Trustee May Satisfy Trust Instruction To Pay Specific Amounts By Transferring Undivided Interests In Property
A common problem faced by a successor trustee administering a testamentary trust is determining how to satisfy trust provisions requiring the payment of specific amounts to trust beneficiaries. It is not unusual for a trust to be short on cash, but to own significant amounts of property. In Estate of Cairns, the California Court of Appeal held that a trustee may satisfy a provision requiring the trustee to “pay” certain “amounts” to a beneficiary by transferring to the beneficiary a fractional undivided interest in property.
The Estate of Cairns case arose from a trust specifying that the trustee “pay” to a beneficiary a certain “amount” every year. One year, when the trust did not have a sufficient amount of cash to pay the entire amount in cash, the trustee satisfied part of the payment with a 5.325 percent interest, as a tenant in common, in real estate in St. Helena.
A remainder beneficiary, who would receive part of whatever was left after the death of the primary beneficiary, challenged the distribution. The remainder beneficiary argued that the use of the terms “pay” and “amounts” permitted only payments in cash. The Court of Appeal rejected this argument, noting that terms in a trust are to be liberally construed to carry out the intent of the person who created the trust. The court found the terms broad enough to permit payments to be made by the transfer of interests, even partial interests, in real estate or other property.