Page 70 - Successor Trustee Handbook

The next question that must be addressed is how distributions will occur. Will they be
outright, that is given directly to the beneficiary (or have title placed in the beneficiary’s
name), or will they be held in Trust by the Trustee, or will they be distributed to a new Trust
created under the Trustor’s Living Trust specifically to receive the distributions? Review of
the Trust document with an attorney will be critical in answering these questions. If
distributions are to be to a new Trust, the Trustee will usually need to create the new Trust by
re-titling assets in the new name of the trust and obtaining a new tax identification number
for that Trust. This newly created Trust for the beneficiary may or may not provide for the
Trustee of the Living Trust to continue to serve as Trustee; the Trustee may become another
individual or bank or trust company. Sometimes, the Trustee may be the beneficiary himself
or herself. When assets are re-titled into the Trust, they will need to reflect the new Trustee’s
name. A document should also be prepared by the attorney to evidence the new Trustee’s
acceptance of that position. You and your attorney may also wish to instruct the new
Trustee as to how to properly implement the Trust in accordance with the terms of the Living
Trust (see the Chapter, “Transition to Another Trustee”).

Before you make any distributions, you should advise your attorney, so he or she can check
that you are appropriately addressing the above issues. Keep in mind, at the death of the
first spouse of a married couple, the Trust may be divided into “sub-trusts” and each sub-
trust may have different provisions in terms of the persons to whom distributions may be
made, their amounts, their timing, the assets to be used and for what purposes the
distributions can be made.

Retirement benefits, IRAs and annuities are assets requiring special attention. Most likely,
these assets will pass by beneficiary designation outside of the Trust directly to the named
beneficiaries. However, sometimes they do flow through the Living Trust. It will be very
important to consult with the attorney and/or accountant before any withdrawals are made
from these assets in order to distribute them to beneficiaries, as well as before title to these
assets are transferred to beneficiaries. There can be significant adverse income tax
consequences if distributions are made from these accounts or these accounts themselves
are distributed without proper advance consideration.

It is always advisable for the Trustee to obtain receipts from beneficiaries when distributions
are made. Cancelled checks or copies of deeds may serve as their own receipt. With other
assets, the Trustee may or may not require a receipt, depending on the nature of the asset
and how it is transferred. If the distribution is done at the time the Trust is terminating, the
beneficiary may be concurrently entitled to an inventory and accounting (see the Chapters,
“Accounting to the Beneficiaries” and “Termination of the Trust”). When complete
distribution of a beneficiary’s share is made, the beneficiary should sign a settlement and
release agreement and/or receipt so it is clear that the Trustee has made all final
distributions and that there are no additional distributions expected.

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