The most common way a trust is set up is that it is established for the settlor’s benefit during his/her lifetime and then upon his/her death it is distributed free of trust to the descendants. A trust can house most types of property, including real estate, stocks, security instruments, and even interests in businesses (e.g., corporate shares). Given the various types of property that a trust can possess, the trustee must be fairly sophisticated in order to exercise the requisite “care, skill and caution” in administering the trust. See Section 456.8-804, RSMo. While the terms of the trust instrument itself will almost always govern, all of the property — regardless of character — is usually sold/managed so that the settlor’s needs are met during his/her lifetime.
Things can be more problematic when the settlor dies and the trustee is to distribute the property evenly to the descendants. How can the trustee distribute the trust property evenly when the trust corpus is comprised of very different types of property? Typically, the trust will call for the trustee to value or appraise certain types of property and take that value into account when distributing it to the beneficiaries. The trustee can also liquidate some property and then distribute the cash to the beneficiaries. Liability is a big concern for trustees, particularly corporate trustees. This concern is compounded when making distributions. A beneficiary can file suit against the trustee and say that the trustee breached his/her/its fiduciary duty by not distributing and winding down the trust in the beneficiaries’ best interests.
Section 456.8-817, RSMo, addresses this trustee conundrum. It provides that when a trust terminates the trustee may deliver a proposal for distribution to the beneficiaries. The right of any beneficiary to object to the proposed distribution terminates if the beneficiary does not notify the trustee of an objection within thirty days after the proposal was sent but only if the proposal informed the beneficiary of the right to object and of the time allowed for objection. This non-judicial settlement approach is designed at allowing the trustee and beneficiaries to openly communicate about the trust’s distribution to avoid unnecessary disputes or litigation.
Contact us with questions.