Taking money out of a trust?

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CuriousInvestor7
Posts: 10
Joined: Mon Mar 08, 2010 3:55 pm

Taking money out of a trust?

Post by CuriousInvestor7 »

I have some money in a trust left from my grandparents. My father is the trustee. The trust is set to dissolve in 10 more years but I can take the money out now if I want. My father's recommendation was to leave the money in as long as possible because it is shielded from lawsuits, etc. All else being equal my preference would be to take the money out so I can manage it as part of my asset allocation and to simplify my taxes. What are the advantages of leaving the money in versus taking it out?
dbr
Posts: 46137
Joined: Sun Mar 04, 2007 8:50 am

Re: Taking money out of a trust?

Post by dbr »

CuriousInvestor7 wrote:I have some money in a trust left from my grandparents. My father is the trustee. The trust is set to dissolve in 10 more years but I can take the money out now if I want. My father's recommendation was to leave the money in as long as possible because it is shielded from lawsuits, etc. All else being equal my preference would be to take the money out so I can manage it as part of my asset allocation and to simplify my taxes. What are the advantages of leaving the money in versus taking it out?
Among possible disadvantages/questions are:

1. The money is not appropriately invested making it difficult for you to manage the AA you want.

2. There are high costs and fees you would rather avoid.

3. Unrealized capital gains will accumulate making it more and more costly to change investments, possibly at a high tax point in your life.

4. Do you have family/beneficiaries and is it better or worse for them to inherit from you or from the trust?
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Allocationist
Posts: 97
Joined: Wed Mar 14, 2007 9:32 pm

Post by Allocationist »

As someone who has served as a trustee for several trusts I have a suggestion for your consideration. When I began to serve as a trustee my biggest surprise was the much higher tax rates (Federal and State) for trusts versus individuals.

Of course minimizing taxes are just one factor in your situation but I would urge you and your father to familiarize yourselves with the trust tax situation so you can factor it into your decision.

Good luck!
JDCPAEsq
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Joined: Mon Mar 05, 2007 2:58 pm
Location: Southwest Florida

Re: Taking money out of a trust?

Post by JDCPAEsq »

CuriousInvestor7 wrote:The trust is set to dissolve in 10 more years but I can take the money out now if I want.
I suspect it isn't exactly this way. If you can take it out if you "want", it is essentially a revocable trust and really no trust at all. Quite likely your father has a power of invasion for your benefit and he is willing to exercise that power. There is the advantage that, if you were to die while the trust is in effect, it probably would not be included in your estate. There also might be potential remaindermen of the trust who might have an interest as to whether it is paid out or not. Your father is probably also right about the protection from creditors - also spouses, etc. Finally there is the matter of having some regard for the wishes of your grandfather as expressed in the terms of the trust. I'd be inclined to leave it in trust until termination under the terms of the trust.
John
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fuermcs
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Joined: Mon Mar 22, 2010 3:39 pm

Post by fuermcs »

What is your intention to do with the assets once removed from the trust? If you would be adding to a retirement fund, I believe those are also protected from creditors / lawsuits. And if there are tax differences between trust vs individual, then that may favor your having the assets. Also, would you be in a higher tax bracket moving forwared? You could dump some of those trust assets to a Roth IRA now, in case you aren't presently funding one. That way: protected from lawsuits / creditors, plus tax-free growth and distribution.
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