As part of the estate planning process, you set up a trust to ensure assets go where you would like them to. This legal document takes time and effort to create but makes financial matters easier to understand. Trustees are the individuals responsible for managing and withdrawing funds from your trust. But when can they withdraw money from a trust? Get the answer to that question below.
Related Article: Top Mistakes Trustees Should Avoid with Trusts
What is an Irrevocable Trust?
First, what is a trust? It is a fiduciary arrangement that allows a trustee to hold assets on behalf of a beneficiary or beneficiaries. There are two types of trusts: revocable and irrevocable. Revocable trusts allow you to change the terms of a trust while you are living. However, an irrevocable trust cannot be changed. If you create a revocable trust for estate planning, you should know that a trust will turn irrevocable once you pass away. Irrevocable trusts then follow the guidelines that you set up.
Related Article: A Beginner’s Guide to Trusts and Trust Accounting
When are Withdrawals Acceptable?
It’s important for a trustee to understand the guidelines of your trust before taking any funds from the trust. This ensures they are withdrawing funds correctly and won’t get in trouble for misconduct. For example, money from a trust should not be borrowed or used for personal purposes.
Trustees can withdraw money from a trust to pay third-party expenses. Below are examples of why trustees can withdraw money:
- Funeral expenses
- Repairs on property owned by the trust
- Debt repayment
- Distributions to beneficiaries
- Administrative fees
- Investments that affect the trust
When are Withdrawals Unacceptable?
The responsibility of a trustee can be overwhelming. However, that does not excuse taking funds from a trust. While it can be a stressful duty, you should consider reminding the trustee (if they are aware of their role) that they must not mismanage your funds; if they do, they may face being held liable for mistakes. It is unacceptable for a trustee to withdraw funds to borrow or use for personal reasons other than what is outlined in your trust. It is an unwise decision and could be caught during a trust accounting, which is an annual requirement needed in the state of California.
Are you in need of trust accounting services? Contact the team at Marcia Campbell, CPA.
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