As we’ve already touched on, trust distributions can vary considerably depending on type of trust you’re working with, the types of assets that are in the trust, and the types of distributions that are being called for by the trust.
Some trusts contain specific devises of real or personal property to beneficiaries. For example, a trust could provide that the settlor’s diamond wedding ring be distributed to the settlor’s daughter, or that the settlor’s primary residence be distributed to the settlor’s son. If a trust contains a specific devise of either real or personal property to a beneficiary, those devises generally must be honored by the trustee, unless there are legal justifications for liquidating the asset (e.g., if the property must be sold to pay the debts of the settlor).
In regard to assets not specifically devised, the trustee generally has the discretion to distribute assets to beneficiaries in cash or in kind. A distribution in cash calls for the trustee to liquidate the assets in the trust and distribute the resulting cash to beneficiaries. A distribution in kind calls for the trustee to distribute assets to beneficiaries without selling the assets.
For example, if the trust owns real estate, the trustee could make a distribution in cash by selling the property and dividing the proceeds among the settlor’s two children, or the trustee could make a distribution in kind by simply deeding the property equally to both children so that each owns an undivided 50% interest in the property. A trustee may even have the ability to distribute the assets partially in kind and partially in cash by delivering title to one child and distributing an offsetting amount of cash to the other child.
Whether distributions should be made in cash or in kind depend on the terms of the trust. Distributions also can have serious tax implications for the trust and its beneficiaries, so it's critical to speak with a qualified probate attorney and tax adviser before making such decisions.