Distributing Potentially Problematic Assets

     Our previous two blogs focused on how estate-planning documents achieve the client's planning goals. Today's blog focuses on how successor Trustees distribute assets to beneficiaries. While sometimes the distribution of trust assets is as simple as writing checks to the beneficiaries, certain assets, such as items of personal property and investment accounts, present special issues.

     With personal property, we provide our clients with the ability to leave a memorandum indicating which individuals receive particular pieces of personal property. After giving effect to this memorandum, the Trustee must distribute the remaining personal property pursuant to the terms of the trust, usually in approximately equal shares amongst a number of people. In many circumstances, this division is amicable, with the beneficiaries each keeping the items of personal and monetary value without issue. The trustee can then dispose of the unwanted remaining personal property through either an estate sale or donation to charity. This of course is the best-case scenario, but there are times beneficiaries are unable to agree as to the division of the property. At this point, the Trustee becomes a mix of accountant and mediator, keeping track of the value of property and sorting out disagreements between beneficiaries over whom receives what from their loved one’s estate. Trusts often provide the Trustee with the final decision as to the distribution of personal property when beneficiaries disagree, allowing the Trustee to settle disagreements as he or she see fit and in compliance with the terms of the trust.

     Investment accounts may also be difficult to divide and distribute. While the actual division of an investment account is a simple matter easily accomplished, the Trustee must first determine when the assets should be distributed and how they should be invested prior to distribution. The Trustee is a fiduciary under a high standard of care, and therefore must make distribution decisions with care. If the Trustee intends to make distributions in the near future, it may be better to liquidate investments to protect the principal against market losses. If assets will be held in trust prior to distribution, the Trustee must decide between the benefit of capturing market gains against the possibility of incurring market losses. If possible, it may be simpler to equally split each of the investments in the portfolio distribute them in kind, and allow each beneficiary to make their own investment decisions.

     It is important that the Trustee consult with knowledgeable advisors to ensure that the interests of both the present and residual beneficiaries receive fair treatment. The employment of such a qualified advisor may relieve the trustee of their duty to ensure that assets are properly invested, so it is important to that the Trustee work closely with the advisor.

     These are just two examples of assets that may cause successor trustees issues when distributing trust assets to the beneficiaries. Because of these potential issues, it is important for the initial trustees to keep good records regarding the assets held in their trust so that their successor trustees can administer the trust to achieve the grantor's goals with a minimum of trouble and inconvenience. If you have questions regarding funding assets to the trust please feel free to contact us directly and we will provide you with additional information.

Matt Ferrara