Trustee Not Giving Money to Beneficiaries in New York

When a trustee is not giving money to beneficiaries, what can be done to make sure that they get the distributions that they are supposed to according to the terms of the trust? While many times, these distributions may be uneventful and go smoothly, there are other times where a trustee and beneficiary are not in agreement about how funds should be distributed, leading to legal conflict.

The clearest and best-written trusts make it easy to tell when a trustee should pay beneficiaires. Unfortunately, only a small majority of trusts are clear and well-written. In some cases, language could be interpreted to mean that the trustee must distribute funds in a way to keep the beneficiary up to the standard of living that they used to enjoy. Other trusts may only direct that the trustee uses the funds for things such as medical or emergency expenses. There are other trusts that simply allow the trustee to use their discretion entirely, with no additional guidance as to how. It all depends on the language that the attorney who drew up the trust document used and what was requested by the person who set up the trust.

This does not mean, however, that a trustee has unlimited power when it comes to distributing funds. A trustee cannot simply refuse to pay beneficiaries for a bad reason or no reason at all. A trustee has to act reasonably and fairly when making distributions from the trust, meaning that they can’t simply not pay beneficiaires without some sort of good cause. For example, if the trust document says that funds from the trust should be used for educational expenses, it would most likely be found to be unreasonable on the part of the trustee to refuse to pay for textbooks.

When a trustee is not giving money to beneficiaries, there are a few things that the beneficiary may want to try in order to get the money they feel they deserve. A first step could be as simple as having a New York estate attorney write a demand letter on the beneficiary’s behalf making a demand for distribution of the estate. This could be a simple solution to keep out of court.

If this does not work, then litigation may be the only option. If this is the case, the beneficiary may have to file a lawsuit against the trustee to have the court force them to release the funds. However, before embarking on this step, the beneficiary should be absolutely sure that the trustee is actually not acting within their discretion when refusing the distribution.

A trustee is a fiduciary, meaning that he has a duty to exercise the utmost good faith and undivided loyalty toward the beneficiaries throughout the relationship. Not giving money to beneficiaries could be a failure of that fiduciary duty.

If you are faced with a situation where a trustee is not giving money to beneficiaries, call the Law Offices of Albert Goodwin at (212) 233-1233 and speak with a trust attorney.

Mandatory vs. Discretionary Distributions

The first question in evaluating any non-payment situation is whether the distribution at issue is mandatory or discretionary. Mandatory distributions are required when a triggering event occurs — "The trustee shall distribute all income annually" or "Upon the beneficiary reaching age 30, the trustee shall distribute one-half of the principal." When the triggering event occurs, the trustee has no discretion to refuse.

Discretionary distributions give the trustee judgment about whether to distribute. The trust may use language like "The trustee may distribute principal for the beneficiary's health, education, maintenance, or support" or "The trustee may make distributions in the trustee's sole discretion."

The remedies differ based on which type is at issue. For mandatory distributions, the beneficiary can compel the distribution by court order. For discretionary distributions, the beneficiary must show that the trustee abused discretion — a higher bar.

What Constitutes Abuse of Discretion

Even with broad discretion, the trustee is constrained by:

• The duty of good faith.
• The duty of impartiality among beneficiaries.
• The trust's purposes (the trustee cannot exercise discretion in ways inconsistent with what the grantor intended).
• Reasonableness standards (the trustee's decisions cannot be irrational or made without due consideration).

Trustees who refuse all distributions because of personal animosity, who favor themselves or related parties, or who ignore the beneficiary's clear needs are abusing discretion. Beneficiaries can challenge these decisions in court and obtain orders directing appropriate distributions.

The Demand Process

Before going to court, a formal demand process often produces results:

1. Make a specific written request for the distribution, citing the trust language that supports it.
2. Document why the distribution is needed (medical expenses, educational costs, housing emergency, etc.).
3. Give the trustee a reasonable time to respond — typically 30 days.
4. If no response, send a follow-up by certified mail.
5. If still no response, have an attorney send a formal demand letter that outlines the trustee's obligations and the consequences of continued refusal.

Many trustees who have been resistant to informal requests respond when faced with an attorney letter. The letter creates a record and signals that the beneficiary will pursue formal remedies if necessary.

Court Petitions

When informal demands fail, several court petitions are available:

Petition to compel an accounting (SCPA § 2205). Forces the trustee to file a complete report of trust activity. The accounting often reveals the real reason for non-distribution — sometimes the funds have been mismanaged, sometimes there are legitimate reasons the beneficiary did not understand.

Petition for instructions. Where the trust's terms are ambiguous, asking the court to interpret the document resolves the underlying dispute about what the trustee should do.

Petition for distribution. Asking the court to order a specific distribution. The court will direct the trustee to distribute when the trust requires it or when the trustee's refusal abuses discretion.

Petition for removal (SCPA § 711). Asking the court to remove the trustee and appoint a successor. Available when the trustee has engaged in serious misconduct or has demonstrated inability to perform.

