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Don't Give Away What's Not Yours to Give

Once in a while, we do see trustees giving away money from a trust to people who aren’t actually named beneficiaries of the trust. To this day, I have no idea why they do it.

Misappropriation of Trust Funds by Trustee

The situations in which we normally see this is when the trustee is a close friend or family member of the decedent and realizes the decedent wanted certain people in the family to have some money—maybe some aunts, some uncles, or brothers or sisters who aren’t named in the trust document. The trustee chooses to make a small $10,000 or $20,000 gift to these people, because they believe this is what their brother or sister who has passed away would have wanted.

The Trustee’s Duty

A trustee is not entitled to do that. You look at the trust terms. You find the trust beneficiaries. You find out if they’re specific gift beneficiaries, residue beneficiaries. You find out what their beneficial interest is and that’s the distributions that you make to beneficiaries. You don’t make distributions based on what you believe that your brother or sister told you before they died or based on what you believe they would have done with your money.

The distributions from a trust go only to the named trust beneficiaries.