How Does a Beneficiary Get Money from a Trust?

Stacks of 100-dollar bills in a hard case bag

If your loved one recently died and left their estate in a trust, things will work differently than if the decedent’s estate were going through probate. You may be wondering how you can gain access to money from a trust to maintain the decedent’s assets or for your own purposes as the beneficiary of a trust. There are multiple options for getting money from a trust and other assets to beneficiaries, depending on how everything was set up.

Putting an Estate in a Trust

If the decedent put their estate and all the assets in a trust as part of their estate plan, the estate won’t be subject to probate after their death. Probate is only useful for assets in the name of the deceased person rather than the trust. Property held in a trust will be handled differently than those governed by a will after the grantor’s death. Because a trust is a separate legal entity, it doesn’t go away when the grantor passes away.

You can simplify the dispersal of the estate’s assets by using a trust and avoiding probate court. However, this must be done prior to the owner’s death and the trust must be set up to meet legal requirements and the state’s laws to avoid probate.

Who Gets the Estate in a Trust?

If the estate is set up in a trust, the named beneficiaries will have access to the property once the decedent passes away. Instead of waiting for months with a long probate process, you can usually gain access to the decedent’s assets in a trust within a short time. However, it can take months to distribute trust assets in a complex situation.

The grantor may have named one person as a sole beneficiary or multiple trust beneficiaries of the trust fund. This is often the case when the grantor of the trust has multiple children that they want to inherit their property after they die. The grantor can change the beneficiaries in a revocable trust at any time. The rights of the beneficiaries are dependent upon the type of trust formed and the laws of the state where it was formed.

Types of Trusts

While there are many classifications of trusts, there are only two main types. An irrevocable trust is one that cannot be changed once it has been set up. When assets are placed into irrevocable trusts, they no longer belong to the trustor but become the trust’s assets.

The second main type of trust is the revocable trust. As the name implies, it can be changed or modified at any time while the grantor is still living.

Trust Distributions

The trust beneficiary can receive money from a trust in three different ways. This process is known as trust fund distribution.

Outright Distributions

The first method is called outright distributions, which means the beneficiary receives the money in the trust in one or two payments as a lump sum. There are no restrictions on receiving the funds with this option. Any real property will have the title or deed changed to the name of the beneficiary at this time as well when they transfer assets.

Staggered Distributions

The second method of trust fund distribution is staggered distributions, which means the beneficiary receives funds at specific intervals. They may happen monthly, yearly, or at some other set time. The beneficiary may also receive the funds as trust distributions after an event, such as graduating college, reaching the age of 21, or when they get married. With this and the third method to distribute assets, you may have trust income as the assets continue to earn money.

Discretionary Distributions

Discretionary distribution is the third method of trust fund distributions. The funds are given out at whatever times are specified by the trustee as directed by the grantor in a discretionary trust. This option is often used when the beneficiary is a poor money manager. Trusts in this category may be special needs trust or spendthrift trusts.

The decision of how to distribute the trust assets to beneficiaries is made by the grantor. They must decide the distribution methods at the time of the creation of the trust and include it in the trust agreement drawn up at that time. Once the trustee is finished distributing assets, the trust is dissolved.

Distribution of Assets when the Grantor Dies

The person who sets up the trust is known as the grantor. They may also be the trustee if they also manage the trust. They can appoint someone else as trustee to handle trust administration if they choose. When the grantor dies, the trustee must distribute the assets of the trust, including money, in a reasonable timeframe. This can take a few months if the estate is large or complex.

The beneficiary can contest the trust just like they can with a will. While the lawsuit is pending, no trust fund distributions are allowed.

How to Create a Trust and Determine Distribution for the Beneficiary

If you’re interested in putting your estate in a trust, you should contact a financial advisor or trust attorney at a law firm to help you. They can assist you in creating an estate plan that includes the best method for distributing money to the trust beneficiaries and meets your financial goals. They will also advise you on the types of trust and what each type allows and prevents you from doing with the trust funds and assets held in the trust.

What If the Trustee Won’t Give You the Money?

If you’re a beneficiary and the trustee isn’t giving you the money as stipulated in a timely manner, you can file a petition to remove them. You must provide a reason for the removal, which the court will review. The trustee has a fiduciary duty to act in the best interests of the trust. If the person is removed as trustee, a successor trustee will take on the role.

Taxes for the Beneficiary

Income Tax

When the beneficiary receives money in a revocable trust, they may have to pay taxes or even have a capital gain shown on your tax return. An irrevocable trust doesn’t have these estate tax issues, which is one reason some grantors choose this option. You may want to discuss the tax implications for your estate with financial advisors to help you decide the best choice for your situation.

Get Help Setting Up Your Trust Assets

If you are concerned about receiving trust fund distributions or setting up distributions of trust funds, you can ask for a free consultation to speak with a trust attorney who will provide legal advice on what is in your best interest. They can provide guidance on probate law, capital gains, income taxes on an estate, and trust taxes to help you best protect your assets. Even though a trust may seem complicated, it can help save a lot of problems in the future for you and your beneficiary.