Important Documents Related to Final Distribution of a Trust Estate

1. NOTICE OF PROPOSED ACTION

In the course of settling a Trust estate, the Trustee may need to make a significant decision that might affect the interests or desires of the beneficiaries.  The most common decision would be to sell a piece of property or borrow money secured against trust assets.  It may also involve a decision to use other Trust assets to improve a piece of real property before it is sold, to try and achieve a greater sales price.

In the spirit of transparency and to avoid complications, or infighting, which could even lead to legal action, providing the beneficiaries with a notice of proposed action can help ease the administration.

In the Notice of Proposed Action, the Trustee should:

• Reference the name of the Trust to which the proposed action applies.
• List the name address and contact information for the Trustee.
• Describe the proposed action e.g. I intend to list for sale the real property located at 123 Main Street, Costa Mesa, CA.
• List the reasons for the proposed action.
• Provide the beneficiaries with at least 15 days to respond to the Trustee in writing with any objection to the proposed actions and the detailed reasons for the objection.
• Provide the beneficiaries with a form that can be completed by the beneficiaries where they can approve of the proposed action, object to the proposed action, or in the case of the sale of real property, make known their interest in acquiring the property as part of their beneficial interest or purchasing the property from the Trust (if there would otherwise not be enough assets to go around).

The Trustee does not need the unanimous consent of the beneficiaries to carry out their proposed action.  Rather, this gives the beneficiaries the right to voice concerns or objections and the Trustee can use this as an opportunity to listen and explore other options before they make a final decision.  These discussions should probably involve all the beneficiaries, even if only one objects.   If no one objects and the Trustee takes the action proposed, the beneficiaries have no leg to complain or sue later.

2. TRUSTEE NOTICE OF PLANNED DISTRIBUTION

Once the Trustee has completed the administrative tasks necessary to be in position to distribute the Trust estate, the Trustee should send each beneficiary with a Trustee Notice of Planned Distribution at least 15 to 30 days prior to executing the distribution.  In the Notice, the Trustee should include:

• The name of the Trust to which the notice applies.
• List the name address and contact information for the Trustee.
• A summary of what each beneficiary is entitled to, including: specific gifts and percentage of the estate.
• A list of any distributions or gifts that may have already been made to beneficiaries.
• An itemization of the remaining assets of the estate and the value of each asset class.
• A list or estimate of any remaining liabilities outstanding for which the Trustee may withhold assets. Final decedent tax prep and taxes, expenses of final illness or disposition, any other obligations that need to be paid, etc.
• Describe the Trustees plan for the final distribution, transfer of specific assets, distribution of cash in the amount of $xxx, etc.
• Provide opportunity to present questions or objections within the Notice’s stated period.
• Provide notice that beneficiaries have the right to seek independent counsel on their rights concerning the Trustee’s decision.
• Provide the beneficiaries with a form that can be completed by the beneficiaries where they can approve of the proposed plan of distribution or object to the proposed plan.

The Trustee should attempt to mitigate any objections before acting, but is not required to obtain unanimous consent to their distribution plan.  The Trustee does want to be mindful of anything that could cause a beneficiary to start legal action.  This would be known as a Trust Contest, and there are very limited avenues for a beneficiary to do this, as it may risk forfeiting their inheritance.  In addition, the Trustee should seek to have a waiver and release signed prior to making the actual final distributions.  Also if the Trustee distributes any personal assets that cannot easily be traced, such as a cancelled check or wire order instruction, the Trustee should get a signed receipt from any such beneficiary.

3. WAIVER AND RELEASE

The final step before final distribution is preparing and having each beneficiary sign a waiver and release.  The waiver and release is designed to help shield the Trustee from future legal action by beneficiaries against the Trustee so that they may finish and complete the estate without fear of future claims against them.

Often times, the Trustee will also ask each beneficiary in the notice to waive a formal final accounting of the estate, which takes time and can cost a significant sum.  Instead, perhaps a more informal accounting will be sufficient to satisfy the beneficiaries, such as providing a general ledger and perhaps copies of bank and escrow closing statements.

(*)  There is some legal terminology that should be included in the notice as well.