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Disbursement of Funds to Beneficiaries

disbursement of funds to beneficiaries

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

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

Keep in mind that the possibility of disbursement of funds to beneficiaries might not be the same in every trust – some trusts authorize disbursement 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 disbursement of funds, some are entitled only to disbursement of income, and some are not entitled to any disbursement, possibly for a long time. Some beneficiaries are not entitled to any disbursement at all, such as contingent beneficiaries.

Every month of delay of disbursement of funds 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, disbursement 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 many things they have to get to. 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 disbursement of funds 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 disbursement. 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 to discuss disbursement of funds to beneficiary 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.