6 tips on trust fund distributions to beneficiaries

August 09, 2021

Protect your family and money with a trust.


A trust fund is a legal contract between at least two parties that sets rules for how assets are to be passed on to beneficiaries. If set up properly, a trust fund allows you to define distribution and use of funds rather than simply leaving an inheritance. This can be especially useful if your children or grandchildren are the primary beneficiaries and you’re worried about how they’ll handle inherited wealth.


Things to consider for family trust fund distribution

Here are six ways a trust fund has the potential to help create long-term financial stability for your beneficiaries.


1. Provide an incentive

You can influence certain behaviors for your heirs at each stage in their life, such as basing trust distributions on school performance. This can be a powerful tool for helping to establish productive traits early in adult life.

As an example, let’s say your grandchild is in college. If they achieve a 3.0 grade point average, they receive a certain amount of money from the trust for living expenses. If they don’t, a lesser amount is distributed.

Or, the trust could state that your child will receive a principal distribution up to 50 percent of their adjusted gross income for the previous year to be distributed in quarterly installments. This encourages them to earn a living.


2. Invest in education

Similar to making distributions based on a beneficiary’s salary, you can assign a matching contribution to a beneficiary’s college savings plan.


3. Encourage philanthropy

If you’d like to get your beneficiaries interested in charitable work, a trust can include language that incentivizes philanthropy. That could mean making gift-giving a prerequisite for any future distributions or making board participation a necessity.


4. Support family reunions

To encourage family bonds, a trust can be granted the power to distribute funds for a family reunion every few years to help solidify the extended family.

“If set up properly, a trust allows you to define distribution and use of funds rather than simply leaving an inheritance.”

5. Defer to age

Age-based distribution provisions are fairly common in trust funds. For example, a trust could specify that a beneficiary should receive one-third of the trust at 25, one-half at 30 and the rest at 35.

It might make sense to have principal discretionary provisions available to the beneficiary during younger years for certain purposes. However, distributions of large sums of money may result in a more advantageous outcome when reserved for a more mature, established adult.


6. Beware distributions based on milestones

Be cautious about tying distributions to achievements or life stages: graduating from college, buying one’s first home, getting married, having children. Without careful controls, this strategy might not have the desired effect.


No matter what you do, communicate your wishes

These ideas can help you fine-tune your wishes and desired effects when drafting a trust. It’s important that you communicate your wishes clearly to your estate planning attorney and the trustee or trustees you choose to administer the terms of the trust.


Learn more about trust and estate services from U.S. Bank.

Related content

7 beneficiary designation mistakes to avoid

How to discuss money with your family

Estate planning documents: Living trusts vs. will vs. living will

Start of disclosure content

Investment and insurance products and services including annuities are:
Not a deposit ● Not FDIC insured ● May lose value ● Not bank guaranteed ● Not insured by any federal government agency.

U.S. Wealth Management – U.S. Bank is a marketing logo for U.S. Bank.

The information provided represents the opinion of U.S. Bank. This is not intended to be a forecast of future events or guarantee of future results.

U.S. Bank and its representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.

U.S. Bank does not offer insurance products but may refer you to an affiliated or third party insurance provider.