Understanding Trusts and Their Purpose
A trust is a legal entity that allows you to transfer ownership of your assets to a trustee. The trustee is responsible for managing these assets on behalf of the beneficiaries you’ve named. Trusts can be revocable, meaning they can be changed during your lifetime, or irrevocable, which are permanent. When creating a trust, you can outline specific instructions on how your assets should be managed. For example, you can specify that beneficiaries cannot access their trust fund until certain conditions are met, like graduating college or reaching a certain age.
Trustee Responsibilities and Limitations
Trustees have a fiduciary duty to act in the best interest of the trust and its beneficiaries. While they have some flexibility in accessing trust funds, there are rules they must follow. Trustees are allowed to use trust funds to cover third-party expenses such as funeral costs, property repairs, and professional fees. They can also make investments on behalf of the trust, as long as the investments benefit the trust and its beneficiaries. However, using trust funds solely for personal gain is considered a breach of fiduciary duty.
Additionally, trustees are responsible for distributing assets in accordance with the terms of the trust, even if they personally disagree with those instructions. If a beneficiary believes that a trustee is acting unfairly or unethically, they can pursue legal action to have the trustee removed.
Acting as Your Own Trustee
If you establish a revocable trust, you can name yourself as the trustee during your lifetime. This allows you to have control over the trust and its assets. You can withdraw money from the trust as needed, as you have an interest in the trust and its assets. You can also move assets in or out of the trust. For example, if you decide to sell a property that was initially transferred into the trust, you can remove it from the trust and sell it without needing to return the proceeds to the trust.
On the other hand, with an irrevocable trust, the transfer of assets is permanent. While you can still act as the trustee, withdrawals are limited to necessary expenses on an as-needed basis.
Withdrawing Funds from a Trust
To access funds in a trust, trustees usually establish a dedicated bank account solely accessible by them. This account allows them to write checks, schedule transfers, or withdraw cash for legitimate trust expenses. Trustees must keep meticulous records of all withdrawals to ensure transparency and accountability. Beneficiaries may request to review these records to ensure proper use of trust funds.
Choosing a Trustee and Planning Ahead
When selecting a trustee, it is crucial to consider someone who will fulfill their fiduciary duty responsibly. Financial advisors can provide guidance on creating an estate plan that meets your family’s needs and goals. If you require assistance in finding a financial advisor, SmartAsset’s free tool can match you with up to three advisors in your area. You can interview your matches at no cost to determine the best fit for you.
In addition to trusts, it is important to consider other elements of your estate plan. A last will and testament allows you to distribute assets not included in a trust. Estate planning attorneys can offer guidance on drafting a will, or you can explore affordable online will-making software programs.
Remember, trust planning requires careful consideration and professional advice to ensure your assets are managed and distributed according to your wishes.
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