Read the Trust
The first step in determining what a beneficiary is entitled to receive from a trust is to get a copy of the trust and read it. The “intent” of the trust’s creator are what the trustee must abide by in making distributions. The trust instrument sets forth what the creator intended.
Trustee’s Role in Determining Distributions
The trustee is the person that administers the trust in accordance with its terms.
The trust’s “distribution standard” matters. If the trust says that a beneficiary is to receive “all the trust income”, then the beneficiary receives that amount (and the trust will often say how often – e.g., “annually). “Income” is a technical term – it does not include capital gains – but only interest, dividends, rents and royalties. If an all the income trust invests in bonds (as opposed to stocks), the beneficiary is likely to receive more. “Income” really means net income – trust administration expenses properly charged to income reduce the amount of “income” that the beneficiary will receive.
It the trust says that the trustee is to make distributions (either from income or principal) for the beneficiary’s “health, education, maintenance and support” (often called a “HEMS” standard), that type of standard is what is called an “ascertainable standard”. If the trust says the trustee “shall” make such distributions, the beneficiary can force such amounts to be paid. If the trust says the trustee “may” make such distributions, then the ascertainable standard is the “ceiling” for amounts a beneficiary can receive, but not a mandatory right. Other language – such as requiring the trustee to take into account a beneficiary’s “other resources” – can also give the trustee a reason not to make a distribution for HEMS.
Want To Read More? Sign Up For Our 7 Day Free Trial.
Please login below. If you don't have an account, feel free to sign up and get access to the entire WealthCAP HUB®.