BLACK FAMILY WEALTH MATTERS: Click here to learn how we are working to support you.
PROTEJA SU HOGAR Y SU FAMILIA - Se Habla Espanol. Haga clic aquí!
  • Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
  • Home
  • Our Firm
    • About Our Firm
    • Areas We Serve
      • Los Angeles County
        • Inglewood
        • Malibu
        • Santa Monica
        • Torrance
        • Venice
    • Pre Consultation Form
    • Attorney and Staff Profiles
      • Attorney Caprice Collins
      • Attorney Lioness Ebbay
    • Awards & Recognition
    • Giving Back
    • Our Reviews
    • Speaker Connection
    • Staff Events
  • Services
    • Asset & Business Planning
    • Estate And Gift Tax Figures
    • Estate Planning Services
    • Family-Owned Businesses
    • Financial Planning Assistance
    • Incapacity Planning
    • IRA & Retirement Planning
    • Legacy Planning Services
    • LGBTQ Estate Planning
    • Medi-Cal and Elder Law
    • Pet Planning
    • SECURE Act
    • Special Needs Planning
    • Trust Administration & Probate
      • Trust Administration & Probate Definitions
  • EVENTS
  • Resources
    • Elder Law
      • Ladera Heights Elder Law
      • Los Angeles County Elder Law
      • Elder Law & Medicaid Definitions
      • Elder Law Reports
      • Medi-Cal Planning Checklist
    • Estate Planning
      • Estate Planning Checkup
      • Estate Planning Reports
        • Advanced Estate Planning
        • Basic Estate Planning
        • Estate Planning For Niches
        • Trust Administration
      • Estate Planning Definitions
      • Estate and Gift Tax Figures
      • Incapacity Planning Definitions
      • Is Your Estate Plan Outdated?
      • Top 10 Estate and Legacy Planning Techniques
    • Free Estate Planning Worksheet
    • Free Seminars
    • Frequently Asked Questions
      • Business Succession Planning
      • Elder Law
        • Medi-Cal
        • Nursing Home Planning
        • Understanding Dementia
      • Estate Planning
        • Charitable Gifting
        • Estate Planning for Women
        • Frequently Asked Questions for Families Without an Estate Plan
        • LGBTQ Estate Planning
      • Financial Planning
        • Tax Planning in Your Estate Plan
      • Incapacity Planning
        • Veteran’s Benefits
      • Legacy Wealth Planning
      • Pet Planning
      • Power of Attorney
      • Probate
        • Serving as Executor
        • Small Estate Administration
      • Trust Administration & Probate
      • Trusts
        • Living Trusts
      • Understanding Estate Taxes and How They Impact Your Estate Plan
    • Legacy Wealth Planning Pre-Consultation Form
    • Newsletters
    • Probate and Trust Administration
      • Bereavement Resources
      • How to Know if You Need Extra Help With Your Grieving
      • Loss of a Loved One
      • The Mourner’s Bill of Rights
      • Things You Need To Do When a Loved One Passes Away With a Trust
      • Things You Need To Do When a Loved One Passes Away With a Will
      • Trust Administration & Probate Definitions
    • Published Books
    • The Ultimate Caregiver Guide
    • Caregiver’s Worksheets and Checklists
  • Videos
  • Reviews
    • Our Reviews
    • Review Us
  • Women’s Planning
    • A Guide to Estate Planning for Women
    • Frequently Asked Questions
  • Trust Administration
  • Blog
  • Contact Us

Collins Law Group

Los Angeles Estate Planning Attorney

powered by BirdEye

Connect with us today(310) 677-9787

Attend a FREE Event
  • Facebook
  • Twitter
  • Linkdin
  • Youtube
  • Instagram
  • Pinterest
x

How to Protect Your Family In Case of Your Illness or Death

During our webinar, we discuss family home protection, avoiding nursing home poverty, preventing family feuds, protecting your kids' inheritance, and how you can keep the government out of your affairs.

Watch our webinar now
Home » Revocable Living Trust » Can a Beneficiary Sell His/Her Interest in a Trust?

Can a Beneficiary Sell His/Her Interest in a Trust?

July 19, 2021Revocable Living Trust

Money

Gifting can always be done through a Last Will and Testament; however, many people choose to use a trust agreement instead of, or in addition to, a Will to make gifts within their estate plan. There are numerous benefits to using a trust to distribute assets, including the ability to retain a certain degree of control over the assets gifted and the ability to prevent a beneficiary from squandering assets. Once you create a trust and name a beneficiary though, can that beneficiary sell his/her interest in the trust? A Living Trust lawyer at the Collins Law Firm explains the right of a beneficiary to sell or encumber his/her interest in a living trust.

What Is a Living Trust?

A trust is a relationship whereby property is held by one party for the benefit of another. All trusts are broadly divided into two categories – testamentary and living trusts. A testamentary trust is one that does not activate until the death of the Settlor, usually triggered by a term in the Settlor’s Last Will and Testament. A living trust, as the name implies, is a trust that activates as soon as all the formalities of creation are in place. Living trusts can be further sub-divided into revocable and irrevocable living trusts. A revocable living trust is one that can be modified, amended, terminated, or revoked at any time, and for any reason, by the Settlor, whereas an irrevocable living trust cannot be modified or revoked for any reason by the Settlor once the trust is active. Because a testamentary trust does not activate until the death of the Settlor it is always revocable up to the point of the Settlor’s death.

Can a Beneficiary Sell or Encumber His/Her Interest?

