What Is a Preliminary Trust Distribution? | RMO LLP
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What Is a Preliminary Trust Distribution?

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Trusts are legal creations designed to protect assets and distribute them over a period of time under certain conditions. The trust is created by a grantor, who initially owns the property, for beneficiaries, who eventually receive the assets.

Therefore, trust distributions are an essential part of the operations and management of any trust. Trusts may be created with distribution conditions in mind, such as when you want a beneficiary to reach a certain age before having access to trust property. Other trusts may be created for the estate planning advantages they offer, such as avoiding probate court, achieving beneficial tax status, or transferring power over an estate to a trustee. 

No matter what kind of trust you are dealing with, as a beneficiary, distributions are vital. For financial planning and your well-being, you need to know when you are receiving funds, how often, and how much.

What Is a Partial Trust Distribution vs Preliminary Distribution?

Partial trust distributions and preliminary distributions are different names for the same thing. Both of these terms refer to the distribution of some trust property prior to the completion of the trust administration.

Many grantors chose to create a revocable living trust so that their estate avoids probate when they pass away. In these cases, there are typically few conditions put on distribution. The goal of the grantor is to pass as much money on to their beneficiaries as quickly as possible.

In these instances, the trustee may consider issuing a partial or preliminary distribution. In fact, some revocable living trusts may explicitly call for the trustee to distribute assets within a set time, such as 60 days.

When a trustee takes control of trust property after the grantor’s death, they have a duty under California probate law to administer the trust according to the instruments and terms of the trust. So, if a preliminary distribution is included in the agreement, the trustee must abide by and release some funds.

Trustees are also required to distribute assets within a reasonable amount of time. But that does not mean the trustee must give you your entire inheritance as soon as you ask for it.

How Long Does It Take to Distribute Funds From a Trust?

A trustee must take inventory of trust property and determine an appropriate plan for managing the assets and distributing the funds. This process does take time, though it varies based on trust size and the types of investments in the portfolio.

For example, if the trust property mainly consists of real estate, jewelry, or artwork, the trustee will need to secure control of the assets. They will also need to obtain expert appraisals to understand the actual value of the trust property. Finally, before distributing funds, the trustee will need to sell the property to convert it to transferable cash.

Sales of these items can take time. As a beneficiary, you may want money now, but you also do not want the trustee engaged in a fire sale that ultimately depresses the value of your inheritance.

While the trustee navigates the complicated sales process, the grantor may have set aside some liquid assets, such as bank or investment accounts. The trustee can distribute these funds quickly. In these situations, a preliminary trust distribution may be appropriate. 

However, there may be other complications, such as tax considerations, that can delay partial distributions from revocable living trusts. 

Do Beneficiaries of a Trust Have Any Rights?

As a beneficiary, you do not want to wait any longer for your inheritance than required. You also know that the trustee typically pays themselves for their work out of trust property. Therefore, the longer the trust exists before being fully distributed, the more the trustee makes.

You have certain rights to ensure that the trustee does not take advantage of the situation or mismanage your funds. First, the trustee owes a fiduciary duty to the trust and its beneficiaries. They also have a duty of loyalty to act in the best interest of all the beneficiaries. 

Legally, beneficiaries have the right to petition a trustee for an accounting of trust property. Upon such a request, the trustee must provide you with a complete, up-to-date accounting at least annually. They also must provide all beneficiaries with the trust agreement documents to ensure they are carrying out the grantor’s wishes.

Finally, the trustee must keep all beneficiaries informed of any significant events, such as sales of trust property. They also must notify all beneficiaries of any requests they receive from one or more other beneficiaries.

If you believe the trustee is not promptly distributing trust assets to you and other beneficiaries, you have the right to petition a court for relief. You can either seek to remove the trustee for cause or have the court force them to issue a distribution. Typically, courts prefer prompt administration and distribution of trust assets.

Have questions? We’re happy to discuss.
Call (424) 320-9444 or email hello@rmolawyers.com

Read More
Can Trustees Be Held Personally Liable?
The Trustee’s Guide to Trust Distributions
The Trustee’s Guide to Avoiding Trustee Removal
The Guide to Breach of Fiduciary Duty and Abuse

About RMO, LLP

RMO LLP serves clients in Los Angeles, Santa Monica, Ventura, Santa Barbara, San Francisco, Orange County, San Diego, Kansas City, Miami, and communities throughout California, Florida, Missouri, and Kansas. Our founder, Scott E. Rahn, has been named “Top 100 – Trust and Estate Litigation” by SuperLawyers, Trusts and Estates Litigator of the Year, and Best Lawyers in America for Litigation – Trusts and Estates. For a free consultation, call (424) 320-9444 or visit: https://rmolawyers.com.

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