How to Handle Beneficiary Requests for Additional Trust Distributions
As the administrator of a trust, you may receive requests from beneficiaries for additional distributions. As trustee, you can accept or decline these requests at your discretion. When making these decisions, consider why the beneficiary wants the money, how the distribution will affect the trust, and the beneficiary’s financial track record. Keep records of these requests and your responses. Don’t be afraid to decline a request.
Before responding to a beneficiary’s request for additional distributions, ask yourself the following questions:
Does the request have merit? You are not required to, nor should you, give in to every demand from the beneficiary. Not every request deserves a positive response.
Would the grantor have given the money for this purpose? Try to put yourself in the grantor’s shoes and make that determination. If, for example, the grantor wanted to encourage home ownership, and the beneficiary is asking for help with a down payment, your answer is clear.
How will this extra distribution affect the ongoing purpose of the trust? If the purpose of the trust is to provide a safety cushion for an income beneficiary who is relying on that income to live, and depleting the principal of the trust in order to make this discretionary distribution would severely impact the trust’s ability to provide that ongoing financial cushion, you may want to consider carefully before consenting.
Ask for more information regarding how the beneficiary plans to use this distribution. For example, if the distribution would enable the beneficiary to reduce living expenses (perhaps by purchasing a house for cash rather than requiring a mortgage), the loss of future income may be offset by the long-term reduction in the beneficiary’s expenses.
Are you being asked to make a distribution to a spendthrift beneficiary? Weigh requests from spendthrift beneficiaries carefully; some have merit, but many don’t. Should you choose to make a distribution, be certain to obtain proof that the money is being used for the purpose intended. You may want to pay the beneficiary’s bills directly instead of giving the money to the beneficiary and relying on him or her to make those payments.
Carefully document all your dealings with a spendthrift beneficiary. Try to get all requests that come directly from the beneficiary in writing. If the beneficiary is requesting money to pay a specific bill or fund a project, request a copy of any third-party documentation, such as the bill that needs to be paid. Don’t hesitate to contact that third party directly for verification.
If you choose not to make a trust distribution, be sure to notify the beneficiary, in writing, of your decision, referencing the part of the trust instrument that gives you the discretion to say no. Keeping a well-documented paper trail protects you from future complications resulting from this decision.