Distribution of Trust Assets to Beneficiaries

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Trust Fund Distribution to Beneficiaries

If you are a beneficiary of a family Trust fund, then there are a myriad of topics to understand how trust fund distribution to beneficiaries occurs. You see, the distribution of trust assets to beneficiaries happens when the Trustee, and if applicable, the Co-Trustee, meet all their fiduciary duty. Once the Trustee(s) meet the fiduciary duty, they can complete the trust fund payout.

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5 THINGS A BENEFICIARY SHOULD KNOW TODAY!

7 THINGS A TRUSTOR SHOULD CONSIDER

Distribution of Trust Assets to Beneficiaries 

When settling a Trust, the Trustee will review assets, which can include cash, real estate, stocks, and bonds, art and collections, etc., and the distribution of assets could be transferred “in-kind” meaning without being sold to the beneficiaries. To transfer trust assets, “in-kind” will reduce any additional fees for the beneficiaries.

Distribution of Trust Funds After Death

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Distribution of Trust Assets to Beneficiaries

So, let’s go over what a normal trust administration process is versus a trust administration that is riddled with a lack of transparency. The objective is to understand the beneficiaries’ rights to trust information. The other aim is to do your due diligence and ensure that misappropriation of funds does not occur to the Trust of the settlor, and the distribution of trust funds after death is proper.

How do you make sure? Read on.

What is a Trust fund?

A Trust is a legal vehicle that expands your options when it comes to managing your assets, shield your assets from taxes, and pass it on to your loved ones. Its primary function is to keep your assets private and out of probate court.  

You may be thinking, “can a Trustee remove a beneficiary from a trust.” The quick answer is No, but if the Living Trust funds have any verbiage discussing contesting the Trust, you may want to reconsider your actions. That is why it is imperative to speak to an estate planning attorney that will uncover any pitfalls before you launch forward. If there is a Terrorem clause, i.e., a no-contest clause, it can threaten a beneficiary into acting, refraining from action, or ceasing to act. With that said, let’s go over, “how to do trust funds payout.”

What Does Beneficiary mean

A beneficiary is a person or entity who is entitled to an estate once the settlor/grantor dies. In the world of Trust & Estates, a Trust vehicle has stipulations by a Trustor/Settlor/Grantor to distribute assets to heirs and beneficiaries. The Beneficiary is entitled to a Trust Accounting while maintaining their actions as “reasonable,” i.e., giving reasonable time to the Trustee(s) to act per the Trust vehicle. By providing reasonable time to the Trustee, the courts will look upon the beneficiary actions as prudent for waiting for their distribution of trust assets.

How long can a trust remain open after death

First, you need to find out what type of Trust it is to determine how long can trust remain open after death. There are various sub-types of Trusts, but they fall into two categories:

  1. Revocable Trust: A revocable trust is a legal entity that is in effect while the Trustor is alive. When the Trustor dies, it becomes an irrevocable trust. The Trustor has full right to change anything and close the Trust at their discretion.
  2. Irrevocable Trust: An irrevocable Trust, for example, 
  • GRUTS, 
  • GRATS, 
  • QTIP, 
  • Dynasty Trusts, etc., are designed to protect assets. By giving to charities, special needs, etc., Irrevocable Trusts typically have positive tax saving implications. Therefore, irrevocable Trusts once set are no longer changeable due to the tax implications if they were to be rolled back.

Let’s go over both types and what may be an average time on how long a trust can remain open after death.

For an irrevocable trust, there is no time frame per se, because their initial setup is for distribution to the family for the long-term versus the revocable Trust, which typically can stay open for around 12-18 months. Once all are taxes, debts are paid trust fund distribution to beneficiaries can occur.

If a loved one has passed away, and you are a beneficiary and not receiving updates from the Trustee, it may be time to discuss with an estate planning lawyer the proper steps to stay on the right side of the courts.  

How do Trust Funds work?

In the Trust Administration process, there are three parties involved: the grantor/settlor/trustor, the Trustee and beneficiary/heir. The grantor/settlor/trustor is the person who establishes the trust fund and places his or her assets into the fund. The assets that are added to the Trust vehicle is the distribution of trust assets to beneficiaries.

When the settlor dies, the Trustee, knowing fully well of their fiduciary duty, starts the Trust administration process by securing all assets, bank accounts, etc. as well as creating a list of potential creditors so that they can meet the obligation of the courts. Once all accounts are under the control of the Beneficiary, taxes, and creditors will be notified. The Trustee will pay any due taxes and debts before distribution.  

When it comes to total time, many more complications arise from if there is more than one property that needs to be managed and sold.  

How to Compel the Trustee(s) for an accounting

First, we hope you have been in the loop from the very beginning. Within 60 days after taking responsibility for the Trust, the Trustee collects all the Trust assets, names of beneficiaries and must inform them of their full name and address and offer the right to request a copy of the trust instrument.

If not, you will want to make sure of the following:

  • Get a copy of the Trust document. A Trustee is under a strict fiduciary duty to the beneficiaries to keep them up-to-date as to the progress of the Trust Administration process. Note: Have you waived your rights to an account and report? [Prob. Code § 16064(c)]

Take away: Once a Successor Trustee accepts the responsibility of the Trust, they must keep you reasonably informed of the Trust and its administration. The Successor Trustee shall notify you of the termination of the Trust or even a change of the Trustee. Moreover, they must keep track of all receipts, disbursement, and capital transactions and maintain proper bookkeeping to ensure an appropriate distribution of trust assets. Once the Trustee completes the Trust Administration process, they can proceed to send a Trust Fund Distribution letter stating all assets of the Trust have been distributed, and the Trust will be dissolved or terminated.

What if the Trustee is Misappropriating funds of the Trust?

Settling a trust after the death of the loved one (the settlor) are trying times for any family. Here at Hess-Verdon, it takes everyone in the family to keep open communication so that no one feels left out. So, if you think there is embezzlement going on, there is a severe penalty for stealing from an estate. The fiduciary abuse viewed by the courts can be crippling and maybe a civil and quite possibly a criminal act. To continue, if it is found the Trustee abused their fiduciary duty, they can be compelled to return all assets that have been sold or comprised.

Not receiving Trust updates, and Trustee refuses to give an accounting? A Hess-Verdon attorney can assist you in your current standings. Call 888-318-4430.

Are Distributions from a trust taxable to the recipient

As a beneficiary, or if you are the only sole Beneficiary, you may be wondering, “are trust distributions taxable”?

Well, the best recommendation is to contact your tax preparer. Still, typically a beneficiary of a Trust pays taxes on the distribution they receive from the Trust’s income, rather than the Trust paying the taxes. It is good to note; however, beneficiaries are not subject to taxes on the distributions from the Trust’s principal.

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