Most family trusts call for the outright distribution of assets to specific individuals (i.e., remainder beneficiaries) after the creators of the trust are gone. In the most common scenario, the assets get doled out to the adult kids after Mom and Dad pass. Even when a trustee is diligent and the situation is straightforward, it may take several months to pay off debts, value the various assets, liquidate them, and then distribute the proceeds to the beneficiaries in proportional shares.
Many trust disputes start when the beneficiaries get frustrated with the apparent lack of action by the beneficiary who also serves as trustee. Brother trustee may decline to provide reports and documentation to the beneficiaries. It may appear that he wants to hold onto the assets to benefit himself in some way – for example, he may live in the comfortable house in Roseville that he holds in the trust without paying rent, or he may operate and draw a salary from the family business that is a trust asset.
Here are six steps under California law that beneficiaries might take (when circumstances warrant) to push trust administration to its end, in the situation of a family trust that calls for the distribution of all remaining assets to the children in equal shares after the parents pass:
- Ask for a written notice of administration under Probate Code section 16061.7, along with a copy of the trust instrument and all amendments to it. The notice should be provided within 60 days of the surviving parent’s death. Your request for the notice will get the trustee thinking about his duties as a fiduciary and flush out any challenges to the trust by starting a 120-day clock on such contests.
- Encourage the trustee to consult with an attorney who is familiar with the trust administration process – yes, lawyers are not cheap and you will bear a share of the cost as a beneficiary, but a knowledgeable lawyer will help move administration forward in a manner that is fair to all.
- Ask for a schedule of trust assets and a timetable for completion of the administration. The trustee has a duty to keep the beneficiaries reasonably informed about what he’s doing under Probate Code section 16060, and the trustee must provide beneficiaries with copies of pertinent records upon reasonable request under Probate Code section 16061
- Request proper valuations of major assets. Assets may be sold with the proceeds divided, or they may be allocated to one beneficiary’s share of the trust with corresponding value going to the other beneficiaries. Especially in the latter scenario (known as “non pro rata” distribution), it’s vital to get a fair market valuation of the asset so all beneficiaries are treated fairly. A trustee should not rely on an informal value estimate from a friend, and a thorough appraisal report done by a licensed professional will allow all to understand and evaluate the basis of the valuation.
- Ask for a preliminary distribution. If the trust has a large amount of cash or other liquid assets, the trustee may be in a position to make a preliminary distribution in proportional shares to all the beneficiaries, as opposed to a single lump sum distribution at the end of administration. A trustee should be able to offer reasons for holding back a cash reserve.
- Consult with a lawyer familiar with trust administration regarding your rights as a beneficiary. The trustee’s lawyer does not represent you as a beneficiary. You will need to hire your own attorney to evaluate your situation and help you assess whether the trustee is being diligent and fair in handling the assets. A phone call, email message or letter from your attorney may light a fire under a “do nothing” trustee without any need to go to court, and having a lawyer on board also will position you to go to court if necessary to assert your rights.
California courts will expect trustees to work diligently towards the completion of trust administration, including any required distributions of trust assets. At the same time, the tasks inherent in trust administration vary substantially from one situation to the next. Beneficiaries who get impatient watching the clock tick should seek guidance from an attorney.