What are the 2 methods of withdrawing disbursing money from a trust account?

The short answer to the question, “Can you withdraw cash from a trust account?” is Yes, but there are some caveats.

1. If you have created a revocable trust, not an irrevocable one, and are the trustee of the trust, you can add and remove assets of the trust, A revocable trust allows you to make amendments to your trust and it also allows you to keep control of your assets. You will relinquish ownership and control of your estate with an irrevocable trust.
2. If you have created a revocable trust and have appointed someone else as trustee, you will have to request the cash withdrawal from the person you appointed as the trustee. However, the trustee has a fiduciary duty to administer the trust for your benefit while you are alive.
3. When you create a revocable trust and name someone else as the trustee, it can be helpful to specifically state in your trust that you are allowed to request cash withdrawals as you see fit.
4. Your assets must be transferred into the trust in order for them to be withdrawn. There may be fees associated with transferring or removing certain assets, such as real estate titles, so be aware of those costs.
5. If you want your beneficiaries to have the ability to withdraw funds of a trust for their benefit, this must be specifically stated in your trust.

The bottom line is that if you feel you may need or want to withdraw funds from your trust in the future, the document must be drafted in such a manner to allow these types of transactions. Because this can be a complex process with many options to consider, it is recommended that you hire a Denver trust attorney to help you understand your options.

To start the conversation with an experienced trust lawyer in Denver, contact the estate planning lawyers at Brown & Crona, LLC. Contact us at (303) 339-3750 or send us a message online to meet with our experts.

In the first scenario, a practitioner receives money into trust from a third party to pay the deposit for the purchase by the client. After the client’s purchase did not proceed, a dispute over the trust money arose between the third-party and client, with both of them claiming return of the deposit money. The practitioner mistakenly considered they were obliged to follow the client’s instructions and released the deposit to the client without properly considering the rights of the third party. They didn’t realise it was the third party who was in fact lawfully entitled to repayment of the money.

In the second scenario, a firm was acting for a wife in a family law proceeding commenced by her former husband. The court made interim property orders (the interim orders) for the sale of the matrimonial home, with a specified percentage of the net proceeds of the sale to be held in trust by the wife’s solicitors on behalf of both the husband and wife. The husband and wife subsequently made claims against each other for the net proceeds of sale by way of property settlement.

There were repeated failures by the husband to comply with court orders, as a result of which the court dismissed his application for a property settlement on procedural grounds. However the wife’s application remained on foot. The Court did not discharge the interim orders and the proceeding remained alive.

Believing the dismissal of the husband’s application entitled the wife to the money, the firm then transferred the sale proceeds from their trust account to the wife. The practitioner did not seek orders from the court for the release of the trust money, nor did they notify the husband’s solicitors or seek the husband’s consent to paying the money to the wife.

Upon later learning the funds had been paid to the wife the husband brought a claim against the wife’s solicitor for breaching the interim orders and for breach of trust. The husband sought orders for the solicitor to restore the trust.

Ultimately, the solicitors had to repay the trust money as well as interest and damages to the husband at the firm’s own expense. A common law restitution claim for money ‘had and received’ against the client could not be pursued as she had received the money in good faith, had allegedly spent all of it on the basis of the solicitor’s advice that she was free to do so, and in any event had limited assets from which any judgment could be recovered.

For more examples on how the release of trust money can go wrong, see LIJ article Misplaced Trust.

These two scenarios are a timely reminder that solicitors do not always hold trust money only on behalf of their client.

Trusts can be a useful tool for estate planning when you want to leave specific instructions about how your assets should be managed during your lifetime and beyond. Part of creating a trust means naming a trustee who’s responsible for overseeing the assets in the trust on behalf of your named beneficiaries. But can a trustee withdraw money from a trust? Yes, but there are rules they’re required to follow.

A financial advisor can help you create an estate plan for your family’s needs and goals. 

What Is a Trust and How Does It Work?

A trust is a legal entity that allows you to transfer assets you own to the ownership of a trustee. You can decide who to name as trustee and you can also name a successor in case they’re unable to fulfill their duties. The trustee’s job is to manage the assets that have been transferred to the trust on behalf of the beneficiaries you’ve named.

Trusts can be revocable or irrevocable. A revocable trust is one that can be changed during your lifetime; an irrevocable trust is permanent. When you create the trust, you can spell out exactly how you want your assets to be managed. For example, if you have children you might specify that they cannot access their trust fund until they graduate college or turn 30.

