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Distributing funds from an Irrevocable Trust

2 Answers. Asked on Mar 27th, 2017 on Trusts and Estates - Georgia
More details to this question:
My parents set up and Irrevocable Trust with both named as Grantors. My father passed away in 2015. The beneficiaries and my co trustee now want to withdraw funds a the annual gift amount per person. The use these funds for my mother and her expenses - rent, medical, etc. Is this allowed?
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Answered on Mar 28th, 2017 at 9:16 AM

Without reviewing the trust completely, I am unable to answser your question.

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Answered on Mar 28th, 2017 at 5:09 AM

In order for anyone to be able to tell you what distributions may be made from an irrevocable trust, they will have to read the actual trust. There is no standard form for a "trust;" they can be very different, depending on what was intended.

One issue does stick out in your description: the statement that the beneficiaries and co-trustee want to withdraw a per person amount equal to the annual gift tax exclusion. If beneficiaries are beneficiaries of an existing, already funded trust, there is generally no gift being made when assets are distributed out of the trust to those beneficiaries, so the gift tax annual exclusion generally does not come into it. The gift tax annual exclusion may have been referenced during the funding of the trust (when assets were being transferred to it), because it's often used to set a withdrawal right given to beneficiaries, but those may or may not be needed in order to allow assets to be removed from the trust.

Another issue is the statement that appears to say that the beneficiaries intend to use the amounts they receive from the trust to help your mother, who is one of the trust's grantors. In general terms, if your mother is not herself a beneficiary of the trust, then technically the trustee should not make distributions for her benefit. However, if distributions to other beneficiaries are permitted, then once those distributions have been made to the beneficiaries they are usually free to use the assets as they see fit. There should not normally be any requirement that they use distributed assets for your mother's benefit, but they likely may use their own assets for her benefit without it being connected directly to the trust. That's just people making gifts (or paying medical expenses directly to avoid making gifts) to your mother.

Please have the trustees (or just one co-trustee, if the other is not willing) get an experienced trust attorney to review the trust and see what is permitted. It may well help prevent problems.

This answer is being provided as general information and not as legal advice. No attorney-client relationship is created by this answer.

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