This article is an updated version of a previously published blog, revised to reflect the latest legal standards and best practices as of 2025.
When establishing an irrevocable trust as part of your estate plan, it’s crucial to understand the circumstances under which a trustee can withdraw funds. In Washington State, these actions are governed by both the trust’s terms and state law. This guide provides clarity on trustee withdrawals, ensuring compliance and the protection of beneficiaries’ interests.
Trustee Authority in Washington State
In Washington, a trustee’s powers are primarily defined by the trust instrument and supplemented by state statutes. Under RCW 11.98.070, trustees are granted specific powers, including:
- Paying debts and expenses of the trust.
- Making distributions to beneficiaries as outlined in the trust.
- Managing and investing trust assets prudently.
- Hiring professionals for assistance in trust administration.
It’s imperative for trustees to act in accordance with the trust’s provisions and their fiduciary duties.
Permissible Uses of Trust Funds
Trustees may utilize trust funds for various purposes, provided these actions align with the trust’s terms:
- Beneficiary Distributions: Disbursing funds to beneficiaries as specified.
- Expense Payments: Covering costs such as property maintenance, taxes, and debts.
- Professional Services: Engaging attorneys, accountants, or other professionals for trust-related matters.
- Investments: Allocating funds into investments that serve the trust’s objectives.
Before making any withdrawals, trustees should consult the trust document and, if necessary, seek legal counsel to ensure compliance.
Restrictions and Prohibited Actions
Trustees must avoid actions that could be construed as self-dealing or breaches of fiduciary duty:
- Personal Use: Withdrawing funds for personal benefit is strictly prohibited.
- Unauthorized Loans: Lending trust assets to oneself or related parties without explicit authorization is not allowed.
- Conflict of Interest: Engaging in transactions that benefit the trustee at the expense of beneficiaries can lead to legal consequences.
Violations may result in removal as trustee and potential legal liability.
Tax Considerations
Distributions from irrevocable trusts can have tax implications:
- Income Tax: Beneficiaries may be responsible for taxes on distributions received.
- Trust Tax Rates: Trusts are subject to compressed tax brackets, potentially leading to higher taxes if income is retained.
- 65-Day Rule: Under IRC 663(b), trustees can elect to treat distributions made within the first 65 days of the tax year as if made in the previous year, offering potential tax benefits.
Consulting with a tax professional is advisable to navigate these complexities.
Legal Framework and Trustee Duties
Washington law outlines specific duties and responsibilities for trustees:
- Fiduciary Duty: Acting in the best interests of the beneficiaries.
- Duty of Loyalty: Avoiding conflicts of interest and self-dealing.
- Duty to Inform: Keeping beneficiaries reasonably informed about trust administration.
- Duty to Account: Providing accurate records and reports of trust activities.
Failure to adhere to these duties can result in legal action and removal as trustee.
Seeking Professional Guidance
Given the complexities involved in managing an irrevocable trust, it’s prudent to consult with experienced estate planning professionals. Legacy Law Group, a leading estate planning law firm in Spokane, Washington, offers comprehensive services to assist trustees and beneficiaries alike. Whether you’re establishing a trust or navigating its administration, our team is here to provide expert guidance.
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Related Topics
- The Benefits of a Revocable Living Trust for Spokane Residents
- Understanding Power of Attorney and Guardianship in Washington State
Legacy Law Group is committed to providing top-tier estate planning services, ensuring your family’s future is secure.
