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Allocation of Trust Assets to Beneficiaries or Sub-Trusts
Allocation to Beneficiaries
Many trusts contain gifts of certain property to named beneficiaries. Depending
upon the terms of the trust, the trustee may distribute income and/or principal
to the beneficiaries. Principal is the property contained in the trust, while
income encompasses the rents, dividends, and interest payments earned by
investing the principal.
Trust documents can specify a number of ways in which the trust should be
distributed. Some trusts require the trustee to distribute income only, while
others allow the trustee to determine when and how much income and principal to
distribute. The trust can be customized to meet the needs of the client.
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Many trusts will call for one or more items of property to be distributed to a
named beneficiary. This could be a gift of money, stocks or bonds, real estate,
or other property. Often, if a trust asset has great sentimental value but
little monetary value, like a special book or piece of family heirloom jewelry,
the trust will direct that this asset be distributed outright to a specific
person as a gift. The trustee must look to the trust document to determine
which assets should be distributed and under which conditions.
Allocation to Sub-Trusts
Some trusts may direct that trust assets be distributed to a sub-trust upon the
death of one of the trust settlors. This situation usually arises as part of a
trust created by a married couple or an estate plan designed to help minimize
taxation of certain assets. Such a trust may protect certain beneficiaries from
higher taxation. In a situation involving sub-trusts, the trustee should take
all steps necessary to ensure that the trust assets properly enter into the
sub-trusts. |
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Transfer of Non-Trust Assets
Some assets may not belong to the trust so the trustee should
not distribute these assets. Rather, these assets will generally be controlled
by the executor of the will or by another non-probate distribution method. Many
times, a person will have a pour-over will.
This will “pours over” into the existing trust any of the settlor’s assets which
had not been entered into the trust before the settlor’s death. Once the assets
have properly entered the trust, the trustee can distribute them or invest them
as the trust directs.
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