Definition of liquidating trust

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In finance and economics, liquidation is an event that usually occurs when a company is insolvent, meaning it cannot pay its obligations as and when they come due. Bankruptcy Code governs liquidation proceedings; solvent companies can also file for Chapter 7, but this is uncommon.

The company’s operations are brought to an end, and its assets are divvied up among creditors and shareholders, according to the priority of their claims. Not all bankruptcies involve liquidation; Chapter 11, for example, involves rehabilitating the bankrupt entity and restructuring its debts.

If it does, a professional appraisal of assets may be necessary.

All trust creditors must be satisfied before any trust assets are distributed to beneficiaries.

If, for example, if trust assets amount only to 80 percent of the amount necessary to give each beneficiary the amount specified in the trust document, each beneficiary will receive 80 percent of the amount specified.

A living trust allows a person known as a trust grantor to place his assets under the administration of a trustee, who then distributes these assets to trust beneficiaries as instructed by the grantor in the trust deed.

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You have to sign it and, depending on state law, you may have to have it notarized or witnessed.

The trust document establishes the existence of your trust, the role of the trustee, her authority to deal with third parties such as bank officials, and her authority to liquidate trust assets.

She will also need the title deeds to all titled property owned by the trust – real estate deeds and bank account documents, for example. Normally, these are listed in the trust document or an appendix.

Assets are distributed based on the priority of various parties’ claims, with a trustee appointed by the Department of Justice overseeing the process.

The most senior claims belong to secured creditors, who have collateral on loans to the business.

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