beneficiaries

[curb1]

What is the name of your state (only U.S. law)? Oregon
What happens when Trustee distributes some assets to grandchildren rather than the beneficiaries of the irrevocable trust (grantor died). Everyone involved in the trust (beneficiaries) has agreed to the transaction. What are the problems involved. The proposed shortcut would eliminate the middle person (the listed beneficiary). The beneficiary plans to gift all inheritance to grandchildren anyway.

 

[tranquility]

There are taxation issues involved and the trust may be considered a generation skipping trust by the IRS and different rules may apply to its assets. (It all depends on all the facts.) Those rules are more onerous and the government may claw back some distributions if the trust does not have adequate assets to pay the taxes and penalties.

The beneficiaries, if they do a disclaimer, will have the assets come back to the trust to be distributed as the trust allows. If the trustee does not do things in this way, the beneficiaries have cause to claim a breach of fiduciary duties and might be able to get triple damages for any amounts that would have gone to them if the money reverted to the trust. I say "may" only because there are some estoppel issues if they agreed beforehand.

 

[curb1]

Thank you. The IRS has no reason to look at the trust. That is why I question if there would be any problems. Would the only problems come up if beneficiaries were in conflict (which the aren't)? The co-trustees are also 2 of the three beneficiaries. There are no taxes involved.

 

[TrustUser]

i am not sure what the big deal is about the middle man ?

but i would not take any chances.

i would have the trustee follow out the instructions of the trust, like he is supposed to do.

whether the beneficiaries are in agreement is a moot point.

as far as getting caught ? if there is no conflict now OR LATER, probably slim.

 

[tranquility]

Thank you. The IRS has no reason to look at the trust. That is why I question if there would be any problems. Would the only problems come up if beneficiaries were in conflict (which the aren't)? The co-trustees are also 2 of the three beneficiaries. There are no taxes involved.

Huh? Here's how it goes. Someone gets audited. When the bank statements are totaled, the IRS asks where the money came from. They get back to the trust at some point, either from admission or from looking at the source of funds, and then look at the trust. Then they find you "skipped" a generation without reporting. Or, some creditor, litigant, soon to be ex-spouse complains the real beneficiary (who is now in agreement with the plan) did not get their money and it is the trustee's fault. Can you say treble damages?

Follow the trust's terms. If the beneficiary wants to gift it later, they can.

 

[curb1]

I agree that the only paths to follow are the directions of the trust.

 

[LdiJ]

I agree that the only paths to follow are the directions of the trust.

Then I think it is clear. The trustee distributes to the beneficiaries according to the trust, and then the beneficiaries do whatever they like with the money. If that means that they gift it to the grandchildren, that is on them and they deal with any gift tax issues.