Posted by There are two types of trusts: Revocable and Irrevocable. With a revocable trust the primary purpose is to provide flexibility and control over assets during your lifetime. As the grantor (the person who creates the trust), you retain the right to change the terms of the trust. An irrevocable trust offers the benefit of minimizing estate taxes and protecting assets from creditors. As the grantor, you hand over control of your assets to a designated trustee. A trustee administers the trust based on the instructions left by the grantor. This can include communicating with beneficiaries, allocating funds to investments, distributing payments, and more.
Back in 2012, my father was showing signs of dementia, so my mother had an irrevocable trust created to protect the estate in case he needed to be placed in a nursing home. I was asked to be the trustee. My father ended up passing away 2-1/2 years later. I have been administering the trust for the last 13 years. The trust holds assets in a trust account at a local bank. Once each year I have to review how the money is invested, approve distributions to beneficiaries, and sign tax forms. The trust account is not large compared to my retirement account. If divided among the three beneficiaries, it would not change our financial situation too much. The bank charges a one percent maintenance fee every month. There is also a fee from an accounting firm for filing the tax forms each year. Total fees in 2024 came to $1568.
The benefits of keeping the trust account going are outweighed by the negative aspects at this point. Beneficiaries have to wait until mid-March before they know what the distribution will be and are able to start working on their own taxes. The distribution can vary widely each year, anywhere between $300 and $3000. The Medicare look-back period is 5 years, so why are we still maintaining the trust account after 13 years? Since it is required that gains need to be distributed each year, the trust balance has not grown. If we distribute the principal among the beneficiaries, it would not be considered income. Each beneficiary could invest the money in a tax-free municipal bond fund and earn a steady income stream each month. There are other items in the trust, but this move will eliminate the one that is hardest to maintain. I think the plan is to end the trust if my mother passed away, but she is still alive. That means that we would be getting part of our inheritance a little early. I’d rather get it now and be able to invest it the way I want.