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Law Educator, Esq.
Law Educator, Esq., Attorney
Category: Estate Law
Satisfied Customers: 116715
Experience:  Experienced in Trust and Succession Law, including Louisiana Laws
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What is the requirement on Trustees to use funds gifted into

Customer Question

What is the requirement on Trustees to use funds gifted into the Trust to individuals (using the gift tax exemption) for the benefit of the individuals it was gifted to if it is not spelled out in the Trust document?
Submitted: 10 months ago.
Category: Estate Law
Expert:  Law Educator, Esq. replied 10 months ago.
Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.
If the use of the funds is not specified other than it was gifted to the trust for the benefit of a specific individual, then the Trustee has the discretion on how the funds are used for the benefit of that individual and their needs. A trustee, unless a trust directs otherwise, is responsible for properly managing the trust and has discretion of distributing funds in a reasonably prudent manner as the trustee deems necessary.
Customer: replied 10 months ago.
The funds were gifted in a way to take advantage of the gift tax exemption. I assume the IRS has some requirements or has issued some rulings to ensure that a gift that was made to an individual and deposited in the trust actually has to end up being used for the benefit of that individual. If you take advantage of the tax rules to deposit the $ in the Trust as a gift, it has to ultimately go to the giftee. Can you cite a ruling or some source to that effect?
Expert:  Law Educator, Esq. replied 10 months ago.
Thank you for your reply.
By virtue of the terms of the trust and gift that it was gifted for the benefit of the individual means it has to be used for that individual. The trust laws say the trustee manages and controls the trust in accordance with the trust terms. If the trust does not mention the gift it can be used for any needs of the individual that it was gifted to at the discretion of the trustee, there are no other rules other than the rules governing trusts and the trustee's duties.
IRS Reg.(###) ###-####4(a) defines a trust as an arrangement created either by will or inter vivos declaration whereby trustees take title to property for the purpose of protecting and conserving it for the beneficiaries under the ordinary rules applied in chancery or probate courts . . . .