Written by Jordan Rosenfeld, Featuring Asher Rubinstein, Partner at Gallet Dreyer & Berkey, LLP.

A frozen trust can create financial headaches for beneficiaries, delaying access to funds and prolonging legal disputes. Whether due to a court order, creditor claims or conflicts over trusteeship, a trust freeze can leave beneficiaries in limbo — sometimes for months or even years. 

Understanding why trusts get frozen, how to navigate legal hurdles and what steps can help unfreeze assets is essential for anyone involved in estate planning or inheritance. 

Here’s what you need to know if a trust is locked up — and what options may be available to regain access to your rightful funds.

What Does It Mean When a Trust Is Frozen?

A trust being “frozen” can refer to either a court ordering the trust assets not be moved or distributed, or to financial institutions not allowing access to accounts while litigation is pending, according to Joseph Fresard, attorney at Simasko Law.

Either one happens commonly when there is a legal dispute regarding a trust, most commonly a dispute about who should act as trustee.

6 Common Reasons a Trust Gets Frozen

The most common reason a trust could be frozen is a legal dispute between a beneficiary (or beneficiaries) and trustee, according to Asher Rubinstein, partner at Gallet Dreyer & Berkey. However, this can include a wide variety of scenarios, he explained, such as:

• A beneficiary claiming that the trustee is withholding distributions.
• A beneficiary or would-be beneficiary contesting the trust; for instance, if someone feels improperly excluded from being a beneficiary.
• A beneficiary claiming impropriety by the trustee (squandering trust assets, making imprudent investment decisions).
• A beneficiary requesting a court to require the trustee to provide an accounting of trust assets and the trustee’s management of trust assets.
• When someone passes away, an account could be frozen by a bank or brokerage house, pending legal authorization that the estate has been established properly.
• A creditor can assert objections in court, claiming, for example, that the person who set up the trust had a debt or obligation to the creditor, and the creditor tries to reach the assets in the trust to satisfy that obligation. 

Creditor’s Claims and Lawsuits May Delay Distribution 

Creditors’ claims and lawsuits may delay the distribution of a trust’s money until they are settled as well, Fresard said.

“Most commonly, the trustee will publish notice to creditors and have all creditor claims dealt within the claims period. However if there is a dispute over one of the claims, this could hold up the distribution to beneficiaries. Petitions for the removal of trustee are a common legal action that would also hold up the administration of a trust,” he said.

You Can Seek an Injunction

Beneficiaries may seek an injunction to prevent the trustee from acting and freeze the trust, Fresard said.  

Rubinstein added, “A beneficiary can file an objection to a trustee’s accounting, or to a trustee’s action or lack of action.” 

However, sometimes, even without an injunction, some financial institutions may be hesitant to give a trustee access when they are made aware that their role is in dispute, Fresard explained.

Petition the Court for Partial Distribution

If there is litigation involving the trust, it may be possible for a beneficiary to petition the court for partial distribution, depending on the nature of the litigation, Fresard advised. 

However, be aware that there really isn’t a “typical” time frame to expect the funds. “A dispute may arise and quickly be settled or could be ongoing for years.”

Additionally, there are no real loopholes. “If the trust is frozen by court order, then only the court can authorize such distributions,” Fresard said. 

Avoid Future Litigation

While you may not have a lot of leeway during a freeze, you can take steps to avoid future litigation, Fresard said, including:

• Only name a single successor trustee at a time, as multiple trustees are more likely to have a conflict.
• Discuss your wishes with your beneficiaries beforehand, making sure they are not caught by surprise.
• Pick a trustee who is diligent and competent and discuss with them their role. Always hire professionals.
• Include a “no-contest” or “in terrorem” clause that will disinherit any beneficiary that contests the trust.
• Take extra steps to ensure there can be no arguments to attack the validity of your trust.
• Clarify your wishes with regards to joint accounts, or don’t have them at all.
• Carefully consider the beneficiaries. Each beneficiary has considerable rights, no matter how small their distribution is. 

How Does a Freeze Impact Your Finances

Though a freeze won’t affect your credit score or immediate taxes, Rubinstein said that the impact could be “very significant.”

“For example, what if the beneficiary needs funds for a medical need? What if the trustee is delaying, hard to reach and fails to take action, and meanwhile an asset is losing value or deteriorating or the beneficiary misses the boat on a lucrative investment, sale or trade? What if the beneficiary has no other funds?”

Hopefully, these things will be taken into consideration by the court.

How Long Does It Take To Unfreeze a Trust?

If beneficiaries petition the court to unlock and release the funds, first they need to show their standing (i.e., that they are actual beneficiaries) and then show that they are properly entitled to the funds, Rubinstein said. 

Depending on the circumstances, he said on average you can expect a minimum of six months for a petition to be filed. Then comes “opposition filings, and the court would likely order oral argument and grill both sides,” he said.

In other words, expect it to take time. “Courts are slow and have a backlog of cases.”