Distribution of Trust Assets to Beneficiaries - What You Need to Know

The distribution of trust assets to beneficiaries can be a complicated process. That’s why we broke down your options in our step by step guide.

Patrick Hicks

Head of Legal , Trust & Will

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While once thought to be something only the very wealthy needed, Trusts have become increasingly more common and popular these days. And there’s good reason for this. Trusts can be a solid solution for anyone who wants to secure their estate while protecting their legacy and their loved ones.

If you are starting or updating your Estate Plan, it may be time to think about setting up a Trust. Learn more about how Trusts work and what their benefits are, and find out how Trust & Will can help you with all your Estate Planning in our Distribution of Trust Assets to Beneficiaries guide. You’ll learn:

How do Trust Funds Work?

Trusts are essentially just a component of your Estate Plan that serves to protect you and your loved ones in multiple ways. They can be useful both during your lifetime, and after you pass away.

Certain types of Trusts can offer asset protection, but at the very least, a Trust can help your loved ones avoid probate after you pass away. Probate is the often lengthy, complicated, stressful and even costly process of distributing your assets in a very public manner when you don’t have an effective Estate Plan set up. By creating a Trust, you’re establishing a three-party relationship that includes you, the Trustee you name and any beneficiaries who stand to benefit from your estate.

When to Distribute Trust Assets

There are many types of Trusts, and the best type for you will just depend on your goals and needs. The two basic Trust types are Revocable and Irrevocable.

Revocable Trusts can be easily changed or modified, but offer the least amount of asset protection. They go in effect during your lifetime, after they’re created and funded. But as soon as you pass away, they automatically become irrevocable, at which point they can’t be changed. A Revocable Trust will typically remain open for about 12 - 18 months after the passing of the Trustor (the Trust creator). Once all the estate’s debts and taxes are paid off, distribution to beneficiaries will be made with the remaining value.

Irrevocable Trusts, on the other hand, are primarily used for asset protection as they cannot be subject to claims, liens or judgments against your estate. The downside to this type of Trust is they cannot easily be updated, changed or modified. Irrevocable Trusts don’t really have a time frame that they can or will remain open after your passing because they’re intended to be used for long-term planning and asset management.

How to Distribute Trust Assets to Beneficiaries

There are three main, common ways that a Trust Fund distribution to beneficiaries can work:

  1. Outright - 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).
  2. Staggered - Staggered distributions are obviously going to be more expensive, because there is a cost to administering the Trust assets over a longer time period. People use the staggered distribution method when they want to set up determined events that would trigger a distribution: think an age, a specific date, graduation from college, a wedding, etc. Staggered distributions are more common when minors are beneficiaries.
  3. Discretionary - Discretionary distributions leave distribution dates and amounts up to the determination of individual Trustee you appoint. In this case, the Trustee (who is charged with managing the Trust and distributing assets) would have the authority to determine when beneficiaries should receive assets. Like the staggered distribution method, discretionary distributions can result in higher administration costs because the Trust could take years to deplete.

Trust Fund Distribution Letter

A Trust fund distribution letter can be used by the Trustee you appoint to inform beneficiaries when all of the Trust assets have been distributed. Most often at this point, the Trust would be terminated or dissolved.

Misappropriation of Trust Funds by the Trustee

If a Trustee misappropriates funds in a Trust by either not distributing assets properly, or by distributing to the wrong people, it is possible to bring forth legal action. Trustees must use care and sound judgment and if they’ve made any unauthorized investments using Trust assets, they can be held accountable and made to recover those funds.

How to Find out if You are the Beneficiary of a Trust

The easiest way to find out if you are a beneficiary to a Trust is simply by viewing the Trust deed. However, since Trusts are not public record, you may not be able to find a copy of the Trust recorded anywhere.

If you know the attorney who originally drew up the Trust, or if you know where the decedent’s Estate Planning documents are, you may be able to review the actual Trust to see if you are listed as a beneficiary. If that’s not an option, you would be left relying on the Trustee. If you are a beneficiary, you’re entitled to receive a copy of the Trust.

Understanding the important role that Trust fund distribution to beneficiaries plays in the realm of Estate Planning is key to ensuring an estate is settled properly, in a timely manner and exactly as you intend.

Estate Planning is one of the most important things you can do to protect yourself, your family, and your future. Not sure where to start? Trust & Will can help! Take our quiz to discover which Estate Planning option is right for you!

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