When it comes to trust accounts, there are different types that serve different purposes. Ultimately, this legal document dictates who has the authority to withdraw funds from the account and for what reasons. While each type of trust comes with its own set of rules, the trustee is generally the only person who is allowed to take money out of it. This leads us to our next set of rules. The trustee must use those funds with the best interest of the trust and its beneficiaries in mind, and can not use that money for personal gain. Here’s what else you need to know about withdrawing money from a trust.
Revocable Trust
A revocable living trust is created when the trustor is still alive. When this occurs, the trust can be modified or revoked by the trustor. This type of trust allows for flexibility but can come with added costs if they decide to transfer or remove assets. If the trustor wants the trust beneficiaries to have the ability to receive money, those instructions must be documented. It’s important to lay out clear instructions about what reasons a trustee can withdraw or a beneficiary can receive money from the trust.
Irrevocable Trusts
Due to some tax benefits and asset protections, some people choose to open irrevocable trusts. While these types of trusts can carry monetary benefits, they’re not flexible and don’t allow the trustor to make changes.
Generally, a trustee is the only person allowed to withdraw money from an irrevocable trust. But just as we mentioned earlier, the trustee must follow the rules of the legal document and can only take out income or principal when it’s in the best interest of the trust. That includes using it for things like taxes, maintenance costs and to pay the beneficiaries in accordance with the rules.
Misusing Funds
If a trustee does not follow directions and misuses funds, they can be held personally liable and even be removed from their position. In order for this to happen, a trust beneficiary must file a petition with the probate court and can petition for a replacement.
Do you have more questions about trust accounts or withdrawing money from a trust?
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As the most experienced CPA in the Inland Empire who specializes in working with seniors, Marcia L. Campbell is committed to helping each client thrive by caring for their personal and financial wellbeing with genuine interest, well-established expertise, and a focus on respectful partnerships. Marcia’s team specializes in a number of services including elder & financial care, court & trust accountings as well as private fiduciary and tax services. At Marcia L. Campbell, CPA, we understand the importance of our clients’ individual needs and are committed to helping them make the best personal and financial decisions for their future.
Hello. I have questions, can a successor trustee who also is beneficiary pay herself before paying all the other beneficiaries for money she loaned the trust? Does Trust law allow her to pay herself from the trust for these loans?
If grantor was unable to handle her financial affairs due to dementia and became incapacitated, is Successor Trustee required to account to beneficiaries during the years grantor was incompetent? Especially if she plans on getting reimbursed for money of her own she chose to spend during the period of grantor’s mental incapacity?
Thank you for your time.
My mother inherited $75k from her brother passing in the sale of real estate. I have a current DPOA with my mother and she is wanting to gift the entire amount to me. We are potentially looking at setting up an irrevocable trust as me being the trustee and beneficiary. Can I pull funds from the account to pay bills? How do I avoid tax liability on this since it is inheritance?
I’m part of an irrevocable trust. My uncle I don’t talk to is the executor. His girlfriend has power of attorney. Can they touch the trust if my aunt passed that made the trust?