How to Properly Distribute Trust Assets to Beneficiaries
When the time comes to distribute assets to Trust beneficiaries, there are a number of ways to do so. When a Trust consists solely of cash, then the distribution is easy. The Trustee can write a few checks, make the Trust distribution, and end the Trust administration.
How to Distribute Trust Assets to Beneficiaries
Outright distributions make Trust asset distribution easy and tend to have nominal fees. In this case, assets are simply given without any restrictions to the beneficiaries upon the death of the Trust creator (once all the estate’s debts and taxes are paid)
If the Trust has Assets Other than Cash
When the Trust has assets other than cash, then the handover to beneficiaries can be a bit more involved. For example, when a Trust distributes real estate to beneficiaries, then the Trustee would sign a deed and file that deed with the county recorder’s office. Of course, the real estate can always be sold and the proceeds distributed to the Trust beneficiaries. But real estate can also be deeded out of the Trust and into the name of the Trust beneficiaries as joint owners. Some beneficiaries prefer this form of distribution and others don’t. For those people who want to jointly own real estate with other Trust beneficiaries, deeding property out of the Trust is an easy option.
When it comes to stocks and bonds, those also can be transferred out of the trust without being sold. The trustee can set up new brokerage accounts in the name of the beneficiaries, or the beneficiaries can create their own brokerage accounts at an institution of their choosing. The Trustee can then instruct that all stocks and bonds be transferred “in-kind” (meaning without being sold) to the Trust beneficiaries. This can be a great way to make a Trust distribution without incurring capital gains tax.
Business interests can also be transferred using stock certificates and assignments. If the Trust owns a closely-held business that will pass to one or more Trust beneficiaries, that transfer can take place with some easy paperwork. A new stock certificate can be typed up and signed by the Trustee along with an assignment. These documents will then prove the transfer of business interests to the Trust beneficiaries.
The bottom line: every asset has its way of being transferred. A Trustee does not necessarily have to sell every asset to make a distribution of Trust assets. If you want to continue owning a Trust asset (without it being sold), then talk to your Trustee about making an “in-kind” Trust distribution of that asset to you. If you do not want to continue holding a Trust asset, or if you do not want to maintain a Trust asset, then that’s ok too.
As you create your estate plan, an important decision to be made will center on the distribution of your assets to your beneficiaries. This decision goes beyond merely deciding who gets what. You also must determine when, and under what circumstances, they should receive it. As you work to create your plan, you have several options to consider regarding distributing trust assets. Fortunately, an experienced estate planning attorney can assist you in assessing which option is right for your unique needs and goals.
The following is a brief overview of three of the more common methods for distributing trust assets:
- Outright distributions, where assets are given to beneficiaries without restriction following the death of the creator of the trust. Distributing trust assets outright to your beneficiaries allows for easy administration of the trust, with minimal fees.
- Staggered distributions involve holding the trust assets in the trust and distributing them over time, at pre-determined beneficiary ages, dates, or triggering events. Staggered distributions mean that the trust will continue existing after the death of the creator of the trust, increasing the costs of administration. They may be beneficial, however, in some situations, such as where the beneficiaries are minors.
- Discretionary distributions, where the decision as to when assets are to be distributed is left to the determination of the trustees. This provides ultimate flexibility for the trustee, allowing him to assess the needs of the beneficiaries when making distributions. Beneficiaries, however, may be unhappy or frustrated if they do not agree with the decisions made by the trustee. It may also result in higher administration costs if the trust continues for many years after the passing of the creators of the trust.
Making these important decisions about trust distributions in Orange County requires a basic understanding of living trusts and how they work. View our free guide, Understanding the Revocable Living Trust – In Language that Anyone Can Understand in 8 Minutes, for a helpful overview of living trusts and their role as part of an estate plan. For more information, contact an experienced Orange County estate planning lawyer today at (714) 282-7488.
Related Links
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