How to Dispense a Living Trust

by John Cromwell

A living trust is used to protect and dispense property during the life of the creator of the trust and after his death. If you are a trustee, it is up to you to ensure that the trust property is properly distributed. Trust property is distributed subject to state law and the terms of the trust. While there is no set of laws that applies nationwide, the model Uniform Trust Code has been enacted in 23 states. While the UTC provides a good framework for general discussion, you should review the laws of the state where the trust is located.Consider hiring an attorney to help you distribute the property.

Divorce is never easy, but we can help. Learn More

Declaration of Trust

Prior to dispensing funds, review the declaration of trust. The declaration details how the creator of the trust wanted to distribute the trust funds. State law only influences trust property distribution in situations that the declaration does not address. If you do not distribute the trust property in compliance with the terms of the declaration, the beneficiaries can sue you for monetary damages. For example, if a trust requires that you distribute $50,000 to a specific beneficiary every year, you must pay that amount annually.

Discretionary Trust

When reading the trust declaration, determine how much discretion you have in distributing the trust's assets. A discretionary trust grants you the ability to disburse the trust property as you see fit within general guidelines. With a discretionary trust, the declaration may not limit how much you can spend on the beneficiaries. Instead, the declaration provides a set of circumstances where you may disperse the property, but leaves the decision of when and how much property to distribute up to you.

Discretionary Trust Example

Assume a discretionary trust grants you the right to distribute the trust property for the “health, education, maintenance, and support” of the beneficiaries. You can use any amount of the trust property necessary to ensure that the beneficiaries’ health needs are met and to send them to school. The maintenance and support aspects are more subjective. You are not limited to paying for a beneficiary’s basic needs; you can purchase cars and other items for beneficiaries that are not strictly required for their survival. You must base your decisions on dispersing the trust property on the circumstances, your best judgment and your fiduciary duty to all of the beneficiaries.

Fiduciary Duty

When carrying out the terms of the trust, abide by your fiduciary duty. Any action that you take in regard to the trust must be done with the sole intent of benefiting the beneficiaries. You must be impartial in distributing the trust’s assets and not take any action that would unjustly benefit you. This responsibility to be an impartial administrator is especially important with living trusts, since many times you may also be a beneficiary. While the trust agreement may define a lot about the trustee-beneficiary relationship, under many state laws a trust agreement cannot alter a trustee’s fiduciary duty.