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Trusts & Estates

Trust beneficiaries

It’s not uncommon for parents or grandparents to establish trusts for future generations. If you’re a trust beneficiary, you should know the terms and conditions, as well as the role of the trustee.

Understanding your trust

Reasons for creating a trust:

  • To hold assets until you’re older
  • Income and estate tax planning and strategies
  • Financial protection – assets help in irrevocable trusts (generally means they can’t be changed) are typically protected from creditors, a divorcing spouse or others who might unduly influence your decisions.
  • To pass on a family legacy

 

Trust terms you should know

A trust is created by a legal document and holds assets (money or property) for the benefit of specific individuals or charities. At a basic level, all trusts are made up of six elements:

  • Grantor
  • Trustee
  • Principal
  • Beneficiary
  • Income
  • Trust Agreement

Working with your trustee

Your trustee has a fiduciary duty to you and takes direction solely from the terms of the trust.

  • Fiduciary duty means the trustee is expected to act in the best interest of the beneficiaries.
  • The trustee must act objectively in the management of the trust.
  • The trustee can delegate responsibilities to others, such as investing trust assets.
  • The grantor may specify an individual or company to handle specific duties, such as managing a family business.

Read your trust document thoroughly and review it with your trustee.

What’s in a trust:

 

Principal

The principal of a trust refers to the assets it holds like cash, stocks, bonds and real estate.

Income

The trust’s income comes from its earnings over time including interest, dividends, rent and royalties.

 

Sharing your budget with your trustee

A trust can be a significant financial resource that’s meant to support you for a long time. The trustee may be instructed to consider your other financial resources before making distributions to you. Therefore, your trustee may ask about your other sources of income and assets you own, and ask for a budget to understand your living situation.

Tip

For some tools that can help you budget better, learn more
about Saving

Trust FAQs

Here are several questions we often hear from beneficiaries.

Q: Now that I’m an adult, why can’t I just ask for the money and shut down the trust?

A: The trust may state that it will last until you reach a certain age or for a specific period of years. Many trusts now last for the beneficiary’s entire lifetime and continue on to the next generation.

Q: How much money can I take out of my trust each year?

A: The amount and types of distributions are based on the trust’s terms. In some, net income is required to be distributed each year and principal is available for specific purposes. In others, the trustee has full discretion to make distributions, but often they can only be for specific purposes like education and health. The trustee should be able to explain how funds are available to you.

Q: Do I have to pay income tax on the money I receive from the trust?

A: The type of trust will determine who pays the income tax on its income and capital gains. It may be the grantor, the trust or the beneficiary. Talk to your tax advisor regarding how the trust and distributions will be taxed.

Q: What happens to the trust if I die before it has all been distributed?

A: The trust document covers this. In some cases, you’ll have a “power of appointment” and you can direct who will receive the balance of the trust principal. Frequently, this is for family members and charity but can be much broader.

Next steps checklist

  • Meet regularly with the trustee
  • Keep a copy of the trust document
  • Discuss your trust with your tax advisor and attorney
  • Review the account and investment statements you receive

Visit the Trust Basics page for more information on trusts.

 

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