Trustee Guidance: How to Distribute Trust Assets
According to a trust agreement, trustees are responsible for managing assets involved with the estate of another individual. How to distribute trust assets starts with a trustee familiarizing themselves with the trust property and real estate, taking an inventory, and contacting all of the beneficiaries listed in the will. The more complicated the estate, the more likely this is done with guidance from an attorney or CPA. The information provided below is a basic outline of the trust fund distribution process to help you prepare for your role as trustee.
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UPDATED: Jul 16, 2021
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Trustees are responsible for managing assets involved with the estate of another individual according to a trust agreement. One of the most important functions of the trustee is distributing assets to trust beneficiaries according to the wishes of the creator of the trust (trustor) as set forth in the trust agreement. With proper planning, a trustee will be able to navigate the distribution of trust assets with the assistance of a bank, lawyer, or financial adviser either appointed by the trustor or hired by the trustee to manage the legal details.
How are trust assets distributed?
Upon a specified event, such as the death of the trustor or a beneficiary attaining a certain age, the trustee is responsible for the accounting and possible distribution of trust assets to beneficiaries. The trust document will lay out the amounts and sometimes a timeline. For example, a child may get 50% of their inheritance at 21 and the remaining 50% at 30. The more complicated the estate, the more likely this is done with guidance from an attorney or CPA.
Each distribution should be carefully documented. Generally, beneficiaries will need documentation for their tax return on the following year. An estate planning attorney often helps to lay the groundwork years before. The original trustor must decide if they want a revocable trust or irrevocable trust. There are significant differences in how it’s managed later on. Can the trustor change things as they see fit, or do they need the approval of all named trustees, for example? An attorney can also put steps into place to make sure certain requirements are met.
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What is the process of distributing trust assets?
The following checklist highlights the steps you as a trustee must satisfy when distributing trust assets:
Familiarize yourself with all aspects of the trust agreement. It will include vital information such as your role as a trustee, the roles of others in the trust fund distribution process (lawyers, co-trustees, etc.), and the terms by which the estate is meant to be distributed.
Then Contact all listed beneficiaries. You should send an official written communication notifying beneficiaries that the trigger event has occurred and that you, as trustee, are beginning the process of distributing the assets per the trust instrument. You can lay out frequently asked questions about subjects like estate taxes and capital gains or wait until the beneficiaries start asking.
Next, Inventory the current state of the trust itself. This means conducting a thorough inspection of all trust assets, contacting bank accounts and confirming balances, and ensuring that all items listed are accounted for and properly notated as to their value and status. Some things, such as personal belongings, may not have specific values listed in the trust agreement because their values fluctuate over time. In these cases the items will have to be appraised at current market values.
Begin the process of officially transferring trust assets. Expect transparency as you work with the beneficiaries. This will streamline the distributions of trust. Real property left to each person needs to be officially transferred into his or her name, and appropriate documentation of the transfer must be completed and filed.
How Important Is Trustee Discretion?
There will be clauses in any trust agreement that leave certain decisions open to the discretion of the trustee or others involved in the distribution of trust. Discretion is particularly common in situations where the trustor was a close family member, as spouse, child, or parent. The trustor expects their representatives to make certain decisions based on factors they cannot see when writing it. This could include the deaths of certain beneficiaries, varying account balances, and other things that change trust accounting.
A trustee should always consider discussing contentious options in full detail with any involved lawyers or financial advisors. Being able to rely on experts can ensure that you as the trustee understands the implications of the decisions you make and know that you’re trying to make them correctly. It also gives you a certain layer of protection against common criticisms from combative parties.
By consulting with others prior to distributing trust assets and making your decisions transparent to the trustees, you may also be protected from charges of breaching your duty as a trustee filed against you by beneficiaries upset with the distribution of trust assets.
With the distribution of assets from a living trust, it can take time for beneficiaries (weeks, or even years) to obtain assets–depending on the complexity of the estate, the specifics of the trust agreement, and the circumstances and relationships between the trustee and the beneficiaries. Generally, they aren’t this complicated. Most trusts tend to be simpler, cheaper, and result in quicker distribution to beneficiaries than the probate process. The tax consequences are also planned out, and they can be less burdensome for beneficiaries.
Trusts are also private documents, sparing trustees from much of the publicity attendant on wills probate. In order to ensure a smooth distribution of trust assets, the trustor and the trustee should take time to adequately plan by making the trustor’s wishes clear and consulting with an experienced estate attorney when setting up a trust.
If you have questions about how to serve as an effective trustee, don’t be afraid to consult with an experienced estate attorney. They can answer common questions and much more.