As previously mentioned, trustees generally cannot withhold money from a beneficiary for no reason or indefinitely. Similarly, trustees cannot withdraw money from a trust to benefit themselves, even if the trustee is also a beneficiary.
While a trust can remain open for 21 years after the death of the grantor, most are closed immediately after death. This can take anywhere from a couple of months to one year, and even as long as two years, depending upon the complexity of the assets held in the trust.
To be on the safe side, McBride says to keep all tax records for at least seven years. Keep forever. Records such as birth and death certificates, marriage licenses, divorce decrees, Social Security cards, and military discharge papers should be kept indefinitely.
As a rule of thumb, seven years is sufficient time for defending tax audits, lawsuits and potential claims.
Requirement to keep proper records and accounts
You should keep proper records and accounts for 5 years so that the income earned and business expenses claimed can be readily determined.
Once assets are placed in an irrevocable trust, you no longer have control over them, and they won't be included in your Medicaid eligibility determination after five years. It's important to plan well in advance, as the 5-year look-back rule still applies.
If you place assets in a discretionary trust created by your will, your executors have two years from the date of your death within which to allocate and transfer those assets to your beneficiaries. They can even transfer them into other trusts (but with no further two year period).
It is not unusual for the successor trustee of a trust to also be a beneficiary of the same trust. This is because settlors often name trusted family members or friends to both manage their trust and inherit from it.
A trustee must abide by the trust document and the California Probate Code. They are prohibited from using trust assets for personal gain and must act in the best interest of the beneficiaries. Trust assets are meant for the benefit of the trust beneficiaries and not for the personal use of the trustee.
Ultimately, trustees can only withdraw money from a trust account for specific expenses within certain limitations. Their duties require them to comply with the grantor's wishes. If they breach their fiduciary duties, they will be removed as the trustee and face a surcharge for compensatory damages.
A trustee typically has the most control in running their trust. They are granted authority by their grantor to oversee and distribute assets according to terms set out in their trust document, while beneficiaries merely reap its benefits without overseeing its operations themselves.
Typically, it takes 12-18 months for a revocable trust with a straightforward distribution provision. However, the time frame can be shorter, around 4-5 months, for a simple distribution. Factors such as selling real estate, filing estate taxes, and complex situations can extend the trust administration period.
Negligence or Mismanagement of Trust Assets
So, if a trustee fails to do so, whether it is out of negligence, incompetence, or outright malice, then a trustee is unfit to manage the trust, and this constitutes a breach of his or her fiduciary duty and can be one reason for removing a trustee.
This is consistent with a California Rule of Professional Conduct which requires an attorney to maintain all records of client funds and other properties that the client provided to the attorney for at least five years.
Under the ITA, a trust is generally deemed to dispose of its assets after 21 years from the creation of the trust. This taxes any unrealized gains in the trust. To avoid tax payable on the unrealized gain, the trust assets may be distributed to the beneficiaries of the trust on a tax-free basis.
'14 year rule'
The tax on gifts in the seven years before death must be recalculated at the death rate of 40%. Any chargeable transfers in the seven years prior to the gift will reduce the available nil rate band for the gift being re-assessed, and so increase the tax on it.
The current NOPA procedure for trust administrations requires a notice period of 45 days, during which a beneficiary may object to the proposed course of action. (Probate Code section 16502). Absent a formal objection during that period, the beneficiary is deemed to have consented to the proposed course of action.
You can name a trust as a direct beneficiary of an account. Upon your death, your assets transfer to the trust and distributions are made from the trust to its beneficiaries according to your wishes.
5-year rule: If a beneficiary is subject to the 5-year rule, They must empty account by the end of the 5th year following the year of the account holders' death.
Trusts can be created during your lifetime or written into your Will. A trust in your Will, or 'Will trust', only springs into being at the moment of your death. Trusts automatically last for 125 years (the 'trust period') unless specified to last for a shorter period of time.
Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction. Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return. Keep records indefinitely if you do not file a return.
In general, company records must be retained for six years from the end of the accounting period.
Exposure records must be maintained for 30 years. Medical records must be maintained for the duration of employment plus 30 years.