Is your trust paying you only minimal income each year?
There IS a solution. Read on …
It is the classic struggle. Income beneficiaries want more income during their lifetimes. They want trustees to invest in income producing bonds and stocks. Remaindermen, on the other hand, want the most trust value at the end of the day and want trustees to invest in high growth stocks.
In response to these tensions and also in response to huge appreciation in many trust investment portfolios, most states have passed “Total Return Trust” laws.
These laws allow a trustee to pay out a fixed percentage of the trust assets each year to the income beneficiary, typically 3-5%. The trustee may make this distribution first from income and then from principal. Depending on the size of the trust this can be a significant increase in cash flow to the income beneficiary, for example:
$1,000,000 x 2% = $20,000/yr
$1,000,000 x 4% = $40,000/yr
Simply multiply the size of your trust by these figures to see how much Total Return could help you:
So if your trust has a current market value of $8,000,000
$8,000,000 x 2% = $160,000
$8,000,000 x 4% – $320,000
The larger your trust the larger your payout could be!
So why would the trustee agree to this Total Return arrangement? Because it is a win-win-win all around. The trustee can invest the trust portfolio in a higher growth mode to ensure that the trust principal is not spent during the income beneficiaries lifetime.
Income beneficiaries are happy because they get more income.
Remaindermen are happy because they get more growth.
Trustees are happy because they are authorized by law to make these larger distributions and therefore generally protected from liability if questions arise later.
So how will you know if you are eligible for larger income distributions?
Read our “How To Request Larger Income Distributions Article” here.