Legal Definitions - right of retainer

The right of retainer is a legal power that allows a trustee (the individual or entity responsible for managing a trust) to temporarily hold back funds or property that would otherwise be distributed to a beneficiary. This power can be exercised when that specific beneficiary owes money or has a financial obligation directly to the trust itself. Essentially, it's a mechanism for the trust to recover what it's owed before making a distribution to that particular beneficiary.

Here are some examples illustrating the right of retainer:

• Loan Repayment:

  Imagine a trust established for a family. One of the beneficiaries, Maria, needed funds to start a small business, and the trust, as permitted by its terms, provided her with a loan, which she agreed to repay. Years later, the trust is ready to make a significant distribution of its assets to all beneficiaries, including Maria. However, Maria still has an outstanding balance on her loan from the trust.

  How it illustrates the term: The trustee can exercise the right of retainer to deduct the remaining loan amount from Maria's share of the distribution. This ensures that the trust is repaid for the loan before Maria receives her full entitlement, as she has a financial obligation directly to the trust.

• Correction of Overpayment:

  A charitable trust regularly makes quarterly payments to several non-profit organizations. Due to an administrative error, one organization, "Helping Hands," accidentally received an extra payment in the previous quarter that exceeded its entitled amount. The trust discovered this overpayment before the next scheduled distribution to its beneficiaries.

  How it illustrates the term: The trustee can invoke the right of retainer to withhold the amount of the overpayment from "Helping Hands'" upcoming quarterly distribution. This action allows the trust to recover the mistakenly paid funds, as "Helping Hands" effectively owes that excess amount back to the trust.

• Reimbursement for Trust Expenses Caused by Beneficiary:

  Consider a trust that owns a valuable piece of artwork, which is occasionally loaned to beneficiaries for display in their homes under strict conditions. One beneficiary, Mr. Henderson, borrowed the artwork but, through his negligence, caused minor damage that required professional restoration. The trust paid for these restoration costs, and the trust document specifies that beneficiaries are responsible for damages they cause to trust property.

  How it illustrates the term: When it's time for Mr. Henderson to receive his annual income distribution from the trust, the trustee can use the right of retainer to deduct the cost of the artwork's restoration from his distribution. This ensures the trust is compensated for the expenses incurred due to Mr. Henderson's actions, as he owes that cost to the trust.