How Does a Beneficiary Get Money From a Trust?
How Does a Beneficiary Get Money From a Trust?
If you inherited money from a trust, you may have more questions than answers. Even if you understand the terms of your trust, it can be difficult to understand how you will access funds held in trust for your benefit.
How beneficiaries get money from a trust depends on:
Terms of the trust
Type of trust
Skill of your trustee
Complexity of the estate from which you are inheriting.
No matter your situation, this post has the information you need to understand when you will get access to money from your trust.
Posted on March 11, 2024 by Katherine Fox.
How Does a Beneficiary Get Money From a Trust?
What is a trust?
A trust is a legal arrangement in which a person, the grantor or settlor, transfers assets to a trustee who holds and manages those assets for the benefit of one or more individuals or entities, known as beneficiaries.
A trust involves a written document, trust deed, or agreement outlining the terms, conditions, and instructions governing the grantor’s intent and trust's administration.
A grantor can set up a revocable trust, which can be modified or changed during their lifetime, or an irrevocable trust established with terms that cannot be altered once the trust is created.
If you inherit from a revocable trust, assets will stay in the trust until they are distributed to beneficiaries in line with the trust document, and then the trust will dissolve.
What is a trust beneficiary?
A trust beneficiary is the party for whom trust property is held and managed by a trustee.
Income beneficiaries receive distributions from the earnings generated by the trust, while principal beneficiaries may be entitled to receive a portion of the trust's underlying assets.
Beneficiaries have specific rights and protections:
The right to be informed about the trust's administration, including financial details and decisions made by the trustee.
Trustees have a fiduciary duty to act in the best interests of the beneficiaries
Beneficiaries may have recourse through legal channels if their trustee is not fulfilling these obligations.
How Does a Beneficiary Get Money From a Trust?
How do trust funds pay out to beneficiaries?
Different types of trust funds pay out to beneficiaries differently.
How does a revocable trust pay out to beneficiaries?
Upon the grantor's death, the trust will either dissolve and distribute all assets to beneficiaries or become irrevocable.
If a revocable trust distributes assets to beneficiaries, you could receive:
A transfer of assets in the cast of property or securities
A check/electronic distribution in the case of cash.
How does an irrevocable trust pay out to beneficiaries?
Income generated by the trust may be distributed to beneficiaries at specified intervals, which could be monthly, quarterly, annually, or as otherwise outlined in the trust agreement.
Irrevocable trusts often include specific conditions or triggers for larger distributions, such as reaching a certain age, graduating from college, or wanting to buy a home or start a business.
Discretionary distributions:
Some trusts, especially those with a more complex structure, grant discretionary powers to the trustee. The trustee has authority to determine when and how much income or principal is distributed to beneficiaries based on their judgment and the trust terms.
This discretion allows the trustee to consider the beneficiary’s unique needs and circumstances, and adapt distributions accordingly.
“In certain situations, a trustee may have authority to withhold money from a beneficiary.
The ability of a trustee to withhold funds generally depends on the terms outlined in the trust agreement, applicable state laws, and the circumstances surrounding the trustee’s decision.”
How long does it take for beneficiaries to get money from a trust fund?
The timeline for beneficiaries to get money from a trust fund can vary from several months to several years depending on what type of trust you inherited from, the complexity of the estate, the assets inherited, and the efficacy of the estate executor and trustee.
How long does it take for beneficiaries to get money from a revocable trust?
A revocable living trust may provide immediate distributions upon the grantor’s death. Assets held in the trust will bypass the probate process and be available for distribution to beneficiaries within months after someone’s death.
Several factors can delay distributions from a revocable trust 12-18 months, or even longer:
Real estate that needs to be sold before trust distributions are made.
An estate tax return needs to be filed before trust distributions are made.
Trust terms call for staggered distributions to beneficiaries over a specific period.
Beneficiaries or other relatives sue to challenge the trust document in court.
How long does it take for beneficiaries to get money from an irrevocable trust?
