When it comes to trusts, it can be difficult to know who does what and what your responsibilities are. The most important role in a trust is the trustee. It is the responsibility of a trustee to disburse or distribute funds from the trust. While these actions may sound similar, they mean different things and have different purposes. Get details about what each one means and what you should know.
What are Disbursements?
First things first: As the trustee of a trust, you must settle debts owed by the creator of the trust. This is called disbursement. It is your job to ensure that the estate’s assets can pay off what is owed. It is important to prioritize what debts are paid first by calling the deceased’s creditors. What you should know is that legitimate outstanding debt takes precedence, so paying off secured debts (mortgages, car loans) should be paid off before unsecured debts (credit card debt, medical bills).
Related Article: Probate: What is it and When Do You Need It?
What is Distribution?
Once disbursement is complete, meaning all debts and final taxes are paid, a trustee can distribute the inheritance to beneficiaries. This is called distribution. It is only then that money should be paid to the benefit or care of the beneficiary. It can be difficult to settle an estate, so do everything by the book and with care. This process can be incredibly stressful as beneficiaries may taunt or encourage you to distribute funds prematurely – but this is a mistake. Ensure that you settle funds first so you don’t pay for it later – literally.
Related Article: How to Avoid Probate With Living Trusts
What About Probate?
We mentioned that probate may come into play if there are insufficient funds, and a judge must prioritize debts. However, probate is also possible when the trust in question was not thoughtfully planned or is undergoing litigation from beneficiaries. The trust will then be sent to probate court to determine how to distribute the inheritance. Regardless of probate, it’s critical that a trustee keeps cool and maintains an accurate trust accounting.
Need help with your disbursements and distributions? Let the team at Marcia Campbell, CPA help with a court accounting.
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As the most experienced CPA in the Inland Empire who specializes in working with seniors, Marcia L. Campbell is committed to helping each client thrive by caring for their personal and financial wellbeing with genuine interest, well-established expertise, and a focus on respectful partnerships. Marcia’s team specializes in a number of services including elder & financial care, court & trust accountings as well as private fiduciary and tax services. At Marcia L. Campbell, CPA, we understand the importance of our clients’ individual needs and are committed to helping them make the best personal and financial decisions for their future.