Trust Distribution Alternatives
Apr 01, 2015 08:28AM, Published by Jennifer Neys, Categories: Home+Finance
By Daniel DuRee
Trust Distribution Alternatives
No matter how active our lifestyles are or how much green tea we drink, eventually our beneficiaries are going to receive their distributions from our trust. A key feature of a living trust is the flexibility in the distribution scheme, which allows the trust creator to decide how their assets are eventually paid out to beneficiaries. I discuss some of the most popular distribution methods below.
An outright distribution is exactly what it sounds like. The trustee distributes the assets or cash proceeds directly to the beneficiary who then has title in their own name. This is the most common way to distribute assets. The advantage is that the trustee can wrap up the trust administration and everyone can move on. You can also have an outright distribution with an age requirement. For example you can say that a share goes, “outright if the beneficiary has reached the age of thirty.” The primary drawback is that until all the beneficiaries are thirty, the trustee must keep the trust funds invested for the underage beneficiaries and must continue the trust administration.
The second most popular distribution scheme is a distribution that takes place in multiple smaller payments at predetermined ages for each beneficiary. This generally takes place in two or three stages. For example, a beneficiary could receive one quarter of their share at age twenty-five, half of the remaining share at age thirty and the remainder at age thirty-five. The theory behind this is that even if the beneficiary wastes the first quarter at twenty-five they will learn their lesson and be more responsible at the next stage. In practice this may or may not be true. Again, the primary drawback is that the trustee must continue administration until the final distribution. This creates ongoing work for the trustee, trust expenses, as well as potential conflicts with beneficiaries.
Distribution “In Trust”
The third most popular distribution scheme never gives the beneficiary total control of the trust assets. Instead, the trustee makes payments periodically to the beneficiary for their support and welfare. The trust creator decides what amount the trustee can give to the beneficiary and for what purposes. This is often used for beneficiaries with special needs, a history of substance abuse, or simply a demonstrated inability to responsibly manage money. This can also be used to keep a beneficiary from being disqualified from certain government benefit programs. Of course, this structure requires ongoing effort from the trustee and administration expenses. One option to ameliorate some of these problems is to hire a licensed third party professional fiduciary as the trustee.
While these are the three most popular distribution schemes the possibilities are really only constrained by practical considerations and the boundaries of human imagination. Please give my office a call to discuss what distribution system works best for your particular situation.
Daniel L. DuRee is a third generation resident of Contra Costa County and a licensed attorney practicing in Walnut Creek. He can be reached at (925) 210-1400 or visit www.DuReeLaw.com.