An irrevocable trust may have specific conditions or triggers for beneficiaries to receive trust funds, such as reaching a certain age, graduating from college, buying a home, or starting a business.
If you inherit from an irrevocable trust and are an “income beneficiary” then your timeline to start receiving income from the trust would be similar to the timeline to inherit from a revocable trust.
If you are a trust beneficiary who inherits at 18 but does not have a right to draw down trust funds until 30, you could be waiting over a decade to see any money from the trust.
If you are a trust beneficiary who does not have an immediate right to access trust funds, you may have the right to receive discretionary distributions from the trust. If you have the right to discretionary distributions:
The trustee has authority to determine when and how much income or principal is distributed to beneficiaries based on their judgment and the trust terms.
This discretion allows the trustee to consider the unique needs and circumstances of each beneficiary, adapting the distributions according to your needs.
Your ability to access trust funds will depend on the trust size, the number of beneficiaries, your financial need, and the terms of the trust, as well as your trustee’s interpretation of these last two factors.
LEARN MORE ABOUT MANAGING AN INHERITANCE
How are trust assets distributed to beneficiaries after death?
After someone’s death, a trustee takes several steps before distributing trust assets to beneficiaries:
Valuing trust assets
Settling trust debts and expenses
Creating a distribution plan
Once all necessary steps have been taken, the trustee can distribute trust assets to the beneficiaries. There are three primary ways assets are distributed:
The trustee transfers ownership of trust assets to beneficiaries. This may include physically delivering assets such as personal property or facilitating the electronic transfer of financial instruments like stocks, bonds, and bank accounts.
The trustee distributes cash directly to beneficiaries. Cash distributions are common, especially when the trust holds funds or liquid investments.
The trustee re-titles assets in the name of beneficiaries. Beneficiaries obtain ownership of the actual property or investments, which could include real estate, stock certificates, or alternative, non-liquid assets.
Can a trustee withhold money from a beneficiary?
In certain situations, a trustee may have authority to withhold money from a beneficiary.
The ability of a trustee to withhold funds generally depends on the terms outlined in the trust agreement, applicable state laws, and the circumstances surrounding the trustee's decision. Common scenarios where a trustee can withhold money from a beneficiary include:
Discretionary Distributions
If the trust agreement grants the trustee discretionary powers, they have authority to decide when and how much money is distributed to beneficiaries. In such cases, the trustee can determine whether a beneficiary’s distribution request is appropriate and necessary.
Conditions or Restrictions in the Trust Agreement
A trust agreement may include specific conditions, restrictions, or triggering events that allow the trustee to withhold or delay distributions. For instance, a trust might specify that a beneficiary will only receive funds upon reaching a certain age, graduating from college, buying a home, or starting a business.
Outstanding Debts or Obligation
The trustee may withhold funds if there are outstanding debts or obligations related to the trust. They may have to settle creditors' claims or pay taxes before making distributions to beneficiaries.
Legal or Court Orders
A trustee may be obligated to withhold funds based on legal or court orders. This could arise in situations where legal disputes challenge a trust’s validity.
Protection of the Beneficiary's Interests
Trustees have a fiduciary obligation to act in the best interests of the beneficiaries. If a trustee believes that an immediate distribution might not be in the beneficiary's best interest, they can withhold funds temporarily to protect the beneficiary's financial well-being.
Trustee's Discretion for Prudent Investments
Trustees are responsible for overseeing trust assets and ensuring prudent investment decisions. If retaining funds temporarily protects the long-term interests of the trust and its beneficiaries, the trustee may exercise discretion to withhold funds.
Let’s take the next step together
Understanding how beneficiaries get money from a trust is not easy. Beneficiaries can encounter a wide variety of different situations requiring knowledge and finesse to manage. If you need more help, you can download The 20 Inheritance Terms You Need to Know, or reach out to Katherine Fox, CFP® and CAP®, a financial planner for inheritors to learn how Sunnybranch can help you figure out when and how you will be getting money from a trust.