Petition for surcharge. Asking the court to order the trustee to repay the trust for losses caused by misconduct.

The Trustee's Defenses

Trustees who are accused of improper non-payment may have legitimate defenses:

• The trust's standards have not been met (the beneficiary does not qualify for the requested distribution).
• The trust's purposes argue against the distribution (e.g., funding for a beneficiary's drug habit or speculative venture).
• The beneficiary has other resources adequate to the need.
• Other beneficiaries' interests would be unfairly harmed by the distribution.
• The trust's solvency requires retention of the funds.
• The beneficiary has not provided documentation needed to evaluate the request.

The court evaluates the trustee's reasons in light of the trust's terms and the surrounding facts. Trustees with documented good reasons generally prevail. Trustees acting from improper motives generally do not.

The Special Case of Discretionary Beneficiaries

When the trust provides discretionary distributions for support of a beneficiary, the beneficiary's other resources matter. A trustee using a HEMS standard (health, education, maintenance, support) typically considers whether the beneficiary can pay for the requested expense from other sources. If the beneficiary has substantial independent resources, the trustee may legitimately decline to use trust funds for expenses the beneficiary could pay personally.

This rule has limits. The trustee cannot expect the beneficiary to exhaust all personal resources before any trust distribution. The standard is reasonableness given the beneficiary's overall situation.

Common Patterns We See

In our practice, certain patterns of non-distribution come up repeatedly:

• An adult sibling acts as trustee for a younger sibling and uses control as leverage in unrelated family disputes.
• A second spouse acts as trustee for the deceased's children from a prior marriage and minimizes distributions to favor the spouse's own children.
• A trustee who is also a residuary beneficiary minimizes distributions to current beneficiaries to preserve principal for themselves.
• A professional trustee delays distributions to maximize compensation periods.
• A family-member trustee simply does not understand the role and fails to act.

Each pattern requires a different approach. We evaluate the specific situation and develop a strategy that fits.

How Courts Review Different Grants of Discretion

The level of scrutiny a New York court applies to a trustee's refusal depends on the exact discretion language in the trust instrument:

• "Sole and absolute discretion." The broadest grant. Courts are reluctant to substitute their own judgment, but they will intervene where the trustee acts dishonestly, in bad faith, from an improper motive, or fails to exercise any judgment at all.
• "Reasonable" discretion. A narrower standard. The trustee must do what a prudent person in the same position would do, and the court reviews the decision more closely.
• HEMS — "health, education, maintenance, and support." This is an ascertainable standard, often used for favorable estate-tax treatment. Because it is objective, a court can measure the trustee's conduct against a concrete benchmark. A trustee who refuses to fund clearly qualifying expenses — tuition, necessary medical care, basic living costs — abuses discretion.

No matter how broadly the trust is drafted, discretion is not unlimited. Under EPTL § 11-1.7, provisions attempting to exonerate a trustee from liability for ordinary negligence are void as against New York public policy, so a trust cannot give a trustee an absolute license to ignore beneficiaries.

The controlling case law reinforces this. In Matter of Wallens, 9 N.Y.3d 117 (2007), the New York Court of Appeals confirmed that a trustee owes the beneficiary undivided loyalty and may not place personal interest ahead of the beneficiary. Earlier authority such as Matter of Marsh, 265 A.D.2d 253 (1st Dep't 1999), describes the trustee as held to "something stricter than the morals of the market place," echoing Judge Cardozo's classic formulation of the fiduciary standard in Meinhard v. Salmon, 249 N.Y. 458 (1928).

Legitimate vs. Abusive Refusals: Two Examples

A legitimate refusal. A trust gives the trustee discretion to distribute principal for the beneficiary's "support." The beneficiary, who earns a comfortable salary and has substantial savings, demands $200,000 to fund a luxury vacation. The trustee, mindful that the trust must also support a minor remainder beneficiary, declines. A New York court is unlikely to disturb that decision — the trustee weighed the beneficiary's other resources and the interests of all beneficiaries, exactly as the law requires.

An abusive refusal. The same support standard applies. The beneficiary has lost her job, faces eviction, and asks for three months of rent. The trustee — who happens to be a remainder beneficiary — refuses, saying she should "figure it out herself," while making distributions to himself. That refusal serves the trustee's self-interest, ignores an ascertainable need, and violates the duty of loyalty recognized in Wallens. Conduct like this supports a compulsory accounting, surcharge, and removal.

One related nuance: where a trustee has genuine concerns about a beneficiary — for example, addiction or inability to manage money — the trustee may legitimately pay vendors directly (a landlord, a school, a medical provider) rather than hand over cash. What the trustee cannot do is refuse to meet genuine needs altogether.

Which Court Hears the Case

Where a beneficiary must file depends on the type of trust. For testamentary trusts (trusts created under a will), a petition to compel an accounting is brought in Surrogate's Court under SCPA § 2205. For lifetime (inter vivos) trusts, the proceeding may be brought under SCPA § 2206 or in Supreme Court. Identifying the correct forum at the outset avoids delay and jurisdictional objections from the trustee.