Can a Trustee Withdraw Money From a Trust Account?

Matt Carroll St. Louis Cardinals

March 2, 2023

Trusts are a common way to pass on assets from an individual or family to others. They make transferring assets easier, reducing fees associated with settling an estate and avoiding probate. However, trustees have a fiduciary duty to act in the best interest of their beneficiaries and should only withdraw funds following the terms of the trust agreement. Failing to do so can result in legal penalties and even criminal prosecutions.

Under What Circumstances Can a Trustee Withdraw Money From a Trust Account?

Generally, a trustee must follow the terms of their trust document. This means they can only withdraw funds following the trust agreement. If they fail to do this, they may be removed as a trustee from their position. Can a Trustee Withdraw Money From a Trust Account?

The main reason is that trustees have a fiduciary duty to the trust and its beneficiaries, and they cannot use trust funds to their advantage. Using trust funds for personal purposes is called embezzlement.

A trustee can make purchases on behalf of beneficiaries, but they should only do this if it is for their benefit and not the trusts. This is especially true if a beneficiary has been given less money than they should have in the trust.

Another reason a trustee can withdraw money from a trust is to cover expenses related to the administration of a trust. This can include the cost of CPAs, probate attorneys, and other professionals.

If a trustee is not doing their job as the trustee of the trust and is mismanaging the trust funds, they or may be removed from their position by a court. This can happen if they are found to be negligent in their duties or if they have been guilty of theft, fraud, or embezzlement.

Once the trustee has been removed from their position, they or can be replaced with another trustee. However, a new trustee must be approved by the courts.

Trustees should also keep track of their withdrawals and be responsible for keeping records to show that they have followed the trust’s terms and that the trust’s assets were used for legitimate purposes. If a trustee fails to do this, they may be found liable in a civil or criminal lawsuit.

In most cases, a grantor sets up a trust to protect their assets from being frittered away by heirs or loved ones. A grantor-trustee (also known as a settlor or a trustor) can name themselves as the trustee of a trust, or they can choose someone else to act as a trustee on their behalf.

Revocable Trusts

A revocable trust is a type of estate plan that allows you to control your assets during your lifetime and name a trustee to manage the assets for you after you die or become incapacitated. It also avoids needing a probate court proceeding to distribute the trust assets.

The grantor or settlor may be the sole trustee of a revocable trust, or they might be able to name themselves co-trustees with another person. The grantor can modify the terms of the revocable trust at any time during their lifetime, including changing the trustee or beneficiaries.

Many people consider revocable trusts an effective way to avoid paying estate taxes. However, it is essential to understand that a revocable trust will not protect your assets from creditors.

You can also create an irrevocable trust to avoid paying long-term care expenses with your own money. This is especially true if you apply for MassHealth Medicaid benefits.

Suppose you are interested in creating a revocable trust. In that case, it is best to consult an experienced attorney who can help you determine the most effective way to protect your assets and meet your estate planning goals.

Trustees often use trust funds to pay for filing, registration, and title fees when transferring property into the trust’s name. They also use the funds to pay for any investment management or trading fees that they incur.

They may also make loans to the trust beneficiaries for their benefit. Whether this is legal or not depends on the specific terms of the trust and the circumstances surrounding the loan.

While a trustee can withdraw money from a trust account, they are generally prohibited from taking out more than is needed for the trust. This is to ensure that the trustees act in the trust’s best interests. Depending on the terms of the trust, a trustee may be required to reimburse the trust for any costs associated with withdrawals.