class B Felony up to 25 years in prison

Restitution. The court can force the trustee to return the property to the trust and pay restitution to the beneficiaries.

Although we talk about a trustee, the same rules apply to an administrator and a trustee, as well as a preliminary trustee, administrator d.b.n., administrator c.t.a.d.b.n., administrator c.t.a., ancillary trustee, ancillary administrator, and ancillary administrator c.t.a. [4] Trustees are not the only ones who can be accused of stealing from the trust. Anyone who has access to funds of the trust could potentially be a thief, such as the attorney, real esate broker, financial advisor, caretakers and others.

How a trustee Can Avoid Penalties

Do not take more funds that you are entitled to. Don’t steal from the trust. It can be tempting for a trustee to take some extra cookies from the cookie jar. You have access to trust funds and the power to take some funds out. You don’t see anyone looking over your shoulder. But that sense of safety is false. Banks and courts have systems in place to detect fraud. Beneficiaries can get suspicious and hire a trust attorney or report the suspect to the police and hire a trust attorney to get the inheritance that they are entitled to.

Avoid self-dealing. The trustee cannot transfer trust property to himself because the property belongs to someone else unless he pays the full price for it. As explained above, doing so can be interpreted as stealing from the trust and can lead to an array of legal woes. A smart trustee would want to avoid transferring trust assets to himself, even if paying fair and market value. If beneficiaries are getting more money than they would have, if not for the trustee buying them out, the trustee should explain it to the beneficiaries. For example, the trustee can explain the savings on transaction costs, such as not having to pay a broker. There must be a feeling that the trustee fulfilled his responsibilities to the beneficiaries.

Communicate with the beneficiaries. The trustee should communicate with the beneficiaries, be transparent about the money he is taking from the trust, explain the reasoning behind it and try to get on the same page with the beneficiaries.

Do not commingle funds. The trustee should place all trust funds into a trust account and not into his personal account, unless he wants to be accused of stealing from the trust. New York Consolidated Laws, Trusts, Powers and Trusts Law – EPT § 11-1.6 states that “Every fiduciary shall keep property received as fiduciary separate from his individual property.  He shall not invest or deposit such property with any corporation or other person doing business under the banking law, or with any other person or institution, in his own name, but all transactions by him affecting such property shall be in his name as fiduciary.” [4] Surrogate’s Court Procedure Act – SCP § 719 states that the court can take away a person’s power to manage the trust “where he mingles the funds of the trust with his own or deposits them with any person, association or corporation authorized to do business under the banking law in an account other than as fiduciary.”[5]

Do not use trust funds for personal expenses. The trustee can only use trust funds to pay the legitimate expenses of the trust, taxes and legal fees.

Do not distribute any property without getting signed releases from beneficiaries. Once the trustee collects the assets of the trust and pays out its debts, it’s time for the trustee or administrator of a New York trust to disburse the funds to the beneficiaries. But before the trustee does that, it is important to get a written release from the beneficiaries. The release states that the beneficiaries are satisfied with what they are getting and are never going to sue the trustee. The best release comes with an informal accounting, which provides a summary of what property went into the trusts, what the expenses were, and what is the share of inheritance for each beneficiary.

Having your New York trust lawyer get a release from beneficiaries is especially crucial when the trustee is one of the beneficiaries. For example, if the trustee is transferring a share of the decedent’s business, house, or other property to themselves, the trustee should obtain a written release from the beneficiaries, or at least get them to approve it in writing, to avoid the possibility of the authorized transfer being misconstrued as self-dealing or commingling of funds.

If you feel things like “my family stole my inheritance,” or “my inheritance is being stolen,” it’s time to speak to an attorney.

Whether you are a beneficiary and you are claiming that the trustee is stealing from the trust or if you are a trustee and you insist that the transfer of money or property was proper, you can speak with New York trust attorney Albert Goodwin, Esq. at (212) 233-1233.


