Trust funds are no longer only for the very rich. To avoid probate and have some additional control over how beneficiaries receive assets, more and more middle-class people are turning toward the establishment of inter vivos, or living, trusts.
If you receive money from a trust account, which is usually based on an inheritance, how often you collect money is stipulated in the terms of the trust. You may receive the entire amount in one lump sum or receive payments on a monthly, quarterly or annual basis.
There are various types of trusts available for financial and estate planning, but the two most common are the revocable living trust and the testamentary trust. The former generally becomes irrevocable when the grantor, or trust owner, dies. During the grantor’s lifetime, he or she may change the terms of the trust and buy or sell assets.
Once the trust is irrevocable, the trust cannot change, except in unusual circumstances and only by court order. A testamentary trust is similar to an irrevocable trust, but it is created via a person’s will and comes into existence at the individual’s death.
No matter the type of trust, a trustee is the person or entity charged with managing the trust and ensuring beneficiaries receive their monies. As someone who receives money from the trust, you are a named beneficiary.
As a trust beneficiary, you have certain rights regarding the trust. It is crucial to read the trust document and understand all its provisions. If there is any wording in the document that is confusing, you should hire an estate attorney to explain it to you and ensure the trust is operating properly.
As a current beneficiary, you have the right to an accounting of the trust, which you should request in writing from the trustee. You also have the right to payments allotted to you by the trust’s terms. If you believe the trustee is not acting in your or fellow beneficiaries’ best interests, you can file a petition with the court to have the trustee removed.
Here are where things can get complicated. As long as the person creating the trust doesn’t break the law, he can put various restrictions on how beneficiaries receive income. The trust might stipulate that money is available only for certain purposes, such as educational expenses, monthly rental or mortgage payments or other specifics.
The trustee may require a receipt from the beneficiary as proof the funds were used the way they were intended. The grantor may have included restrictions to protect you as the beneficiary, so that in case of divorce, bankruptcy or other unfortunate life circumstances, trust assets are not included in any settlements.
Many trusts have no such restrictions, or perhaps the restrictions are only in place until the beneficiary reaches a certain age, but if they are in the document, going to court is the only way to possibly change them.
- Most Trusts have some sort of hardship clause where the funds may be available to certain people who qualify. You can contact various companies that will front you money until a settlement arrives or the funds become due. Beware that these companies will take a portion (read, large chunk!) of what you receive.
- Be sure to heed the terms of your agreement. This is a legal document that cannot be changed, no matter how hard you try to wheedle money out of the trustee.
A graduate of New York University, Jane Meggitt's work has appeared in dozens of publications, including PocketSense, Zack's, Financial Advisor, nj.com, LegalZoom and The Nest.