What Do I Do When a Beneficiary Sends His Check Back?

Introduction
Liability for Wrong Decision
Disclaimer
Receipt
Deposit with County
Written Instructions
Bank Account for Beneficiary
Abandoned Property
Conclusion

Dear Mr. Miller:

Introduction: I am tying up my Dad’s estate. He died a few months ago owning a house in Northern California and $45,000 in the bank. The Trust directed that the house was to be split between my sister and myself; the cash was to go to three close friends.

I deeded the house as I was supposed to do. I wrote three checks for the cash to the three friends. All good? Unfortunately not!

One friend sent the check back to me, refusing it on the grounds that he thought he should get it all as he was a closer friend than the others. He wants me to give the money to the other two. Now what do I do?

Trustee With $15,000 Too Much

Dear Trustee:

Liability for Wrong Decision: Usually people write me when they are short of money, so your question is, indeed, coming from a different perspective. You could give the money to the other two, but what liability does that create for you? The answer to this perplexing question depends on what stage the friend rejected his gift.

Disclaimer: If the friend had rejected at the outset, it would be considered a “disclaimer” or refusal of the gift. In disclaimer situations, the gift is distributed as if the friend died before your Dad. Depending on how the Trust was written, that would typically mean that the cash would go to the other two friends or the refusenik’s children. The disclaimer must be made within a reasonable time (often considered to be nine months from your Dad’s death) and once the refusenik does anything to indicate an acceptance of the gift, he can no longer disclaim it.

Receipt: Did you have the refusenik sign a receipt? We usually have the beneficiaries sign a receipt for the gift once my client (the trustee) gives me the checks. Yes, that means that they are each receipting for something they have not yet received but I always am amenable to the beneficiary coming into my office and handing me a receipt at the same time I give that person the check–not very practical unless the person lives down the street. If the refusenik signed a receipt then he has accepted the gift and can no longer disclaim.

Deposit with County: If the friend returned the check after signing a receipt or otherwise having indicated acceptance, then what? If this were a Probate Proceeding, there is a procedure to deposit the money with the county. This is a very useful process when the person in charge (the executor or administrator) can not find the beneficiary, but would also be useful in the type of situation that you describe. Since yours is not a Probate Proceeding, you need another solution.

Written Instructions: Your goal is to close the estate and not have open ended liability to the refusenik for doing something wrong with the assets. (Yes, people forget what they told you, sometimes intentionally.) If the refusenik has already accepted the gift (by way of receipt, etc), then you cannot just give the money to the other friends. You don’t have that authority. If he wants to give you written instructions to do so, then that is different and would allow you to do so. How that would be different from the refusenik simply doing it himself is an open question–but different people view these things from differing emotional perspectives.

Bank Account for Beneficiary: If the refusenik further refuses to give you written instructions, then you have two choices. A California statute allows you to open a bank account in the refusenik’s name, deposit the money in that account, notify the refusenik in writing, and go on your merry way. Presumably, after three years of no activity, the bank will send the money to the state treasurer to hold as “abandoned” property. The account would be opened under the refusenik’s address and social security number, the latter of which typically would be filled in by him on the receipt.

I actually did this approach about thirty years ago. At that time, not all banks would open such an account. After 9/11, I suspect even less would–and would they allow you to sign the signature card for the refusenik? On the other hand, if it is a large amount, the bank is going to be more interested as it is getting the use of the money.

Abandoned Property: The other alternative is to simply hold onto the money for three years after which time you will send the money to the state treasurer as abandoned property. This may sound much more difficult than it really is. You place the money in the account and then have nominal duties until three years later. At that time you fill out the state treasurer’s report and send it to that office along with a check for the amount remaining on account. Any interest reports and bank correspondence you will simply forward to the refusenik. Whether you will have to file income tax returns for those three years is an issue to discuss with your income tax advisor, but any costs involved should come out of the refusenik’s share.

Conclusion: Of course, every situation rests on its own facts, so discuss this with your attorney before you decide on which action to take.

12/2013