[1] SCP § 711Suspension, modification or revocation of letters or removal for disqualification or misconduct

[2] NY EPTL § 11-1.1

[3] NY EPTL § 11-1.1

[4] NY EPTL § 11-1.6

[5] SCP § 719 – In what cases letters may be suspended, modified or revoked, or a lifetime trustee removed or his powers suspended or modified, without process

Power of Appointment in a Trust

power of appointment in a trust

A power of appointment in a trust allows the person with that power to appoint a beneficiary to the trust, as well as to take out existing beneficiaries. The power of appointment can be exercised by the person with that power either in writing to the trustee or in a validly executed will. Typically, a trust will describe how its power of appointment works. If the language of the trust is not clear, then the way the power of appointment works is by default as described in NY Estates Powers and Trusts Law, NY Est Pow & Trusts L § 10-6.6. A trustee may give the power of appointment to themselves or to someone else. Typically, we find that a trustee gives a power of appointment to their spouse, to keep the kids in check.

Question: I’m a trustee for my mother’s or father’s irrevocable Medicaid trust. My mother or father are still alive, and they are upset at one of my brothers or sisters. Can they have that beneficiary removed from the trust or diminish their share?

Answer: The law does not give the trustee an automatic power to have a beneficiary removed from a trust. However, if a trust grants a trustee an option to exercise a power of attorney with a gift rider and the power of appointment to have a beneficiary appointed or have a beneficiary removed if the appropriate language is contained in the trust, then it’s possible.

The trust wording to allow the trustee to have a beneficiary removed from the trust is something similar to this:

The Grantor reserves the power, exercisable by written instrument delivered to the Trustees during the trust term, by making specific reference to, and exercise of, this power to appoint any part or all of the principal of the remainder of the trust fund at the end of the trust term, outright, or upon trusts, powers of appointment, conditions, or limitations, to one or more persons select out of a class composed of the Grantor’s issue. This power may be exercised by an agent under a duly executed statutory power of attorney and statutory gift rider.

The Grantor shall designate in the Grantor’s Last Will and Testament or any codicil thereto of any date, by making specific reference to, and exercise of, this power to appoint the remainder of the trust, in such amounts and proportions, for such estates and interests and free of trust or upon such terms, trusts, conditions, and limitations as Grantor may designate thereunder, to any one or more of Grantor’s issue.

In the event the Grantor shall fail to effectively exercise this power of appointment, then the remainder of the trust shall be assigned, transferred, and paid over as follows:

A Medicaid trust would also include a language such as this: The Grantors are prohibited from appointing themselves, each other, their estate, their creditors or creditors of their estate, their spouse, spouse’s estate, spouse’s creditors or creditors of spouse’s estate as beneficiaries of this trust.

In a trust, there can be either a limited power of appointment or a general power of appointment. Some trusts, especially irrevocable Medicaid trusts, are limited as to what kind of power of appointment it can contain.

This power of appointment with a gift rider is not a common thing to see in New York. We sometimes see it in a trust when a spouse gives the other spouse the power of appointment in order to keep their joint children in check. We also see situations where a stepmother or stepfather wants to have the stepchildren removed from the trust, in order to favor their own children. One has to be very careful before they decide to put a power of appointment into a trust, as it can have consequences such as their children being left out of the trust.

If you have a legal issue where a power of appointment in a trust is involved, you can call the Law Offices of Albert Goodwin at (212) 233-1233 or (718) 509-9774.

Can a Beneficiary Be Removed from a Trust

Can a Beneficiary Be Removed from a Trust

A beneficiary cannot be removed from a trust, with some rare exceptions, which we are going to cover here. The terms of a trust are governed by the trust document. A typical trust document spans tens of pages. If a trust does not expressly state that the beneficiary can be removed from the trust, then the trustee is out of luck.

The reason people set up trusts is to control what happens to their property after their death. Not to give a different person that control.

It is possible in a trust to give someone a power to remove a beneficiary. This could be done by granting the trustee a power of attorney with a gift rider and an option to exercise a power of appointment to appoint a new beneficiary and remove the old beneficiary. You can see a situation where this would come in handy.

Question 1: I set up an irrevocable trust with myself as the trustee. I make my children the beneficiaries of the trust. I am upset at one of the children. As the trustee, can I have that beneficiary removed from the trust?

