When you establish an estate plan, you’ll put numerous people in charge of your assets. For example, you’ll need an executor to manage your will, and an agent with power of attorney can help make medical decisions on your behalf. One area of your trust you should consider is how and when a trustee can withdraw funds from an account. In New York, trustees may withdraw funds for valid trust-related expenses, like taxes, debts, and property maintenance. Trustees are legally prohibited from using trust assets for personal benefits. Keep reading to learn more about when this is possible and how a Putnam County trusts attorney can help you with any questions you may have about this process.

What Is a Trust Fund in New York?

A trust fund is one of the most popular estate-planning tools, as it allows the creator to set funds and assets aside for their intended beneficiaries in accordance with New York State Estates, Powers & Trusts law. The person who sets up a trust is called the grantor, and they appoint a person to manage and distribute the assets included in the trust. The manager of the trust is called the trustee, and they handle the assets for the beneficiaries, or the people the trust is intended for.

There are two kinds of trusts that most people in Putnam County will set up. A revocable trust can be modified while the creator is alive, while an irrevocable trust cannot be modified once it’s created. You can place money, stocks, property, and personal belongings, among other belongings, in a trust.

Types of Trusts in New York

  • Revocable Living Trusts
    • May be modified or altered over the course of the grantor’s life
    • Common in New York estate planning to avoid probate
  • Irrevocable Trusts
    • Cannot be altered once established, with limited exceptions
    • Typically used for Medicaid planning and asset protection
  • Testamentary Trusts
    • Established through a will and becomes active after death
  • Special Needs Trusts
    • Designed to maintain eligibility for government benefits

When Could a Trustee Withdraw Funds From the Account?

In most instances, trustees in Putnam County can withdraw funds from the trust account if they will use the money for expenses related to the trust. Generally, as long as the money withdrawn from the account is put towards legitimate expenses, the trustee is within their duties and responsibilities to access and remove funds.

When Withdrawals Are Allowed

  • Trustees are eligible to remove funds when acting in the best interest and on behalf of the trust fund
  • Withdrawals must align with the terms of the trust documents
  • Funds must be used for legitimate expenses related to the trust
  • Trustees are required to maintain records and ensure transparency
  • All actions must be in compliance with the New York fiduciary law

Common Allowed Uses of Trust Funds

  • Funeral expenses for the grantor or their beneficiaries
  • Managing properties listed in the will, like repairs or paying property taxes
  • Making investments on behalf of the grantor
  • Paying the debts of the grantor
  • Hiring a third party to help with estate administration

When Is a Trustee NOT Allowed to Withdraw Money in New York?

A trustee has fiduciary duties, which means they are legally obligated to act with care, loyalty, and good faith. Any withdrawal that violates this duty is prohibited in accordance with New York law.

Prohibited Trustee Actions

  • Using a trust fund for personal gain or benefit
  • Making withdrawals conflicts with the instructions of the trust
  • Favoring one beneficiary over the others without justification
  • Making risky, unjustified, or ill-advised investments
  • Failing to document or justify withdrawals

Examples of Improper Withdrawals

  • Taking money for personal expenses and loans
  • Using trust funds for investments that fail to benefit beneficiaries
  • Distributing funds in a way that directly goes against the grantor’s instructions
  • Withdrawing funds without ensuring adequate and accurate documentation

What Happens if a Trustee Misuses Trust Funds in New York?

In the event a trustee misuses funds held in a trust or breaches their fiduciary duty in Putnam County, the beneficiaries of the grantor can pursue legal action against the trustee.

Potential Legal Consequences

  • Removal of the trustee by a New York Court, including the Putnam County Surrogate’s Court
  • Court-ordered repayment of misused funds (surcharge)
  • Personal liability for financial losses
  • Legal disputes or trust litigation initiated by beneficiaries

Can a Trustee Loan Money or Make Discretionary Payments?

Under certain circumstances, unless explicitly forbidden in the guidelines of the trust fund, a trustee may loan money to a beneficiary or make discretionary distributions. However, these are carefully evaluated to ensure fairness and adherence to the terms and conditions of the trust.

Key Considerations Before Making Loans

  • Whether the trust document allows loans
  • Impact on the other beneficiaries
  • Documentation and repayment of terms
  • Risk of perceived favoritism or breach of duty

Contact Our Putnam County Estate Planning Attorney

When you have questions about the estate planning process, we can help. At the Law Offices of Andres D. Gil, we understand how these can be confusing and complex matters. Contact our legal team today to learn more about how we can help you through this process.