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When trust assets can be distributed to the beneficiaries of the trust will depend on the language of the trust document. Although most revocable trusts direct the distribution of the trust assets upon death, this might not always be the case. The provisions in the trust document will guide both the trustee and beneficiaries on when and how distribution will be made.
A Triggering Event
Distribution of trust assets to the beneficiaries is always triggered by an event, as provided by the trust document. When the triggering event occurs, distribution follows.
Examples of triggering events are the death of the grantor, the reaching of a particular age by the beneficiary, or the death of an income beneficiary. These are just examples. The grantor can be as creative as can be in the enumeration and description of triggering events that would compel the distribution of trust assets.
HEMS Standard
Another type of event that can trigger distribution to beneficiaries is the HEMS standard, which stands for the health, education, maintenance, and support (HEMS) expenses of the beneficiary. In this case, the trustee is given discretion to make distributions to the beneficiary for the beneficiary’s health, education, maintenance, and support. This is a common provision in spendthrift or supplemental needs trusts to ensure that the beneficiary can still be eligible for government benefits. Because the distribution from the trust is discretionary using the HEMS standard, the distributions are not considered part of the beneficiary’s income or assets until such time that the distribution is actually made. This protects the discretionary distribution from creditors’ attachment and still makes the beneficiary eligible for government benefits, such as Medicaid.
Despite the fact that trustees are given discretion by the trust document to make distributions under the HEMS standard, New York courts have required trustees to exercise this discretion reasonably. If a beneficiary has any doubt as to whether the trustee is exercising discretion reasonably, judicial review may be requested.
For example, if the trust states that distributions may be made for a beneficiary’s health, education, maintenance, and support, and the trustee refuses to make a distribution for the beneficiary’s monthly rent for room accommodation while attending university, this question can be raised to the court for resolution. In determining whether the trustee exercised the discretion reasonably, courts will normally look into the intent of the testator based on the provisions of the trust. If you have any doubts regarding the interpretation of a trust provision, you can seek the advice of a trust attorney.
Trust Accounting
Distributions can also be held up when there are issues regarding trust accounting. This usually happens in cases of a final account when the trust will be terminated. A trust is terminated, depending on the provisions of the trust document. Most trust documents, however, will provide for termination upon the grantor’s death or an income beneficiary’s death.
When a trust is terminated, an informal accounting is prepared, and a beneficiary does not sign a release and objects to the accounting, distributions will be postponed until objections are resolved. This can take a long time because the beneficiary might request the trustee to settle his account judicially or the trustee might file a voluntary petition to settle the trust account in order to be discharged from liability.
This can take a long time. For this reason, it is always better to ensure that when you send that informal accounting, it is prepared in more or less a similar manner to the way it would be submitted to in court for a formal accounting. This will require a meticulous review of all bank statements and accurate recording of all principal, income, and disbursements.
The distribution of trust assets can be a point of contention between the trustee and beneficiary. Different interpretations may arise, especially when the trustee is given discretion to make the distribution. However, New York courts have required trustees to exercise this discretion reasonably. Should you need assistance in handling trust matters, we at the Law Offices of Albert Goodwin are here for you. We have offices in New York City, Brooklyn, NY and Queens, NY. You can call us at 212-233-1233 or send us an email at [email protected].
About the Author
Albert Goodwin Esq. is a licenced New York attorney with over 17 years of courtroom experience. His extensive knowledge and expertise make him well-qualified to write authoritative articles on a wide range of legal topics. He can be reached at 212-233-1233 or [email protected].