The Settlor (creator) of a living trust creates the terms of the trust within the trust agreement. Those terms determine how and when the trust assets are distributed to the beneficiaries of the trust. Those terms might call for a beneficiary to receive interest only for several years, or to receive staggered disbursements instead of a lump sum. For a beneficiary in need of money, knowing that a disbursement is coming at some point down the road, but isn’t available right now, can be frustrating. This is especially true if the beneficiary is having financial problems. On the other hand, the Settlor may have created a trust and distributed assets through the trust for exactly that reason – to prevent a beneficiary from squandering a lump sum of money. What if the beneficiary decides to simply sell his/her interest in the trust or use that interest as collateral for a loan? Can a beneficiary do that?

As a general rule, trust property cannot be sold outright by a beneficiary; the property must be first transferred to the beneficiary and placed in his name. The Settlor’s intent, the number of beneficiaries,  and/or the existence of a spendthrift clause can all impact a beneficiary’s right to sell trust assets as can the state in which the trust was executed.

The first place to look for an answer if you want to know if a beneficiary can sell his/her interest in the trust is the trust agreement. The provisions of the trust agreement govern the administration of the trust and must be followed by the Trustee. If a provision explicitly states that an heir or beneficiary cannot sell/encumber trust property, the Trustee is not permitted to allow a beneficiary to sell/encumber the property. The same is true for the trust intent. If selling/encumbering the trust property would be contrary to the stated intent of the trust, it cannot be done.

In addition, the Trustee is required to treat beneficiaries impartially and to always consider all beneficiaries (both current and future) when making trust decisions. If there is more than one beneficiary, The trustee cannot transfer property for one beneficiary to sell if it hurts the other beneficiaries’ interests. The only possible exception to this rule would be if the trust agreement specifically authorized doing so because the provisions of the trust agreement govern the trust.

Finally, if the trust agreement includes a spendthrift clause it will specifically prevent beneficiaries from transferring any portion of their interest in the trust to another party. Most states have upheld the validity of spendthrift provisions although some have not. In the State of California, the California Probate Code governs spendthrift clauses, making them valid with respect to trust income and principal. A spendthrift clause only protects assets prior to distribution. Once distributed, trust assets are fair game for creditors and may be sold by the beneficiary.

Contact The Collins Law Group

For more information, please join us for an upcoming FREE seminar. If you have additional questions about living trusts and the rights of beneficiaries, consult with one of our Estate Planning Attorneys. Contact the Collins Law Firm by calling (310) 677-9787 or online at collinslawgroup.com to register for one of our FREE estate planning workshops.

  • Author
  • Recent Posts
Caprice Collins
Caprice Collins
Attorney Caprice L. Collins is a top rated Harvard Law School graduate. She has 34 years of legal experience with a successful law practice devoted exclusively to Estate/Business Planning and Trust Administration. Attorney Collins is a well-respected keynote speaker on Wills, Living Trusts, Estate Planning, Business Planning and Trust Administration. She has appeared on California’s Real Estate Radio Station KTLK AM 1150 as a legal expert on Estate Planning and Living Trusts among many other notable media appearances.
Caprice Collins
Latest posts by Caprice Collins (see all)
  • Can the Beneficiary of My Life Insurance Policy Be a Trust? - May 30, 2023
  • Are Your Digital Assets Included in Your Estate Plan? - May 27, 2023
  • What Is a QTIP Trust? - May 25, 2023

Other Articles You May Find Useful

Los Angeles living trust attorneys
5 Reasons to Include a Living Trust in Your Estate Plan
Los Angeles estate planning lawyers
How to Choose the Right Trustee
Torrance trust attorney
When Roles Reverse & Your Parents Need You Help
Collins Law Group
What Is a Revocable Living Trust?
What Is a Revocable Living Trust in California
Free Report: What Is a Revocable Living Trust in California

Primary Sidebar

Collins Law Group

Blog Subscription

Sign up to our blog to receive the latest estate planning news and updates!

  • This field is for validation purposes and should be left unchanged.

Our Attorneys

Attorney Caprice Collins

Get to Know Attorney Caprice Collins


Attorney Lioness Ebbay

Get to Know Attorney Lioness Ebbay

Follow Us

  • Facebook
  • Twitter
  • Linkdin
  • Youtube
  • Instagram
  • Pinterest

Testimonials

Client Review
August 19, 2020
    

“My mother told me about the Collins Law Group and I must say, the entire experience has been a real pleasure. Although I was nervous at first, the Collins Law Group staff put me at ease with their friendliness and knowledge. I didn’t realize how hard it could be on your family and loved ones left behind if you die without any planning or directions in place for them. My biggest concern was making sure my elderly mother would be provided for and taken care of if something happened to me. I have been a caregiver for her for 12 years, so this planning was crucially important. I had previously made a living trust for myself on Legal Zoom but there is no comparison to the level of service and professionalism that Collins Law Group embodies. Attorney Collins and her staff provides excellent service and it will take a large burden off of my family when they need guidance at the time of my passing.”

default image
-Ms. Jones

Where We Are

Collins Law Group
3330 West Manchester Boulevard
Inglewood, CA 90305
Phone: (310) 677-9787
Fax: (310) 677-6742
Email: clcfirm@aol.com

See Larger Map Get Directions

Office Hours

Monday9:00 AM - 5:00 PM
Tuesday9:00 AM - 5:00 PM
Wednesday9:00 AM - 5:00 PM
Thursday9:00 AM - 5:00 PM
Friday9:00 AM - 5:00 PM

Map

Collins Law Group Google Map

Footer

  • About Our Firm
  • Advantages of Working With Our Firm
  • Services
  • Sitemap
  • Resources
  • Blog
  • Contact Us

Connect with Us

  • Facebook
  • Twitter
  • Linkdin
  • Youtube
  • Instagram
  • Pinterest
Collins Law Group footer logo

Attorney Advertisement

© 2023 American Academy of Estate Planning Attorneys, Inc.