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Please call our Director of Client Relations, Pattie Brown, at 1-800-500-2525 ext. 117 or email Pattie at pbrown@trustlaw.com if you need any further assistance.

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Trust Settlement & Disbursement after Beneficiary Death

Upon the happening of an event described in a trust, whether it is a term being met, a beneficiary reaching a certain age, or the death of a certain party, the trustee must settle the trust, terminating it and distributing the assets out. While sometimes these terminating events can be easily foreseen and planned for accordingly, such as a beneficiary reaching age attainment, other events may be more sudden. These sudden events, such as an unforeseen death, can cause particular difficulty for those administering the trust as well as those seeking the trust continue to pay for certain expenses, including funeral costs.

When the event occurs, the trustee, in most states, must either file paperwork with the court or notify all the of the beneficiaries of the event, the trust’s consequential termination, and next steps for distribution. This release is required in order for the trust to distribute out and for the trustee’s duties to terminate. The trustee’s acknowledgement of the event insulates the trustee in the event that the estate or any of its beneficiaries attempt to bring legal action against the trustee.

What many beneficiaries of a trust do not realize is that upon the happening of the event, as of that day, the trust going forward can no longer allocate any assets to pay costs that may have formerly been taken care of by the trust, such as real estate taxes or various bills. The trust must act as if it is then frozen in time in order to preserve what will eventually be distributed out. While it can be inconvenient in terms of timing as well as financially, the trustee can no longer pay out or make distributions on behalf of the trust because it fails to exist and the will of the grantor is no longer known.

The trustees’ role can be confusing to some invested parties due to their understanding of the trustee acting on the best interest of the grantor and the beneficiaries, which can lead some individuals to try and hold the trustee personally liable for what they see as a mismanagement. However, a trustee will only be liable if it is obvious that the trustee is self dealing, making unreasonable and improper investment decisions for the trust, failing to file specific tax related forms on time, as well as favoring certain interested parties over others, all of which take a substantial amount of proof.

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