The Practical Planner – "Trust Distributions" (Dec 18, 2025)

Brief Overview

In this episode, hosts Thomas Kopelman (Head of Community at wealth.com) and Anne Rhodes (Chief Legal Officer at wealth.com) delve deep into the nuances of trust distributions. The discussion focuses on practical considerations for advisors whose clients have inherited a trust, unpicking the legal and strategic questions around accessing, distributing, or maintaining assets in trust. The conversation replaces surface-level treatments with detailed, actionable insights advisors can use to support clients at any stage of the estate planning process.

Key Discussion Points & Insights

1. Understanding the Beneficiary’s Position

• Setting the scene: Many clients inherit assets in trust and want to know, "Do I leave the money in, or take it out?" (01:00)
• Silent Trusts: Some trusts are designed to limit beneficiaries’ information rights, especially in "silent trust" states. Beneficiaries may not automatically be entitled to know about or access trust details; the trustee controls what is revealed. (01:24)
  • “The creator... may withhold certain rights... put a lot of the information rights into the hands of the trustee. So, trustee, you get to decide what you reveal to this beneficiary.” — Anne [01:45]
• First Steps: Advisors should determine if their client even knows the trust’s details and what rights they have. (02:00)

2. Three Fundamental Dimensions of Trust Distributions

• Mandatory Distributions: The beneficiary must receive certain distributions at set times or milestones.
• Discretionary Distributions: The trustee has discretion over when and how much to distribute.
• Trustee Control: Changing trustees to someone more aligned with the beneficiary can significantly impact outcomes. Sometimes, beneficiaries can become their own trustee upon reaching a certain age. (03:10)

3. Reasons Not to Immediately Distribute Everything

• Asset Protection: Trusts may be designed to shield assets from creditors or divorce claims.
• Tax Planning: There can be significant tax planning reasons to retain trust structure. Undoing a trust could create more problems.
  • “You don’t want to undo a trust without understanding why it was formed in the first place, when it’s an irrevocable trust.” — Anne [04:49]
• Economy of Trust Maintenance: Small trusts may be uneconomic to maintain given administrative fees (CPAs, trustees), triggering potential for termination based on state law "uneconomical trust termination" provisions. (06:15)
  • “Keeping the trustee around... is just not economic anymore.” — Anne [05:13]

4. Family Harmony and Distribution Dynamics

• Trusts sometimes serve non-financial goals like family harmony. For instance, creating equal trust structures for multiple children, even if only one needs special management, to avoid perceived unfairness. (08:14)
  • “Sometimes that form that the trust took was for family harmony or other reasons.” — Anne [08:30]
• Splitting single “pot trusts” into individual shares for each beneficiary can simplify administration and avoid conflict. (09:18)

5. Unique Tax and Distribution Considerations

• Tax Distribution Clauses: Sometimes a beneficiary is taxed on income not actually received from the trust (phantom income). A “tax distribution clause” allows distributions to cover those taxes.
  • “There’s this phantom income, and they need to take money out of their own pockets to pay what the trust owes.” — Anne [10:24]
• Advisors should look for such clauses which may be located outside standard distribution provisions.

6. Mandatory vs. Discretionary Distributions

• Mandatory Gradation: Many trusts distribute assets in stages—e.g., one-third at age 25, another third at 30, the remainder at 35. (11:55)
• Withdrawal Rights: Modern planning sometimes grants beneficiaries a "withdrawal right," allowing for direct requests versus waiting for milestone ages.
• HEMS Standard: Discretionary distributions are often governed by HEMS (Health, Education, Maintenance, Support), which is both a legal standard and a practical guideline for trustees.
  • “You can read a lot into health, education, maintenance and support... maintenance and support can actually encompass quite a bit.” — Anne [13:20]

7. Navigating Relationships with Trustees

• Advisors should coach clients in communicating with trustees, sometimes mediating or even replacing unhelpful or expensive trustees. Beneficiaries often have more power than they realize.
  • “The trust is like the constitution for that trust... you might actually have more power than you think you do as a beneficiary.” — Anne [15:38]
  • “You can typically change those.” — Thomas, regarding expensive or unhelpful trustees [16:29]
• Courts are the last resort; most trustees prefer to step aside than face adversarial proceedings.
  • “They don’t want a bad relationship with a beneficiary by the time it gets to that point, they would rather just recuse themselves...” — Anne [17:01]

8. Flexibility Tools: Withdrawal Powers and Power of Appointment

• Withdrawal Powers: Sometimes called something else (not “distribution”), these allow the beneficiary to take certain amounts at will.
• Power of Appointment: Lets beneficiaries redirect trust assets to other people or causes (e.g., niece/nephew, spouse, charity) as the trust allows—useful for adapting to changing family situations. (18:00)
  • “That power is called a power of appointment. And usually it is in the hands of your beneficiary... Charity usually is included and sometimes even spouses.” — Anne [19:00]

9. Evolving Ethos in Modern Trust Planning

• Modern trusts are built with flexibility in mind. It is usually better to “hold back the money initially and then to find ways to leak it out to your beneficiaries.” (20:45)
  • “Don’t fear that somehow your beneficiary has to live with a very rigid trust. That’s not really the ethos of modern trust planning and trust drafting anymore.” — Anne [20:45]

Notable Quotes & Memorable Moments

• “The trust is like the constitution for that trust... you might actually have more power than you think you do as a beneficiary.” — Anne, [15:38]
• “You can typically change those.” — Thomas, about trustees and advisors [16:29]
• “Don’t fear that somehow your beneficiary has to live with a very rigid trust. That’s not really the ethos of modern trust planning and trust drafting anymore.” — Anne, [20:45]
• “Keeping the trustee around... is just not economic anymore.” — Anne, [05:13]
• “Sometimes that form that the trust took was for family harmony or other reasons.” — Anne, [08:30]

Timestamps for Key Segments

• 01:24 – Introduction to silent trusts & information rights
• 03:10 – Three key ways to think about trust distributions
• 04:49 – Why not to undo a trust hastily (tax, asset protection)
• 06:15 – Removing or terminating uneconomic trusts
• 08:14 – Trusts for family harmony and practical complications
• 09:18 – Separate vs. “pot” trusts and administrative questions
• 10:24 – Tax distribution clause and phantom income
• 11:55 – Structured, graduated mandatory distributions
• 13:20 – Understanding HEMS (Health, Education, Maintenance, Support)
• 15:38 – Power to change trustees and handling bad relationships
• 18:00–19:00 – Powers of appointment and expanding trust flexibility
• 20:45 – Modern ethos: trust flexibility vs. rigidity

Conclusion

This episode demystifies trust distributions, emphasizing the importance of reading trust documents carefully, considering flexibility and family dynamics, and knowing client options for both distributions and trustee selection. The conversation encourages advisors and beneficiaries alike to be proactive, strategic, and unafraid to seek legal avenues or changes if the trust structure isn’t serving its intended purpose. Modern trust design, as the hosts underscore, is less rigid and more adaptive than ever before.