The right trust document, paired with an easygoing beneficiary, creates easy trustee distributions. A trustee has two main responsibilities when administering a trust. The first is investment management and the second is distributions.
The trustee follows whats outlined in the trust document. Every decision made is confirmed with the trust agreement. Also, the trust agreement defines how the trustee distributes trust assets. The tax implications, typically, will be paid on the distributions received by beneficiaries from the trust income. This depends on the type of trust. Some trustees make the distribution process easy, and others make it complicated. This is because some trust companies want to keep the assets in house. A big misunderstanding from traditional trust companies are who the assets actually belong to. The trust assets belong to the beneficiaries, not the trust company.
Trustee process for distribution decisions
Easy trustee distributions require a well thought out process and cooperation with both parties. Typically, if the beneficiary is using a corporate trustee, the relationship will be between a trust officer and the beneficiary. The trust officer has an important role to perform distributions based on whats dictated in the trust document. Factors that effect easy trustee distributions include if the beneficiary is manageable. For example, if the beneficiary has language in their trust document limiting discretionary distributions, a young beneficiary might not be able to by that Ferrari they wanted. This could cause tension, but is not always the case. The process of making easy trustee distributions starts with the trustee you pick and the capabilities of that trust company. Is the trust company being innovative?
How does the trust company's trust committee make easy trust distributions? Does the trust company have a trust committee? Trust committee, makes the decisions and control easy trustee distributions. The trust decision, whether the clients told yes or no, depends. Different trust companies have different types of trust committees to administer the trust fund. Some trust companies may have large trust committees, some may have small. This impacts the time it takes to make a decision for easy trustee distributions.
Delegated vs. Directed trust distributions
There's two types of trusts Delegated and Directed. However, Delegated trusts can create easier trustee distributions. This is because the role of investment management is delegated to an advisor. Since the trustees only serving in one capacity, as the administrative trustee, then their times focused on making distributions, taxes, and other tasks. This speeds up the process and allows the trustee to be more efficient.
HEMS, trust language that outlines how distributions will be made out of a trust. HEMS stand for health, education, maintenance, and support. Understanding what applies to HEMS in the trust document can be challenging for both beneficiaries and trust officers. When referring to HEMS trust documents often say, "in the manner of which they are currently accustomed to living”, this dictates strongly what the beneficiary can and cannot receive. For example, a beneficiary who has a $2,000,000 trust and is only making $40,000 a year, but states the HEMS language, will more than likely not be able to purchase a $800,000 home. A beneficiary making that request is an example of what an easy trustee distribution would not be.
Advisor friendly Trust Company and distributions
Advisor friendly trust companies offer perks with making easy trustee distributions. These types of trust companies, depending on trusts type Delegated or Directed, offer beneficiaries and advisors solutions. When using advisor friendly trust companies, the trust company and the advisor work collaboratively when making trust distributions. If the trust's Delegated, that trust company delegates the investment management to the advisor. If the trust's Directed, the investment managers named in the document reducing the trustees’ risk. The role this plays allows for easy trustee distributions because there is vertical communication for the beneficiary’s financial plan. When a trustee is able to lower their risk, then they are able to reduce their fees.
Modern day advisor friendly trust companies do not require separate trust custodial accounts. This allows for easy trustee distributions because under one custodial account the advisor can make investments and the trustee can make distributions. Advisor friendly trust companies are typically newer and more innovative (not all). For example, Wealth Advisors Trust Company has an online distribution form for beneficiaries. This saves time for beneficiaries and trust officers by establishing an easy trustee distributions process.
Making distributions easier for beneficiaries is what every trust company should strive for. Therefore, if you are working with a trustee who is making distributions difficult, it may be time to make a change. It is important to understand that you have options when picking a trustee.