Disbursements to Heirs From Trust Funds

A trust fund is a legal entity created to protect and manage the financial assets of its beneficiaries on their behalf and in their best interests, according to the Merriam Webster dictionary. A family member, or grantor, usually sets up the trust for his heirs before his death, and he appoints a trustee to invest the assets and manage disbursements to the heirs according to his wishes. If the grantor neglects to specify the details of disbursements at the time of setting up the trust, state trust laws determine how disbursements to the heirs take place.

Disbursements to heirs take place for a variety of reasons, all of which the grantor identifies on creation of the trust. These include reaching a specified age, completion of education, entering into marriage or having a family. Disbursements may also occur regularly for living expenses, such as when the grantor has transferred all his assets into a trust fund to support a surviving spouse for the rest of her life.

The methods trustees use to make disbursements to heirs depend on the type of disbursement and the amount. A disbursement upon reaching a certain age may be a large sum of money, and this type of disbursement could take the form of an electronic transfer, a wire transfer or even investment in a portfolio of stocks and bonds. Depending on the number and value of the disbursements, the trustee may simply prefer to issue checks to the heirs to ensure that a record exists.

Lump sum disbursements to heirs take place once all requirements of the trust are fulfilled, such as the reading of the grantor’s will, finalization of the grantor’s estate, and the settlement of any outstanding fees against the trust. Regular disbursements for living expenses, however, are likely to occur on an annual, quarterly or monthly basis. The rules of the trust may allow for a limited annual number of disbursements, and if the trust’s capital is invested, only the interest can be disbursed until the end of the investment term.

Under common law, the trustee of a fund is obliged to administer the trust and any disbursements strictly according to both the law and the terms of the trust. This includes approval and execution of disbursements to heirs. If the fund is a living trust, the grantor may also be the trustee, and he will decide the timing and method of disbursement. If a dispute occurs, such as one of the heirs disagreeing with the disbursement, a court must settle the dispute before disbursements can proceed.