A person who has assets may want to preserve and protect them for various reasons. They can establish one of a number of types of trusts to accomplish this purpose. The trustee will manage these assets, and they will be responsible for administering the trust. One key milestone in a trust is when the trustee will need to distribute assets to the beneficiaries. This process is not one that can happen quickly and without extensive preparation and foresight. A trustee needs to be careful because they can be on the hook personally if they do something wrong or breach their own fiduciary duties.
One way for a trustee to exercise care is to seek advice from a Sebastian trust attorney prior to distributing assets to beneficiaries. There are many steps that they would need to execute, and a trust lawyer could help a trustee in following the terms of the trust document. The attorney can provide practical and legal advice making the process smoother and reducing the chances of disputes that could lead to litigation.
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What Is a Trust Distribution?
A trust contains assets that have been re-titled in the name of the trust after it has been created. Trusts exist to preserve and protect assets that are managed on behalf of the beneficiaries. At some point, these assets will need to be distributed to the beneficiaries in accordance with the terms of the trust. A trust distribution is when the trustee gives assets to the beneficiaries in accordance with their shares. It is essential that the trustee follow the terms of the trust document when they are making these distributions.
The Types of Distributions Made to Beneficiaries
There are several ways that the trustee could distribute assets to the beneficiaries. Most commonly, the trustee may end the trust, and they would make an outright distribution to the beneficiaries. First, they will need to pay back creditors and debts. Each beneficiary will receive their proportional share of the trust’s assets in accordance with the terms of the trust.
The terms of the trust may also allow the trustee to make staggered distributions over time. There may be certain milestones in the life of the grantor or the beneficiary that will call for the distribution of a certain amount of assets. For example, the trust may call for releasing some assets when the beneficiary becomes college age.
The trustee may also make discretionary distributions if they are allowed to by the terms of the trust. The beneficiary may need money at certain points in their life. There may be a spendthrift trust that allows the trustee to control how and when the beneficiary receives money.
How and When the Trustee Would Make Distribution of Assets
The most common time when a trustee will make a distribution of trust assets is upon the death of the grantor who created the trust. The terms of the trust may call for it to be wound up and settled when the grantor dies. There may be other terms in the trust document that allow or require a trustee to make a distribution to beneficiaries.
The trustee may make distributions in a number of ways. They may give beneficiaries assets through the transfer of cash, property, or real estate. However, debts must be cleared before the trustee can distribute assets.
Fiduciary Duties for Trustees
The trustee is a fiduciary because the beneficiaries rely on and place a unique amount of trust in them. As a fiduciary, the trustee has a number of obligations that they must follow, including:
- The duty of loyalty to place the interests of the beneficiaries above their own and to avoid conflicts of interest (if there are any conflicts, the trustee must disclose them for the approval of transactions by beneficiaries)
- The duty of care to use due diligence and not to be negligent in managing the assets of the trust (In other words, the trustee should not be negligent in their handling of trust affairs)
- The duty of disclosure to provide key information to the beneficiaries as warranted
- The duty of impartiality where they do not favor the interests of one beneficiary over another
In other words, trustees must act in the interests of beneficiaries at all times, and they must use a degree of care when doing so.
Trustees can be held personally liable when they violate their fiduciary duties. Beneficiaries may be able to sue them in a lawsuit when they have suffered losses due to a breach of fiduciary duties. A trustee should consult with a trust lawyer to ensure that they remain within the terms of the trust and follow their own fiduciary duties.
Steps the Trustee Must Take Before the Distribution of the Assets
The trustee may not be able to immediately proceed with distributing assets of the trust. There are a number of steps that they must take before they reach this stage. These steps include:
These steps include:
- Reviewing the terms of the trust document - Everything that the trustee does is guided and determined by the terms of the trust document. The trustee must be sure about the rules that the trust imposes on the distribution of the assets.
- Inventorying the assets of the trust - The trustee must make an inventory of the assets of the trust.
- Valuation of the trust assets - Valuing the assets of the trust can be challenging, especially when there is not a ready market value of a certain asset. For example, there may be real estate as part of the trust, and the trustee may use one of a number of methods to reach a valuation. Valuation can be a challenging part of this process because there can be reasonable disagreements about the valuation method being used and what the property is worth.
- Handling debts and expenses - Before the assets of the trust can be distributed, creditors must be paid debts that an estate owes. In addition, the trustee must also take care of tax obligations that the trust may owe.
