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When can a trustee withhold trust assets?

On Behalf of | May 13, 2024 | Probate & Trust Administration

As someone who is set to administer a trust for a family member, you should have a solid understanding of your obligations. Even if you feel that a trust beneficiary will act irresponsibly with trust assets, you may have no choice but to distribute the money to that person anyway.

Knowing when you, as a trustee, have discretion to withhold trust money or physical property can help you avoid legal trouble and prevent conflict with trust beneficiaries.

A trustee as a fiduciary

The main reason a trustee cannot withhold money from beneficiaries is due to the trustee’s nature as a fiduciary, which is someone who must act in the best interest of those who receive from the trust. This means you have a responsibility to behave in an ethical and responsible manner when overseeing trust assets until their intended owners can take possession of them.

Due to your fiduciary obligations, if you delay or refuse to disperse assets as instructed by the trust documents, the beneficiaries can take you to court. A judge may force you to distribute the assets, or you may even be removed and replaced as trustee.

When a trustee has control over distribution

The authority of a trustee stems from the trust documents. It is possible for a trust creator to lay down conditions for beneficiaries to receive money from the trust. The trust documents may instruct you how to decide when and how beneficiaries have met these requirements.

For example, some parents have a child who cannot handle money responsibly, due to poor spending habits or a drug addiction. A parent in this situation can create a spendthrift trust, granting a trustee discretion to make payments to the child or for specific payments on behalf of the child.

Basically, your power to control asset dispersals depends on the authority granted to you by the trust documents. You should make sure that your powers are clearly defined before proceeding with any action that could spark legal proceedings against you.