Learning that you are a beneficiary of a trust can be an overwhelming experience. Whether the news comes unexpectedly or after a loved one’s passing, it’s important to know where to begin and what to ask. Navigating the complexities of a trust requires careful consideration, as the responsibilities and processes involved can vary greatly depending on the trust’s structure and the wishes of the trustor.
When someone becomes a beneficiary of a sizable trust, they often find themselves with a host of questions. Who is responsible for managing the estate? What are the specific terms of the trust? And most importantly, what should the next steps be to help ensure a smooth process?
The trustor designates a trustee to manage the estate, which can be an individual, a family member, or a corporate trustee, like a bank or wealth management firm. Knowing how to approach the situation and where to turn for help is crucial.
1. Build an Advisory Team
A key first step for any beneficiary is to engage with the trustee responsible for executing the terms of the trust. The trustee is the person or institution designated to manage the assets and carry out the instructions set forth by the trustor in the trust agreement.
It’s important to establish clear communication with the trustee from the outset. Beneficiaries should work with the trustee to outline the key tasks that need to be completed and understand the general timeline for settling the estate. This is an opportunity to ask detailed questions and make sure all parties involved are on the same page regarding the process.
In some cases, once the estate is settled, a new trust may be created to hold the beneficiary's share of the estate. In other cases, the assets might be distributed outright. If assets are retained in trust, the trustee will often collaborate with an investment advisor to manage the assets in accordance with the terms of the trust. This partnership helps ensure that the assets are handled responsibly and in a way that aligns with the beneficiary's long-term goals.
Additionally, beneficiaries should seek the advice of a tax advisor to understand the potential tax implications of the trust’s distributions.
2. Understand the Terms of the Trust
One of the first questions a beneficiary will likely have is: "What benefits do I receive from the trust?" Understanding the terms and provisions of the trust is essential. In many cases, beneficiaries are encouraged to consult with independent legal counsel if they need help interpreting their rights and interests under the trust.
Trusts are unique instruments that specify how assets should be managed and distributed. While they can be useful for holding, managing, and transferring wealth, the details of each trust can vary significantly. Some common areas of focus include:
- Beneficiary Rights: Does the trust name a single beneficiary, or are there multiple beneficiaries? How do the terms define each beneficiary’s share of the assets or income?
- Age Restrictions: Is there a requirement for beneficiaries to reach a certain age before accessing the trust’s assets?
- Distribution Limits: Does the trust only allow beneficiaries to receive income from the assets, or can they access the principal? Are there guidelines about what expenses the trust can cover (e.g., health, education, maintenance, and support)?
- Trust Duration: Does the trust terminate once a beneficiary reaches a certain age, or is it designed to last the beneficiary’s lifetime? Does the trust provide for future generations, and if so, how?
The trustee’s role is to manage the trust prudently, considering both the current needs of the beneficiaries and the long-term objectives of the trustor. Beneficiaries should feel empowered to ask for clarification on any points they don’t fully understand, helping ensure that the distribution of assets aligns with both their immediate needs and long-term goals.
3. Ask Questions Before Taking Distributions
Before accepting any distributions from the trust, beneficiaries should ask about the potential tax consequences. Consulting with a tax advisor can be essential to understanding how a distribution might impact their personal tax situation. Beneficiaries should also engage with the trustee and other members of their advisory team to discuss how taking a distribution may affect their broader wealth plan, particularly in terms of investments and future growth.
In some cases, beneficiaries may have specific questions about their rights concerning the trust, and they may want to seek legal counsel to address these concerns. For example, if a beneficiary is considering making a large purchase using trust funds, they should weigh the long-term effects of such a decision on the trust’s assets.
Trustees and beneficiaries should maintain an open line of communication to help ensure that all parties are aligned with the trust’s purpose and objectives. In cases where the beneficiary's goals might not align with the trust’s long-term aims, it’s important for the trustee to provide guidance, helping the beneficiary make informed decisions that help protect the trust’s value.
Wells Fargo & Company and its affiliates do not provide tax or legal advice. This communication cannot be relied upon to avoid tax penalties. Please consult your tax and legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your tax return is filed.
Trust services are available through Wells Fargo Bank, N.A. and Wells Fargo Delaware Trust Company, N.A.