So, you just lost a loved one, and now you’re drowning in paperwork, bombarded with legalese, and worried about where the money’s going. Dealing with their estate can feel like deciphering a secret code… Disbursements and distributions? Is that even English?

These terms might sound fancy, but understanding them can save you a ton of headaches, money, and time down the line. Now, if this scenario is giving you Deja Vu and you’re already in the thick of managing a trust or estate, you’re probably asking yourself, What’s the difference between a disbursement and distribution? 

At Marcia L. Campbell CPA, we’ve helped countless people fulfill their trustee and executor duties for years, including managing distributions and disbursements. This guide will break down the difference between the two so you can ensure your loved one’s wishes are met, their legacy goes where it’s meant to, and you do everything according to the complex laws that govern trusts and estates.

Setting the Stage for Trust Distribution and Estate Disbursement

Grief is tough enough, so you shouldn’t let money slip through your fingers. To better illustrate the situation, allow us to set the scene.

Imagine this: You’re already grappling with the immense loss of a loved one. The world feels muted and shrouded in grief as you try to reach a place of closure, healing, and acceptance. You’ve been named the trustee or executor, and you initially feel tremendous honor that you have been entrusted with carrying out their final wishes and cementing their legacy.  

Then, reality hits. Bills pile up, creditors call, and a mountain of paperwork explodes on your dining room table while you try to juggle your personal and professional obligations with mourning and fulfilling your duties as a trustee or executor. Terms like “disbursements” and “distributions” swirl around you like an alien language in your time of need.

As you start to take on these responsibilities, it dawns on you that settling an estate is a financial labyrinth and a minefield of potential pitfalls and complex legal language. One wrong move could leave you personally liable or undermine your loved one’s final wishes, which could have devastating consequences on the inheritance you stand to gain and the legacy they leave behind.

As you try to perform these responsibilities, it starts feeling impossible to learn and understand all the trust and probate laws in conjunction with interpreting the complex language in the trust or will. Overwhelmed, frustrated, and distraught, you feel like you’re trying to move a mountain. 

Unfortunately, this is all too familiar for many people, and you might be experiencing this dilemma yourself. For you, little to no imagination may be necessary to understand this predicament. But what if you didn’t have to navigate this alone? What if there was a guide, a Rosetta Stone, to decipher the legalese and ensure a smooth, stress-free process? 

We know this can feel like an overwhelming task, but it doesn’t have to be. With the help of professional trust or probate accountants, you can navigate the complexities of disbursements, distributions, and everything in between to ensure their legacy is passed on exactly how they intended, with peace of mind, a clear conscience, and a faster road to closure. 

Together, we can move mountains to clear your path to healing and closure. 

Disbursement vs. Distribution: What You Should Know

When it comes to trusts, it can be difficult to know who does what and what your responsibilities are. The most important role in a trust is the trustee. It is the responsibility of a trustee to disburse or distribute funds from the trust. While these actions may sound similar, they mean different things and have different purposes.

What are Trust Disbursements?

First things first: As the trustee of a trust, you must settle debts owed by the creator of the trust. This is called disbursement. It is your job to ensure that the estate’s assets can pay off what is owed. It is important to prioritize what debts are paid first by calling the deceased’s creditors. 

“What you should know is that legitimate outstanding debt takes precedence, so paying off secured debts, such as mortgages and car loans, should be paid off before unsecured debts, like credit card debt or medical bills. This responsibility is something that people sometimes don’t realize.”
– Marcia L. Campbell, CPA, Trust Accountant, and Probate Accountant

Related Article: Probate: What is it and When Do You Need It?

What is Trust Distribution?

Once disbursement is complete, meaning all debts and final taxes are paid, a trustee can distribute the inheritance to beneficiaries. This is called distribution and is only then that money should be paid to the benefit or care of the beneficiary. 

It can be difficult to settle an estate, so do everything by the book and with care. This process can be incredibly stressful as beneficiaries may taunt or encourage you to distribute funds prematurely,  but this is a mistake. Ensure you settle funds first so you don’t pay for it later – literally.

Related Article: How to Avoid Probate With Living Trusts

What About Probate?

We mentioned that probate may come into play if there are insufficient funds, and a judge must prioritize debts. However, probate is also possible when the trust in question was not thoughtfully planned or is undergoing litigation from beneficiaries. 

The trust will then be sent to probate court to determine how to distribute the inheritance. Regardless of probate, it’s critical that a trustee keeps cool and maintains an accurate trust accounting.

What’s the Difference Between a Disbursement and Distribution?

The process of settling a deceased person’s estate can be very complicated, and your role as executor or trustee can feel very overwhelming. Settling an estate to adhere to the deceased’s final wishes is an important and demanding job. Here are the duties and responsibilities you have to ensure that all the deceased’s expenses are paid before you can make distributions to the beneficiaries. 

Disbursements: What Needs to Happen First

Disbursements are payments made from the estate to pay debts of the deceased, funeral bills, and all ongoing costs of administering the estate (funeral expenses, storage fees, and attorney’s fees).  

Remember, as the executor, it is your responsibility to determine if the estate’s assets can cover all outstanding debts and bills. If there is not enough, a probate judge will prioritize the debts that should be paid.

You may need to review bank statements and other financial documents to determine what bills need to be paid. This can include final bills for things like credit cards, cell phones, and outstanding medical bills. Secured debts, such as mortgages or car loans, must also be settled. 

Related Article: What to Expect When Taking Over Your Elderly Parent’s Responsibilities

Distributions: What Needs to Happen First

A distribution is any money paid to the benefit or care of the beneficiary. After all of the disbursements are made, the deceased’s outstanding debts are settled, and all final taxes are paid, the executor can distribute the remaining assets to the beneficiaries. 

In some cases, when there was no estate planning done (i.e.,. there was no living trust or will in place that laid out the distribution plan) or if there is litigation between the beneficiaries and the trustee during the disbursements, you may need to go to probate court. 

When this happens, your distributions need to have the court’s blessing on the stipulation (agreement on how to distribute the inheritance). These are additional things to keep in mind if and when your distributions go through probate court: 

• Preliminary Distributions: The process of settling an estate can sometimes be a long and drawn-out process, especially when litigation is involved. The process can simply be too long for elderly beneficiaries who are dependent upon the money tied up in probate. To address this issue, the courts may allow preliminary distributions to be made to the beneficiary before the estate is ready to be closed.
• Court Approval: The executor must obtain court approval by filing a notice petition with the court before making a preliminary distribution to a beneficiary. Pending approval, the court must find that the “distribution may be made without loss to creditors or injury to the estate or any interested person.” (Probate Code Section 11621) If the beneficiary is elderly and the other parties involved are not harmed, the court will likely uphold the petition. 
• Avoid Premature Distributions: Settling an estate can be a very sensitive and daunting process. The executor must proceed with caution. As executor, you can potentially be held personally liable if premature distributions leave insufficient assets to cover the deceased’s unpaid bills, administrative expenses, or unpaid taxes. 

Related Article: What’s the Difference Between Informal and Formal Court Accountings?

Need Help with Your Disbursements and Distributions? Let Us Help with a Trust or Court Accounting.

So, now you know the answer to, What’s the difference between a disbursement and distribution? Grief is a heavy burden to carry. Don’t let the financial complexities of settling your loved one’s estate add to your stress. You deserve a trust and probate accountant who can expertly guide you through disbursements, distributions, and all the legalese in between. We’ll ensure your loved one’s wishes are honored and their legacy is passed on smoothly.

Contact us today for a free consultation, and let us help you navigate this difficult time with peace of mind to reach a place of closure.