The trustee is bound by a fiduciary duty to act in the best interest of the trust and its beneficiaries. This means the trustee can’t just use the money or assets in the trust any way they want. But they do have some leeway in when they can take money out of the trust.

Can a Trustee Withdraw Money From a Trust?

A trustee is allowed to use money from the trust they oversee to pay third-party expenses. It’s possible that you may include additional circumstances in the trust wording in which they may be able to make additional withdrawals. But generally, the trustee is always entitled to use trust funds to pay for things like:

• Funeral and burial expenses for yourself or a trust beneficiary

• Expenses related to properties included in the trust, such as repairs or property insurance

• Repaying any debts owed by your estate when you pass away

• Fees paid to professionals who are hired to help with administrative tasks

• Taxes owed once the trust creator passes away

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The trustee can also use trust funds to make investments on behalf of the trust and use trust funds to pay associated investment fees. There is, however, a caveat. In keeping with the trustee’s fiduciary duty, those investments must benefit the trust and its beneficiaries in some way. Making investments using trust funds solely for the trustee’s own benefit is considered a breach of fiduciary duty.

It’s also the trustee’s responsibility to distribute assets in the trust to beneficiaries, according to the terms you set out. This is true even if they personally disagree with your instructions. If one beneficiary believes that a trustee is behaving unfairly or unethically, they could seek to have them removed.

For example, say you set up a trust to divide your $1 million estate between your two adult daughters. One daughter is a saver, the other is a spendthrift. After you pass away, the trustee decides that rather than splitting the trust assets equally as your wishes dictate, they’d rather give a larger share to the daughter who’s a saver.

Even though they may be well-intentioned in trying to protect the wealth you’ve built, they’re still violating fiduciary rules by acting contrary to the terms of the trust. The daughter who received less than her fair share of assets from the trust could attempt to have the trustee removed.

Can You Act as Your Own Trustee?

SmartAsset: Can a Trustee Withdraw Money From a Trust Account?

Technically, yes, you can set up a trust and name yourself as a trustee during your lifetime. You’d need to name one or more successor trustees to oversee the trust and its assets after you’re gone or in case you become incapacitated. This is an option you might consider if you’re establishing a revocable trust. With this kind of trust, you’d have the option to modify its terms or abolish the trust completely during your lifetime.

So can a trustee withdraw money from a trust they own? Yes, you could withdraw money from your own trust if you’re the trustee. Since you have an interest in the trust and its assets, you could withdraw money as you see fit or as needed. You can also move assets in or out of the trust.

For instance, say you transferred a vacation home into the trust but later, you decide you want to sell that property. You could remove the home from the trust and sell it without having to put the proceeds of the sale back into the trust. This is an indirect way to withdraw money from a trust that you own and have an interest in.

Irrevocable trusts are different. With an irrevocable trust, the transfer of assets is permanent. So once the trust is created and assets are transferred, they generally can’t be taken out again. You can still act as the trustee but you’d be limited to withdrawing money only on an as-needed basis to cover necessary expenses.

How Can a Trustee Withdraw Money From a Trust?

When a trust is created, there usually has to be some mechanism that allows the trustee to take money out when needed. Typically, this means establishing a bank account just for the trust that only the trustee has access to. The trustee can then use this account to write checks, schedule ACH or wire transfers or withdraw cash.

The trustee is responsible for keeping track of any and all withdrawals of money from the trust. This is necessary for accountability and the beneficiaries may ask to see records to verify how trust funds are being used. Depending on the terms of the trust, the trustee may be charged with paying certain expenses or making purchases on behalf of one or more trust beneficiaries.

Bottom Line

SmartAsset: Can a Trustee Withdraw Money From a Trust Account?

When can a trustee withdraw money from a trust? The short answer is that they can withdraw money as needed to cover legitimate trust expenses. When naming a trustee, it’s important to choose an individual or entity, such as a bank or wealth management firm, that you can rely on to abide by their fiduciary duty.

Estate Planning Tips

• Consider talking to a financial advisor about whether a trust is something you might need and who could be a good candidate to act as your trustee. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• A trust can be a useful tool for estate planning, especially if you have substantial assets to pass on to your heirs. But it’s also important to consider what else you might need in your estate plan, starting with a last will and testament. A will allows you to specify how you want assets that are not included in a trust to be distributed to your heirs. You can discuss how to make a will with an estate planning attorney but there are also a number of low-cost online will-making software programs you might try.