Page 68 - Successor Trustee Handbook

CHAPTER 18

MAKING DISTRIBUTIONS TO THE BENEFICIARIES

Note: This chapter contains information which may apply during the lifetime of the Surviving
Spouse, as well as after the Surviving Spouse has passed.

Typically, the period of Trust administration (the entire process of collecting and valuing
assets, and paying debts, expenses and taxes) lasts anywhere from 6 months to one and
one-half years. Sometimes, preliminary or “advance” distributions of a portion of the
beneficiaries’ inheritance may be made before the entire Trust administration is completed
(particularly when there is a Surviving Spouse); however, unless the Trust document requires
such distributions or there clearly are excess funds available, distributions are normally not
made to beneficiaries until the end of the administration period.

In all cases, prior to making any distributions to beneficiaries, the Trust document itself must
be consulted to determine when (see the Chapter, “Reviewing the Trust (and Other Estate
Plan Documents)”). Sometimes, the Trust document may provide for specific bequests or
gifts of certain dollar amounts or of certain Trust properties and those distributions may be
made prior to the wrap-up of the administration period. There may also be powers of the
Trustee to invade income and/or principal for the needs of beneficiaries (including the
Surviving Spouse), such as their health, support, maintenance and education; and if their
needs are urgent, it may be appropriate for distributions to be made to them prior to the
administration period ending. The Trust may also call for mandatory distributions of income
and/or principal that may be required to commence as soon as possible after the Trustor’s
date of death. Sometimes principal distributions are to be made over time, rather than all at
once (such as when a beneficiary reaches certain ages), in which case the Trustee will stay
in charge of some of the assets after initial distributions are made. Sometimes complete
distribution will happen all at once upon termination of the Trust (see the Chapter,
“Termination of the Trust”).

The Trust document must also be consulted to determine to whom distributions will
be made. For example, a named beneficiary may be deceased, in which case a
determination must be made as to whom will receive that deceased beneficiary’s share. It is
also necessary to determine whether payments must be made directly to the beneficiary, or
to a third-party for his or her benefit (such as directly paying educational or health bills).
Also, a beneficiary may exercise a “disclaimer” of his or her interest, which would then pass
his or her interest to the next person named as if he or she was deceased. Furthermore, there
may have been in existence a Power of Appointment, either retained by the Trustor or some
other party, which might re-direct a portion or all of the Trust assets, within the limitations set
forth under the terms in the Power of Appointment (thereby effectively changing the terms
stated in the Trust document).

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