The Disbursement of a Living Trust
- When you establish a living trust, you draft a document called a trust instrument that sets forth the purpose of the trust and the rules for its administration. You name a trustee to manage the trust and then you transfer your property to the trust. Property that has been transferred into your trust is not included in your probate estate when you die. Instead, your trustee settles your final affairs and distributes the trust assets outside of the probate process.
- One of a trustee’s first jobs is to inventory the assets belonging to the trust. This means identifying all real estate, financial accounts, and personal property owned by the trust and ensuring that each item of property is properly valued. Some property, such as real estate or artwork, may need to be appraised by a professional before its value can be ascertained.
- After the trust assets have been inventoried and the value of the trust has been ascertained, the trustee identifies all the debts that must be paid by the trust. These might include funeral costs and final medical expenses, credit card bills, loans or other debts. The trustee also must determine which taxes, including income taxes and estate taxes, must be paid. The trustee must pay debts and taxes from the trust property before the remaining assets can be disbursed.
- After all debts and taxes have been paid, the trustee follows the terms of the trust instrument to disburse assets to the beneficiaries. Although beneficiaries must wait to receive distributions, they are entitled to know the financial status of the trust throughout the trust administration process. The trustee must report to the beneficiaries at least annually concerning the assets and liabilities of the trust, as well as the trustee’s actions in administering the trust.
- If you fail to transfer all the appropriate property into your trust, your trustee’s job will be slightly different. Certain property left out of your trust becomes part of your probate estate, and it must go through the probate process before it can be distributed. In this situation, your trustee will cooperate with the personal representative of your probate estate to ensure that your affairs are properly settled and your assets properly distributed.