Can a Trustee Cut Your Distributions for Gambling

A trustee cut distributions after learning the beneficiary gambles. Florida law says the trustee can do exactly that, and this episode explains why.

Transcript

A question came in this week from someone in Florida whose grandfather left money in a trust. The trustee promised a certain amount every month. Then the trustee found out the beneficiary gambles. Now the monthly payment is cut, significantly. Is that allowed.

The short answer is yes. This episode covers what the trustee is actually allowed to do, what the trust document probably says, and the one thing a beneficiary can actually challenge in court.

Start with the document itself, because the document is the law of the trust. Most trusts give the trustee discretion over distributions. The language usually says something like “the trustee may distribute income or principal for the beneficiary’s health, education, maintenance, and support.” That word “may” is the key. It means the trustee decides, not the beneficiary.

Florida law backs this up. Section 736.0504 of the Florida Trust Code says that when a trustee has discretion over distributions, a creditor of the beneficiary cannot compel one. The statute calls it a “discretionary distribution,” and it means what it sounds like. The trustee decides when and how much.

But there is a limit. Section 736.0814 says the trustee must exercise discretion “in good faith and in accordance with the terms and purposes of the trust and the interests of the beneficiaries.” Even if the trust says the trustee has “absolute” or “sole” or “uncontrolled” discretion, that standard still applies. The trustee cannot act arbitrarily or in bad faith.

Here is where it gets uncomfortable for a beneficiary with a gambling problem. A trustee who reduces distributions after learning about an addiction is almost certainly acting within proper discretion. The grandfather who set up this trust wanted the money to provide for his grandchild, not to fund a habit that consumes cash faster than the trustee can send it. Cutting the distributions protects the trust from being drained. It keeps something left for the beneficiary in the future.

Most trusts also include what is called a spendthrift provision. Section 736.0502 defines it. It is a clause that blocks the beneficiary from transferring their interest and blocks creditors from reaching it. The purpose is exactly this situation. The grandfather did not want the money going straight to a casino, a bookie, or a judgment creditor. The spendthrift clause is the stumbling block he put in the path on purpose.

The one thing a beneficiary can do is sue under Section 736.0504(4). That section says a beneficiary may bring a judicial proceeding against a trustee for an abuse of discretion or failure to comply with a standard for distribution. But “abuse of discretion” is a high bar. A court does not second-guess a reasonable decision just because it might have chosen differently.

To win that case, the beneficiary would have to show the trustee acted in bad faith or outside the trust’s terms entirely. A trustee who cuts distributions because a beneficiary is gambling away the money is not acting in bad faith. That trustee is doing the job. The job is to protect the trust, honor the settlor’s intent, and consider the beneficiary’s long-term interests, not just what the beneficiary wants today.

There is one more thing worth saying. The trustee in this case told the beneficiary what the distributions would be, and then changed it. That feels like a broken promise. But a trustee’s informal statement about future distributions is not a binding commitment. The trust document controls, not a phone call or an email. If the document gives the trustee discretion, the trustee can change course when circumstances change, and a gambling habit is a change in circumstances.

What should someone in this position do. First, read the trust document. Find out whether distributions are mandatory or discretionary, and whether there is a spendthrift clause. Second, understand that the trustee is not the enemy. A trustee who will not write a blank check to a beneficiary with an addiction problem is doing the harder, right thing. Third, if the beneficiary can show they are addressing the problem, treatment, counseling, a track record of recovery, the trustee may revisit the decision. Trustees are supposed to consider the beneficiary’s current needs. Circumstances change in both directions.

The grandfather left this money in a trust instead of giving it outright for exactly this reason. He wanted someone watching over it. That someone is the trustee, and right now the trustee is doing the job.

Read the full guide at stepuplaw.com/florida-trust-beneficiary-rights

Related reading and listening at StepUpLaw

• Florida Spendthrift Trust: Protect a Beneficiary
• What a Trustee Cannot Do in Florida, and How to Sue One
• Florida Irrevocable Trust: How It Works + When to Use
• Episode 29, What a Trust Actually Does for a Florida Family
• Episode 31, Can You Remove a Remainderman from a Life Estate Deed
• Episode 28, Should You Quitclaim an Inherited House to Your Sibling?

Related guides

• Florida Spendthrift Trust: Protect a Beneficiary
• What a Trustee Cannot Do in Florida, and How to Sue One
• Florida Irrevocable Trust: How It Works + When to Use

Stepping Up is hosted by Kevin D. Klagge, Esq., Fla. Bar No. 99502. Attorney Kevin Klagge represents families, businesses, and international clients in estate and tax planning, business structuring, and international law, with a focus on Florida legal tools. He litigates estate and business issues in court. Episodes are general information about Florida law, not legal advice, and listening does not create an attorney-client relationship.