How to Distribute the Remainder of a Trust at the Death of the Income Beneficiary

By Jennifer Williams

When an individual wants to maintain his property without retaining legal ownership of it, he may create a trust and transfer ownership of his property into it. He then names a beneficiary to receive income generated by the property placed in the trust, such as rents generated from rental property or dividends from stock. Transferring property into a trust removes it from the estate of the trust creator, or settlor, thus keeping it from getting tied up in probate upon the settlor's death. When the beneficiary dies, the trust property must be distributed according to the terms of the trust.

Step 1

Identify the individual named as trustee in the trust document. If you are not the trustee, meaning the individual in charge of executing the terms of the trust, you must go through the named individual or organization to distribute the remaining property in the trust. Alternatively, you may petition the court to be allowed to replace this individual to facilitate distribution yourself if you can show that the named trustee is not performing his duties to the best interests of the beneficiaries.

Step 2

Read the trust document for instructions. The terms of the trust will describe how the property remaining in the trust is to be distributed upon the death of the income beneficiary. Trust documents customarily provide these instructions and these instructions must be followed exactly.

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Step 3

Identify whether there are any contingent beneficiaries named in the trust document. If there are, determine whether the contingent beneficiaries are to begin receiving income generated by the property in the trust or receive the property itself. If there are no contingent beneficiaries, determine whether the trust document intends the property to revert to the settlor's estate for distribution to his heirs.

Step 4

Notify any contingent beneficiaries of the income beneficiary's death. Inform them of the requirements set out in the trust document for either continuation of the trust or distribution of remaining trust property. If there are no contingent beneficiaries, notify the settlor's heirs of the income beneficiary's death and need to distribute the remaining trust property.

Step 5

Petition the appropriate state court, probate division, in the county where the trust was created regarding any questions you may have concerning the terms of the trust. The court will interpret any unclear language and provide instructions for how to lawfully distribute the remaining trust property.

Step 6

Follow the terms of the trust when distributing the remaining property or transferring the right to receive trust income to any contingent beneficiaries. In the case of court interpretation, execute the court's instructions exactly.

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Tax Treatment of Living Trust Distributions

References

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