LIQUIDATING ASSETS AS A TRUSTEE | TRUST 101 SERIES | LAWVEX
December 27, 2021
For most Trustees, the time will come where you must liquidate assets. What is liquidating assets? It’s just a fancy word for selling stuff. The primary reason for liquidating or selling would be either you need cash to pay bills or the beneficiaries don’t want that asset. But what should you do and not do when you’re liquidating assets? Here are three important questions to ask yourself:
- Does the will or trust even authorize the sale of the asset?
- Do you even need to sell the asset to generate cash?
- Is it a bad time to sell?
Does the will or trust even authorize the sale of the asset?
First, you need to review the will or trust. Does it include a specific distribution of an asset, which is a specific gift of an item of property or a piece of real property to a certain beneficiary or beneficiaries? If the will or trust has that specific information in there, you need to distribute that item out completely to the beneficiary.
It is recommended that you check for a personal property memorandum that can be written for sentimental personal property items worth less than $5,000 apiece and less than $25,000 cumulatively. If one exists, it is important that you follow the terms of the memorandum prior to liquidation.
Do you even need to sell the asset to generate cash?
Trusts and trustees are generally authorized to distribute property directly to the beneficiaries. However, in certain cases, they may be obligated to sell the property before distributing it. It’s worth having a look at the trust again to make sure you understand any specific distribution of a piece of property.
There are good reasons why you might or might not want to make a distribution of a piece of property to your beneficiaries. For example, if you have a piece of real property and you want to give it to your three beneficiaries, but they will be inheriting the land in thirds (a third, a third, and a third), they may not get along well as partners with one another. It will be more difficult to sell this type of property since only all three owners have to agree to sell it. On the other hand, giving each beneficiary a relatively equal share could maintain balance in the ownership structure and provide long-term stability.
In these types of situations, see if it’s wise to sell the asset to generate cash or if it’s best to avoid this situation.
Is it a bad time to sell?
One of the advantages to managing trusts and trusts administration is that you are not bound by court docketing schedules, giving you time to wait for the most opportune time to sell a particular asset, such as a stock or mutual fund. You can consult with an investment advisor and ask them if now is a good time to sell, or if you should distribute the stocks out to the beneficiaries and let them know it is better to hold for now. Or you could wait possibly six months, or a year and eventually sell.
We hope that this article has been helpful to you in understanding the legal aspects of asset liquidation and when to employ liquidation strategies. Please note that we offer ongoing updates and information about trusts and estates.