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

Without clear instructions, the distribution of a trust after beneficiary death is in the hands of the court.

Creating a trust enables the grantor of the trust to set aside assets for the use of the trust beneficiary. Should the beneficiary die before depletion of those assets, the assets are left without an owner until ownership is resolved. Since assets held in trust can have significant value, it's important to distribute them in a timely manner to ensure that the rightful new owner has full use as soon as possible.

Things You'll Need

• Trust documents

Instructions

1. Examine the trust documents for provisions covering the death of the income beneficiary. A properly drawn trust should include precise instructions on how to distribute the trust assets.

2. Follow the trust provisions to the letter in distributing the assets. If there is any doubt as to what the provisions demand, petition the court handing the trust for clarification.

3. Notify the court if there are no provisions documenting the distribution of the assets upon the death of the beneficiary immediately after the death occurs. The court will decide, according to state law, how to proceed with asset distribution. This can result, in some states, with reversion of assets to the estate of the trust grantor for management according to estate policy. In other states, the assets transfer to the beneficiary's next of kin. There are even states where the assets follow any provisions made by the beneficiary, transferring to the beneficiary's estate for disbursement according to the beneficiary's willed wishes.

4. The court reviews the case in light of the applicable state laws. Distribute the assets according to the court's rulings immediately.

References

• Solid Funding: What Happens if Trust Beneficiary Dies

Resources

• General Counsel: Wills, Trusts & Estate Planning
• NOLO: Living Trusts & Avoiding Probate