Steps that the Trustee Must Take When Distributing Assets to the Beneficiaries
Before the trustee distributes assets to the beneficiaries, they should provide them with notice that they are taking a step to administer the trust. The letter should explain what the trustee is about to do and the rights that the beneficiaries may have. The letter may also detail the beneficiaries’ entitlements.
The trustee may be unable to distribute assets to beneficiaries without consent or permission of certain parties. For example, they may need to seek court approval. In some cases, the terms of the trust document require that the trustee seek approval from the beneficiaries to distribute assets. There may be disputes that can get in the way that the trustee may need to resolve or overcome before they can begin the distribution.
Challenges the Trustee May Face in the Distribution of Trust Assets
The trustee is obligated to follow the terms of the trust to the letter when they are distributing assets. They are not free to deviate from the terms in any way. However, the language of the actual document itself can be ambiguous, leading the trustee to uncertainty in their actions. A trust lawyer may not have assisted in the drafting of the document, and the trustee’s obligations may not be clearly spelled out by the trust. The trustee can be placing themselves in jeopardy if they proceed to distribute assets when they are uncertain about their own course of action.
Then, the trustee may be forced to balance between the interests of multiple beneficiaries when they are distributing assets. One may want to receive assets on a certain timetable, while another beneficiary may be in more of a hurry. A beneficiary may make a request for an early distribution of assets, even though it is not mandated by the terms of the trust.
In these cases, the beneficiaries may disagree with each other. The trustee themselves may not be doing anything wrong, but they must walk through a minefield filled with potential dangers. The trustee has the authority to act on behalf of the trust, which effectively gives them the right to settle these disputes, but they can also place themselves in jeopardy when one beneficiary does not agree with their assets.
There may also be challenges because there may be an unexpected creditor who comes into the picture with a claim. This claim must be resolved before the assets can be distributed. The trustee may not even know whether the claim is legitimate because they had no prior knowledge of the claim. The trustee will need to either pay the claim or find a way to overcome it by disputing its validity before they can begin the distribution of assets.
Finally, preparing the taxes for the trust may not be as straightforward as the trustee may have previously thought. These tax obligations must be addressed before assets can be distributed because they are a liability of the estate. The trustee may need to get professional help for the tax return from a trust attorney. The lawyer can help with tax strategies and the administrative paperwork that the trustee must handle.
Time Limits for the Distribution of Trust Assets
Florida imposes a time limit on trust administration. There is a two-year statute of limitations for the trustee to settle the trust. The trustee may want to be careful about settling the trust too quickly because they could end up being personally liable if a creditor comes forward. Some of the steps listed above could take a considerable amount of time, so beneficiaries should not expect immediate distribution of assets after the death of the grantor. A trustee must take time and be careful to ensure that they are following their own duties.
Why Trustees Need a Trust Lawyer
Trustees may have a number of questions at various points in their trusteeship. The issues may become more pressing before the assets are distributed because beneficiaries want to receive their money. The trustee may have various questions about their own authority under the terms of the trust document and how to best perform their duties in a way that protects themselves. Often, the beneficiaries are better off when the trustee gets legal help from a trust lawyer. The trustee may be able to use the assets of the trust to pay for the legal help they need.
Why Beneficiaries Need a Trust Attorney
Beneficiaries may also need the services of a trust attorney if they have any questions about how assets are to be distributed or any concerns about how the trustee is doing their job. A trust may provide important assets and income that a beneficiary needs, so they cannot leave anything to chance if they have any doubts. A trust attorney can help protect the interests of the beneficiary by keeping a close eye on what the trustee is doing and taking action if the trustee is violating the law or failing to follow the terms of the trust document. If there are enough assets in the trust, the beneficiary may want to keep a trust attorney on retainer in case they have any questions.
When to Hire a Trust Lawyer
There are numerous milestones that may require trustees or beneficiaries to obtain counsel and advice from a trust lawyer. The grantor will hire a trust lawyer at the outset when they are creating the trust. Once the trustee assumes management of the trust assets, they may also need legal help. A trustee should consult a Florida trust lawyer any time that they have a question about their own role and what they are allowed to do under the terms of the trust. They should also seek legal help as soon as they find themselves in a dispute that can lead to litigation. All it takes is some of the trustee’s time, and some investment, to help avoid potential problems that can cost more money in the future.