How to Pay Out Early From a Family Trust
Establishing a revocable living trust helps assets pass from one generation to the next. The trust avoids probate, helping your children or grandchildren access family assets quickly, without the added costs of family court. When you create a revocable living trust, you have the right to use the funds as you desire during your lifetime--including taking money out of the trust. Paying funds out of the trust early is one method of financial planning to reduce taxes on the overall estate. After death, the trust becomes irrevocable.
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Instructions
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Review the total amount of assets held in trust. As of 2011 IRS regulations, estates over $5 million are assessed a 35 percent federal estate transfer tax.
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Gift up to $13,000 per donor to beneficiaries. A donor could be both you and your wife, if you're married. You can make an unlimited number of gifts per year as long as the recipient is a different person. If you have three children and two grandchildren, you can give each one $13,000, and your wife can give each one $13,000. Gifts don't need to be family members.
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File appropriate IRS gift forms including the Form 709, "US Gift Tax Return." As long as the amount doesn't exceed $13,000 and the funds are coming from a family trust, the gifts will not be included in the estate tax value, even if the gifts are made within three years of death.
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Tips & Warnings
The physical liquidation of assets is contingent on the type of asset. A bank account simply requires writing a check or taking a withdrawal, while brokerage accounts first liquidate the asset with a check distributed to the trust account and sent as a gift. Trustees are the only ones capable of liquidating trust assets.
