The world of trusts can feel complicated and confusing. There are different types of trusts, unique tax considerations, questions about who controls what, and, of course, the big question: how do you actually access funds in a trust?
Earlier in my career, I spent several years working closely with trusts, opening and administering them, coordinating distribution requests with trustees, and supporting trust beneficiaries. Over time, I realized that many people share the same questions about how trusts function and how distributions actually work. I hope this overview helps clarify the fundamentals and makes the process easier to understand.
What Type of Trust Is It?
Accessing funds from a trust depends first on the type of trust involved. There are two primary categories: revocable and irrevocable.
Revocable Trust (Living Trust)
A revocable trust allows the grantor, the person who created the trust, to maintain control during their lifetime. The grantor can amend the trust, move assets in or out, or even revoke it entirely.
Because the grantor retains control, the assets in a revocable trust are still considered part of their estate for estate tax purposes.
Irrevocable Trust
With an irrevocable trust, the grantor gives up control of the assets placed into the trust. In most cases, the terms cannot be changed once the trust is established.
Since the grantor no longer controls those assets, they are generally removed from the grantor’s taxable estate. This structure is often used for estate planning, asset protection, or tax planning strategies.
It is also important to note that when the grantor of a revocable trust passes away, that trust typically becomes irrevocable.
What About Probate?
One of the primary reasons people establish trusts, whether revocable or irrevocable, is to help avoid probate.
Probate is the court-supervised process of validating a will and distributing assets after someone passes away. It can be time-consuming, public, and in some cases expensive.
Assets that are properly titled in the name of a trust generally pass according to the terms of the trust document without going through probate. This allows for a more private and often more efficient transfer of assets to beneficiaries.
It is important to note that only assets that are actually funded into the trust avoid probate. If an asset was never retitled into the trust’s name, it may still need to go through probate.
How Do You Access the Funds?
If It Is a Revocable Trust
During the grantor’s lifetime, accessing funds from a revocable trust is usually straightforward. Because the grantor maintains control, they can withdraw funds, transfer assets, or make distributions as they see fit. In many cases, the trust operates almost like an extension of the individual’s personal accounts.
After the Grantor Passes
When the grantor passes away and the trust becomes irrevocable, the process changes.
At that point, a successor trustee steps in to manage the trust according to the terms laid out in the trust document. The beneficiaries do not simply withdraw money at will. Instead, distributions are governed by the instructions set forth in the trust.
The trust document typically outlines:
- Who the beneficiaries are
- When distributions can be made
- How much can be distributed
- Whether distributions are discretionary or mandatory
- Any conditions tied to distributions
In some cases, the trustee has discretion to determine when and how much to distribute based on the beneficiaries’ needs. This is often referred to as a discretionary trust. The trust document may include standards such as health, education, maintenance, and support, commonly referred to as the HEMS standard. In these situations, the trustee evaluates distribution requests and determines whether they align with the trust’s guidelines. For example, a trustee might approve funds for medical expenses, tuition payments, or reasonable living expenses, but deny a request that falls outside the scope of the trust’s stated purpose.
In other cases, the trust may be more prescriptive. The document might specify exact amounts to be distributed at certain intervals or require distributions at specific ages or life milestones. For example, a beneficiary may receive one-third of the trust at age 30, another portion at 35, and the remainder at 40. Some trusts require annual income distributions but restrict access to the principal. Others may delay full access to help protect beneficiaries from receiving a large sum too early.
It is also important to understand that trustees have a fiduciary duty. This means they are legally obligated to act in the best interest of the beneficiaries and in accordance with the terms of the trust. They cannot simply distribute funds based on personal preference or outside pressure. Their role is to follow the instructions outlined in the trust document while exercising reasonable judgment when discretion is allowed.
The key takeaway is that access to funds in an irrevocable trust is not automatic and is not determined solely by the beneficiary’s request. It depends entirely on the trust’s written terms and the trustee’s responsibility to carry them out faithfully and prudently.
If you have other estate planning questions, here are a few resources you may find helpful:
