Here’s a hypothetical situation.
Let’s say you’ve been named a beneficiary of a trust fund. You might be grateful for the consideration. But one question that might be on your mind is: how do I get money out of that trust fund?
It’s a good question. A trust fund isn’t a savings or checking account from which you can withdraw money at any time. Rather, you’ll receive money from a trust fund mainly through pre-set distribution agreements.
What Is a Trust Fund?
A trust fund is a legal tool that allows an individual (the grantor or trustor) to put aside money or assets into a trust. Those assets are then distributed to specifically named others (the beneficiaries). All of it is under the control of a dependable individual or entity (the trustee).
The grantor determines what happens to the trust’s assets and how they are distributed. The trustee carries out these directives. Again, this means you can’t just withdraw from a trust fund. Instead, you receive that money or assets through one of the following distribution types pre-determined by the grantor:
- Outright distributions, in which the beneficiaries receive the assets outright, generally in a lump sum, and without restrictions
- Staggered distributions, in which assets remain in a trust and are distributed over time, or based on the beneficiaries’ ages or specific dates or events
- Discretionary distributions, in which the trustee is granted discretion in distributing the trust’s assets to the beneficiaries
Approaching the Trustee
Another possible way to get money out of a trust fund is to request a cash withdrawal. This would require putting the request in writing and sending it to the trustee. The trustee might agree. However, that individual or entity must also fulfill their fiduciary obligations. This means they’re responsible for complying with the trust fund’s terms. If sudden cash withdrawals aren’t allowed, the answer to your request might be a “no.”
If you really need that money, you could petition the court to remove the trustee and appoint another one. But this is a long, drawn-out, and expensive process. It should only be undertaken if the trustee violates the trust fund requirements.
The Basics of Trust Funds
Grantors set up trust funds for many reasons. One such reason is to protect assets from being frittered away by heirs or loved ones. This is why there are legal safeguards around trust funds, including a trustee who has a fiduciary responsibility to both the trust and the grantor.
As such, getting money from a trust fund isn’t based on inserting a card into an ATM machine and walking away with the cash. It requires understanding and following a grantor’s wishes and the trust fund requirements.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.
Hypothetical examples shown are for illustrative purposes only.
Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.
FAQs
A beneficiary cannot access funds without approaching the trustee. If you are a beneficiary, you must submit a written request for the funds. It is up to the discretion of the trustee whether or not to grant this request, as they must abide by their fiduciary duties to the trust.
Can I cash out my trust fund? ›
Another possible way to get money out of a trust fund is to request a cash withdrawal. This would require putting the request in writing and sending it to the trustee. The trustee might agree. However, that individual or entity must also fulfill their fiduciary obligations.
How long does it take to receive money from a trust? ›
It depends on the terms of the trust. It may happen quickly or it could take years or even decades for assets to be distributed. It's important to point out that the longer it takes to distribute the assets, the more money it will cost to keep the trust active since you must pay for maintenance and trustee fees.
How does a beneficiary get money from a trust? ›
The grantor can opt to have the beneficiaries receive trust property directly without any restrictions. The trustee can write the beneficiary a check, give them cash, and transfer real estate by drawing up a new deed or selling the house and giving them the proceeds.
Who holds the money in a trust fund? ›
The trustee holds onto the trust fund until the time comes to pass the assets on to your chosen recipients. Trust funds provide for more control and specificity than a will does. This is because when you die, your will becomes a public record and there's not always a guarantee your wishes will be met.
How do I withdraw from my trust account? ›
ATM cash withdrawals You have the option of selecting to withdraw cash from either your savings account or Trust Link credit card account at the ATM. The funds will then be withdrawn based on this selection.
Can you borrow money from your trust? ›
Yes, a beneficiary can borrow money from an irrevocable trust, but only if the trust document allows for it. Unlike revocable trusts which can be amended or terminated, irrevocable trusts cannot be changed once established or once the original trustee(s) has passed.
How is money paid out of a trust? ›
The grantor may choose to let beneficiaries receive trust property directly with no restrictions. The trustee can issue a check, provide cash, or transfer real estate to beneficiaries either through a new deed or by selling the property and distributing the proceeds.
How does withdrawing money from a trust work? ›
After a trust has been created, a bank account is opened for the trustee to access the money when necessary. The trustee is the only party that can access this account. When they need money to fulfill their duties, they can use the account to write checks, withdraw cash, or complete wire transfers.
How do you receive income from a trust? ›
Trust distributions are essentially assets or income that get passed from the trust to beneficiaries. Distributions can be cash, stocks, real estate and other assets. If a trust owns a rental property, the monthly rental income the property generates would be distributed to the trust's beneficiaries.
What Happens When You Inherit Money From A Trust?
- Read the trust document closely. You have rights to the trust document, so if you aren't provided a copy, have an attorney get it for you. ...
- Calculate your new income. ...
- Determine trustee fees.
Bank account beneficiary rules usually allow payable-on-death beneficiaries to withdraw the entirety of a decedent's bank account immediately following their death, so long as they present the bank with the proper documentation to prove that the account holder has died and to confirm their own identity.
What is the payout rule for trusts? ›
The five-year rule stipulates that the beneficiary must take out the remaining balance over the five-year period following the owner's death. If the owner dies after the age when they were required to take RMDs, the payout rule applies.
When can I access my trust fund? ›
You can access the money in your Child Trust Fund when you turn 18. Your provider will usually write to you a month or two before to ask what you'd like to do. Here are your main options: Move the money to a new savings account and carry on saving – see how to find the best savings account for more help.
How much money is usually in a trust fund? ›
While some may hold millions of dollars, based on data from the Federal Reserve, the median size of a trust fund is around $285,000. That's certainly not “set for life” money, but it can play a large role in helping families of all means transfer and protect wealth.
Can a trustee withhold money from a beneficiary? ›
A trustee may withhold money or assets from a beneficiary if they must focus on other responsibilities surrounding the estate. For example, if the estate becomes subject to a tax audit or litigation arises, a trustee may refuse to give beneficiaries their share of the assets until these issues are resolved.
How do I withdraw money from my trust to my bank account? ›
To withdraw money from Trust Wallet to a bank account, first convert your crypto to Bitcoin on an exchange, then use services like Binance to deposit directly into your bank account. Alternatively, you can use peer-to-peer platforms for trades.
Is taking money out of a trust taxable? ›
Beneficiaries of a trust typically pay taxes on distributions they receive from the trust's income. However, they are not subject to taxes on distributions from the trust's principal.
What happens to left over money in a trust? ›
What happens to any assets left over? If the trust has designated secondary, or remainder, beneficiaries, the assets would pass to them once taxes and expenses have been paid, according to the language of the trust.
Can a trustee cash a check made out to the trust? ›
John Doe is the Trustee for the trust. Can he cash a check made out to the trust being he is the only Trustee for the Trust? Answer: No.
