People who are creating an estate plan will sometimes decide that they are going to include trusts in that plan so that they can transfer assets over to their heirs more easily. This often comes with many benefits, including easy transfer and the ability to protect both the beneficiary and assets, depending on the type of trust.
One thing that some people worry about when they are creating an estate plan is turning over a lot of money to someone who might not be ready to handle the responsibility. In these cases, the grantor can choose to set terms on how the beneficiary will receive the assets from the trust. This can be through certain milestones, such as age, graduation, marriage or having children.
In other cases, the trust's creator might use a 5 x 5 power option. With this option, the trust beneficiary would receive $5,000 or 5 percent of the fair market value of the trust each year, whichever is greater. This doles out the money in a way that the beneficiary can still enjoy the benefits of the trust without becoming overwhelmed by sudden wealth.
Anyone who uses this particular method of disbursement should be sure that the beneficiary knows that there is a chance of negative tax implications if they don't take the payouts each year -- which is an important consideration.
Having your estate plan set up so it reflects your wishes can help you to rest assured that your loved ones will be cared for when you pass away. Take the time to review your options so that you are comfortable with your decisions for the future.