Thursday, August 21, 2014

Trust Beneficiary Receipts and Releases

When a Trustee is ready to terminate a Trust and make distributions to the Trust beneficiaries, it is important that a written Receipt And Release signed by the beneficiary is obtained.  Oftentimes a Trustee will ask why is this necessary as there will be a cancelled check that is evidence of the distribution to the Trust beneficiary and the amount thereof.  There are a number of good reasons for the Receipt And Release. 

First, a written Receipt And Release signed by the beneficiary will avoid any future dispute as to whether the beneficiary received all that he or she is entitled to under the terms of the Trust agreement.  For example, a beneficiary may die shortly after the distribution and the deceased beneficiary’s surviving spouse and/or children may dispute that the decedent received his or her full share.  The Trustee will be required to prove that the decedent received all he or she was entitled to, possibly in a court of law.  This situation can be avoided with a signed Receipt And Release that states that the beneficiary acknowledges that the beneficiary has received any and all Trust property and assets that he or she is entitled to under the terms of the Trust agreement.

Second, a Trustee does not want a beneficiary to use the distribution to hire an attorney to sue the Trustee for alleged wrongdoing in the administration to the Trust.  The Receipt And Release will state that the beneficiary releases the Trustee from any and all claims, damages, legal causes of action, et cetera, known or unknown, regarding the administration of the Trust.    

Third, there may be unknown liabilities at the time of the distribution, most commonly income tax.  The Receipt And Release should provide that the beneficiary agrees to immediately refund to the Trustee part or all of the distributed Trust property and assets (or the cash proceeds resulting from the sale thereof) that may be requested in writing by the Trustee if it is subsequently determined that: (1) part or all of the distribution should have been paid to someone other than the recipient, or (2) funds are needed for the payment of claims or other obligations entitled to be paid from the recipient’s share of the Trust.  Item No. 2 is important in the event the decedent’s final income tax report has not been filed, plus the IRS can audit the decedent’s income tax returns previously filed.  Generally speaking, the IRS has three (3) years after a return is filed in which to audit the return.  However, there is no time limit if the IRS is claiming fraud.
For these and other reasons, it is always best practice that a Trustee obtain a signed, written Receipt And Release from a beneficiary at the time of distribution.  
 
-Attorney John R. Mugan

1 comment:

  1. You baby boomers are the most selfish generation to ever exist. You destroyed your own children's and grandchildren's future with your short-sighted selfishness and immaturity. And then you expect them to pay for your retirement????

    Can you baby boomers just hurry up and drop dead, please?

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