Attorney L. Reed Bloodworth is the managing partner of Bloodworth Law with offices in Orlando, Florida, and Winter Haven, Florida.

Beneficiary Pressuring A Trustee For A Dispersal

Reed represents trustees and personal representatives defending themselves against claims made by beneficiaries. While the first step is to keep communication open, what if a beneficiary is pressuring a trustee for an early dispersal, an additional dispersal, or an emergency dispersal?

And after being asked by a beneficiary for a dispersal, the trustee says no, and the beneficiary files a lawsuit? What do you do when a beneficiary sues a trustee for denial of a dispersal?

Trust Litigation Cases Are Fact-Specific, Case-Specific

Reed explains that all trust litigation cases are fact-specific and case-specific to the type of trust.

What Type Of Trust Is It?

“If the beneficiary is calling the trustee and saying, ‘I need money for a health emergency’ that sounds like it’s a discretionary trust. Which brings up the different types of trusts.

Pure Discretionary Trust

“If you have a trust that is a pure discretionary trust — because that’s what the grantors wanted — then it’s truly up to the trustee as to whether to grant the dispersal,” Reed said.

“In a pure discretionary trust, the trustee is under no obligation to disperse trust assets to a beneficiary because it’s purely discretionary.

Partially Discretionary Trusts

“Then there are other trusts that are partially discretionary,” Reed said.

“If a disbursement has something to do with health, education, maintenance, and support, a trustee is obligated to disperse funds because a trustee is obligated to take care of the health of a beneficiary.

“This is also known as an H-E-M-S. That’s H-E-M-S, health, education, maintenance, and support,” Reed said.

H.E.M.S.:

• Health
• Education
• Maintenance
• Support

“If it’s a pure discretionary trust, then basically the grantor has said — and this would be language in the trust – that it’s purely at the trustees’ discretion, meaning that they don’t have an obligation to make a disbursement, it’s their opinion,” Reed explained.

“But then you have a partial discretionary trust where the trustee should make distributions for health, education, maintenance, and support,” Reed said. “It’s a distribution for the wellbeing or best interests or things of that nature of the beneficiary. And these are referred to as HEMS trusts.”

What Exactly Does Trust Say?

“That’s a situation where the trustee first looks to the language of the trust: so what exactly does it say? If it’s not specifically addressed in the trust, and a beneficiary is hounding a trustee for funds claiming it’s health insurance or, they need mortgage payments,” Reed said.

“Then a reasonable thing for the trustee to do would be to say, ‘send me the insurance bill. Send me the mortgage bill and I’ll look at it, and if it’s valid, I’ll pay it.’”

“The grantors of these trusts typically set up a HEMS trust for a reason,” Reed explained. “They don’t want — be it their children, grandchildren, nieces, or nephews — to have full access to this money because there could be an issue.”

HEMS Trust Often Setup To Protect Beneficiaries

“Maybe they don’t believe the beneficiary is mature enough to do the right things with the money,” Reed said. “Maybe they know or believe that one of the beneficiaries has substance abuse issues. So they set up a HEMS trust and put the trustee in charge and say, ‘Listen, trustee, I want you to take care of this beneficiary, but you do have some discretion over it. You don’t have to give them money every time they ask.’

What Type Of Trust Is It And What Does It Say?

“Again, these types of questions and what can be done with beneficiaries that are pressuring a trustee are case- and fact-specific,” Reed said. “What type of trust is it? What does the trust say?

“Do you know for a fact that it is a health concern, or money for school, or maintaining the mortgage or car payment, something along those lines?”

This is just one example of when a beneficiary may sue a trustee over a dispersal denial. If you’re a trustee with questions over dispersals, talk with Reed about how Bloodworth Law can help you, your family, or, your business.