Page 69 - Successor Trustee Handbook

After determining when the distributions are required to be made, and to whom they will be
made, the next issue is to determine what amount of distribution will be made to each
beneficiary. Typically, each beneficiary will receive a share of the “remainder” of the estate,
after the payment of all debts, expenses (including professional fees such as to the Trustee,
attorney, and accountant), and taxes (including both income and estate taxes). If a federal
estate tax return has been filed, a “reserve” for any IRS audit changes and additional taxes,
penalties and/or interest may be held by the Trustee, and the rest of the “remainder”
distributed. Once the IRS “closing letter” is received, the reserve may be distributed (see the
Chapter, “Estate Taxes”); however, as stated above, the Trust document may provide for set
dollar amounts or specific assets to be distributed to one or more beneficiaries “off the top”
before this “remainder” amount is determined. Again, the Trust document must be reviewed.

Assuming there are no directions as to specific dollar amounts or specific assets going to
particular beneficiaries, it must then be determined to what extent the Trustee has the
discretion to determine what type of assets will be distributed to each beneficiary. For
example, the Trust document may provide that distributions may occur “in-kind”, meaning
specific assets may be distributed to satisfy the amount to which the beneficiary is entitled,
based on the appraised values (either at the date of the Trustor’s death or date of
distribution, depending on the terms of the Trust document). The Trust may also provide that
“in-kind” distributions be made on a “non-prorata” basis, meaning that beneficiaries with
equal shares need not receive an equal part of each and every asset, but rather
beneficiaries may receive part or all of any particular asset, so long as the total distributions
to the beneficiaries are equivalent in value.

In particular, it is recommended that the Trustee not immediately start distributing personal
property, such as the contents of the home, until such time as the Trust document and Will
have been reviewed to determine if there are any specific bequests, and the Trustee has
made a diligent search for any other instructions the Trustor may have left behind (such as in
the Family First Firm’s “Estate Planning Portfolio”). Whether or not any directions outside of
the Will and Trust are binding on the Trustee is a matter of law that will need to be
determined by the Trustee’s attorney; many times it is advisable for the Trustee to follow
these informal wishes of the Trustor if for no other reason than to maintain harmony amongst
the beneficiaries, assuming they are all in agreement with these distributions. The best
course of action is to check with an attorney before making any distributions of personal
property (or any other assets!).

Sometimes the Trust will provide for what are called “discretionary” distributions. This means

that the timing and amount of distributions, and whether they are “in-kind” or “in-cash”, may
be up to the judgment of the Trustee, which must be exercised reasonably and according to
the purposes designated in the Trust. For example, often there are powers to invade and
distribute income and/or principal for “health, support, maintenance and education”. This
may be further defined by such statements as “in accordance with the standard of living to
which the person was accustomed at the time of the Trustor’s death”. The beneficiary’s
other income and assets may or may not need to be considered, depending on the Trust
document. Again, the making of discretionary distributions is an area where the advice of
an attorney should be sought. In addition, the timing and amount of discretionary
distributions may affect the income taxation of the Trust and/or beneficiary, therefore it is
advisable for the Trustee to consult the accountant.
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