Answer: If your trust includes a language that allows the Grantee (you) the power of appointment to remove a beneficiary, then you can have the beneficiary removed from the trust.

Question 2: I’m a trustee for my mother’s or father’s irrevocable Medicaid trust. My mother or father are still alive, and they are upset at one of my brothers or sisters. Can they have that beneficiary removed from the trust or diminish their share?

Answer: The law does not give the trustee an automatic power to have a beneficiary removed from a trust. However, if a trust grants a trustee an option to exercise a power of attorney with a gift rider and the power of appointment to have a beneficiary appointed or have a beneficiary removed if the appropriate language is contained in the trust, then it’s possible.

The trust wording to allow the trustee to have a beneficiary removed from the trust is something similar to this:

The Grantor reserves the power, exercisable by written instrument delivered to the Trustees during the trust term, by making specific reference to, and exercise of, this power to appoint any part or all of the principal of the remainder of the trust fund at the end of the trust term, outright, or upon trusts, powers of appointment, conditions, or limitations, to one or more persons select out of a class composed of the Grantor’s issue. This power may be exercised by an agent under a duly executed statutory power of attorney and statutory gift rider.

The Grantor shall designate in the Grantor’s Last Will and Testament or any codicil thereto of any date, by making specific reference to, and exercise of, this power to appoint the remainder of the trust, in such amounts and proportions, for such estates and interests and free of trust or upon such terms, trusts, conditions, and limitations as Grantor may designate thereunder, to any one or more of Grantor’s issue.

In the event the Grantor shall fail to effectively exercise this power of appointment, then the remainder of the trust shall be assigned, transferred, and paid over as follows:

A Medicaid trust would also include a language such as this: The Grantors are prohibited from appointing themselves, each other, their estate, their creditors or creditors of their estate, their spouse, spouse’s estate, spouse’s creditors or creditors of spouse’s estate as beneficiaries of this trust.

This power of appointment with a gift rider is not a common thing to see in New York. We sometimes see it in a trust when a spouse gives the other spouse the power of appointment in order to keep their joint children in check. We also see situations where a stepmother or stepfather wants to have the stepchildren removed from the trust, in order to favor their own children.

Question 3: I am a trustee of a trust. Can I make my children or myself the beneficiaries and have the current beneficiaries removed from the trust?

Answer: Appointing yourself would be not allowed in most cases, as it would be self-dealing and in contradiction to the law of trusts.

Can a trustee have a beneficiary removed from a revocable trust? If the trustee is also the grantor of the trust, then the grantor could terminate the trust and execute a new trust, changing the beneficiaries, even if the trust does not expressly allow that. This is not true in an irrevocable trust. Also, a revocable trust becomes irrevocable after the death of the grantor, so changing the trust, including removing beneficiaries, becomes more difficult after the grantor dies. However, if the trust includes a power of appointment to have the trustee exercise a power of attorney to remove a beneficiary from the trust, then the trustee has that power even after the death of the grantee after the trust became irrevocable.

New York Consolidated Laws, Estates, Powers and Trusts Law – EPT § 11-1.6 states that “Every fiduciary shall keep property received as fiduciary separate from his individual property.  He shall not invest or deposit such property with any corporation or other person doing business under the banking law, or with any other person or institution, in his own name, but all transactions by him affecting such property shall be in his name as fiduciary.” [1]

New York’s Penal Law (the Criminal Law) states that “A person steals property and commits larceny when, with intent to deprive another of property or to appropriate the same to himself or to a third person, he wrongfully takes, obtains or withholds such property from an owner thereof.” [2]

An issue of a trustee having a beneficiary removed from the trust is a very sensitive situation, and you should not act on it without retaining an attorney to provide a letter of advice or obtain a court decision. An attorney can also help a trustee work out a compromise to achieve some of their goals without reverting to having a beneficiary removed. My name is Albert Goodwin and I am a New York wills, trusts and estates attorney. I can be reached at (212) 233-1233 or (718) 509-9774.

[1] NY EPTL § 11-1.6

[2] NY PEN § 155.05