Trustees and executors should first calculate the allocation of trust income between principal and income, determine tax liabilities, and obtain a receipt and release before making distributions of trust property. The receipt adds clarity by documenting the value given and received, and can also disclose that the beneficiary may be allocated some taxable income from the trust. The release reduces trustee liability due to beneficiary claims. An effective receipt or release is made with knowledge of the matter. For this reason, the document should detail the specifics of the gift, as well as the issues or liabilities that are being released. Further, a beneficiary providing a receipt and release should be given sufficient time to review the document and consult with their own attorney. As a strategy to ensure that each beneficiary signs a receipt and release, avoid making final distributions of property to a beneficiary until the receipt and release is signed. Note that if the trust or estate makes a partial distribution or holds back some funds to cover future liabilities, the receipt and release should describe the terms of the distribution and hold-back.
The executor of a simple, small trust or estate that is not subject to probate should always obtain receipts and releases on any property given away. Keep in mind that many of the issues in allocating income and principal, as well as certain tax consequences can even be applicable to small estates. If an estate is subject to probate, the receipt and releases should be prepared in a form that allows submission to the probate court. As with trust distributions, it is best to delay making final distributions of trust property until the beneficiary has signed a receipt and release.