When to distribute assets from a trust?

[mcadk]

NY state. A deceased family member had a revocable living trust for her house, its contents, and other personal belongings. The property was paid off and does not have mortgages or liens. She did not have any other non-trust assets. Her son is the sole beneficiary set to inherit the house. When can the trustee transfer the property to him? The trust property does not have debts, but the decedent left about $5,000 in credit card debt and two car loans, one of which is being assumed by her son. The estate is unable to pay the credit cards and will voluntarily surrender the other car to the finance company. The car was purchased only a few months before the decedent passed away, and about $25,000 is owed. That's roughly the price a dealer would sell the car for, but a bank auction will obviously bring less and mean a deficiency. So, two questions: When the can the deed of the house be transferred, and to what extent do the outstanding debts complicate that?

 

[Taxing Matters]

Does the trust specify when distributions are to be made? If not, then you likely may distribute the assets now without violating the trust terms. I couldn't say for sure, however, without reading the trust document. Even if you are permitted to do that, it may not be the wise thing to do. When it comes to revocable living trusts state probate and trust laws generally provide that the trust can be reached by creditors of the estate if the estate lacks the assets to pay them. If the trust distributes the assets too early, the trustee may be personally on the hook for the debts that could have been paid out of the trust and the creditor may be able to pursue the trust beneficiaries to the extent of the value of the assets received. So you may want to wait at least until the time for creditors to file claims against the estate is gone and figure out what the potential exposure the trust may have for debts and taxes owed by the estate. If you have the trust hang onto at least enough assets to satisfy the possible claims you have less risk of problems. You really ought to get advice from a NY estate/trust attorney on this. That way you'll have clear guidance on exactly what to do to best protect yourself while still getting as much of the assets as you can to the trust beneficiaries promptly. The fees paid are deductible for the trust on its IRS Form 1041 (trust income tax return).

 

[LdiJ]

NY state. A deceased family member had a revocable living trust for her house, its contents, and other personal belongings. The property was paid off and does not have mortgages or liens. She did not have any other non-trust assets. Her son is the sole beneficiary set to inherit the house. When can the trustee transfer the property to him? The trust property does not have debts, but the decedent left about $5,000 in credit card debt and two car loans, one of which is being assumed by her son. The estate is unable to pay the credit cards and will voluntarily surrender the other car to the finance company. The car was purchased only a few months before the decedent passed away, and about $25,000 is owed. That's roughly the price a dealer would sell the car for, but a bank auction will obviously bring less and mean a deficiency. So, two questions: When the can the deed of the house be transferred, and to what extent do the outstanding debts complicate that?

Was the property deeded to the trust prior to her death?

 

[zddoodah]

When can the trustee transfer the property to him?

Can? Anytime.

Should? Depends entirely on the terms of the trust, which we obviously don't know.

By the way, why are you asking? Are you the trustee? The beneficiary?

The estate is unable to pay the credit cards and will voluntarily surrender the other car to the finance company.

Are you distinguishing the estate from the trust here?

Keep in mind that it may be necessary for the trustee to liquidate assets to pay debt.

to what extent do the outstanding debts complicate that?

The debt is relevant. Whether that will be complicated is impossible to know.

The trustee should retain the services of a local attorney. If he/she gets something wrong, he/she could potentially become personally liable for debt.

 

[adjusterjack]

Her son is the sole beneficiary set to inherit the house.

He may have to sell the house to cover the debts. Or come out of pocket to cover them.

 

[LdiJ]

The trust and the estate are two separate things. The debt belongs to the estate, not the trust (unless a judge orders that trust assets can be clawed back to cover estate debts) and the house may or may not have been exclusively the property of the trust. It depends on whether the estate was deeded to the trust prior to death. The house would have to be sold to cover debt only if the house can be clawed back into the estate (or was ever part of the estate).

The trustee of the trust is not necessarily the executor/administrator of the estate nor necessarily have any responsibility towards the estate. It all depends on what everything says and the details.

Yes, the trustee should consult an attorney to make sure that everything is handled correctly

 

[mcadk]

Thanks for the replies. The house was properly deeded to the trust before the decedent (my mother-in-law) died. The deed is recorded in the name of the trust. The trust contains a pour-over will for the "residue" of her estate, of which there is none (no bank accounts, investments, or other assets.)

I was named a trustee of the trust and executor of the will, along with my brother-in-law (who is not the son named to inherit the house.) There are no other beneficiaries. Our understanding is that the trust property (the house) is not subject to probate, but what about the will? With no assets to distribute, is probate required in NY? Forgive the novice questions, but she just died and we are trying to get a preliminary read on the best way forward while avoiding any pitfalls. The wording of the trust seems to allow for immediate distribution, but we certainly don't want to do that if it's improper and would mean personal liability. I'm sure it's obvious, but we have not yet consulted a lawyer.

 

[LdiJ]

Thanks for the replies. The house was properly deeded to the trust before the decedent (my mother-in-law) died. The deed is recorded in the name of the trust. The trust contains a pour-over will for the "residue" of her estate, of which there is none (no bank accounts, investments, or other assets.)

I was named a trustee of the trust and executor of the will, along with my brother-in-law (who is not the son named to inherit the house.) There are no other beneficiaries. Our understanding is that the trust property (the house) is not subject to probate, but what about the will? With no assets to distribute, is probate required in NY? Forgive the novice questions, but she just died and we are trying to get a preliminary read on the best way forward while avoiding any pitfalls. The wording of the trust seems to allow for immediate distribution, but we certainly don't want to do that if it's improper and would mean personal liability. I'm sure it's obvious, but we have not yet consulted a lawyer.

Ok, the trust does NOT contain a pour over will. The estate contains a pour over will giving any residue to the trust. It is too bad that you are both the executor of the estate and the trustee of the trust. That makes you legally obligated to ensure that the debts of the deceased are paid to the extent that the law requires. It is imperative that you consult a local attorney. Since the estate has no assets there is a chance that the house is safe, but there is no guarantee of that. It may be that the house will have to be sold, the debts paid, and the rest of the money distributed to the beneficiary, rather than the house itself being distributed to the beneficiary.

Don't do anything without the OK of a local attorney.

 

[zddoodah]

Don't do anything without the OK of a local attorney.

Yup.