Probate Law News

Trusts Are Designed To Distinguish Between Income And Principal, As Many Of Them, Especially Older Trusts, Provide For Income To Be Distributed To One Person At One Time And Principal To Either That Same Person

Trusts are designed to distinguish between income and principal, as many of them, especially older trusts, provide for income to be distributed to one person at one time and principal to either that same person at a different time or to another person entirely. For example, many trusts for a surviving spouse provide that all income must be paid to that spouse, but only pay the spouse principal in limited circumstances, such as a medical emergency. At the spouse's death, the remaining principal may be paid to the decedent's children, to charity, or to other beneficiaries. Income payments and principal distributions can be made by check, or at the trustee's discretion by distributing securities as well as cash.

Unless a fiduciary has experience in this area, it is recommended that he or she seek professional advice regarding the investment of trust assets. In addition to good investment results, the fiduciary should invest within the applicable Prudent Investor Rule that governs the trust or estate. A skilled investment advisor can help the fiduciary decide how to invest, what assets to sell to provide cash for expenses, taxes, or outright distributions, and how to minimize income and capital gains taxes.

During the period of administration, the fiduciary must provide an annual income tax statement (called a Schedule K-1) to each beneficiary who is taxable on any income earned by the trust. The fiduciary can be held personally liable for interest and penalties if the income tax return is not filed and the tax paid by the due date, generally April 15.

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	Did You Know?
	It Is Not Wise To Handle Probate Without A Lawyer Probate is a very complicated and formal process. There are no requirements to use a lawyer, but it is not wise to do so. Even the smallest detail that is missed or left out can cause everything to come to a halt, exposing everyone to liability.