5 By 5 Power In Trust

AAA

DEFINITION of '5 By 5 Power In Trust'

A common clause included in many trusts allowing for beneficiary withdrawals from the trust. Specifically, '5 by 5 Power' or the '5 by 5 clause', gives the beneficiary power to withdraw the greater of: a) $5,000 or b) 5% of the trust's fairmarket value from the trust each year.

INVESTOPEDIA EXPLAINS '5 By 5 Power In Trust'

For income tax purposes, should the beneficiary not exercise the '5 by 5 Powers', over time the beneficiary could become the owner of the trust and become liable for taxes on the trust's capital gains, deductions and income.

RELATED TERMS
  1. Commingled Trust Fund

    Investment assets that are combined together under a common investment ...
  2. Account In Trust

    An account that is managed by one party for the benefit of another. ...
  3. Trust

    A fiduciary relationship in which one party, known as a trustor, ...
  4. Fiduciary Risk

    A type of risk that accounts for the possibility of a trustee/agent ...
  5. Trustee

    A person or firm that holds or administers property or assets ...
  6. Beneficiary

    Anybody who gains an advantage and/or profits from something. ...
RELATED FAQS
  1. What are the restrictions for naming a given individual as my contingent beneficiary?

    Life insurance is an important part of estate planning. It allows you to ensure that you can financially take care of the ... Read Full Answer >>
  2. Does Manchester United (MANU) own Old Trafford stadium?

    Old Trafford Stadium was built for and is currently still owned by Manchester United Football Club (Man Utd.). This means ... Read Full Answer >>
  3. How do you mediate a dispute between primary and contingent beneficiaries of a trust?

    There may be a dispute between beneficiaries whenever the proceeds of a trust or other transfer on death (TOD) account are ... Read Full Answer >>
  4. What is the difference between the death benefit and cash value of an insurance policy?

    One of the most utilized tools in funding an estate plan is term or permanent life insurance. Purchasing a life insurance ... Read Full Answer >>
  5. What does U.S. law say about contingent beneficiaries?

    In the United States, posthumous asset transfers only require the listing of a primary beneficiary. Contingent beneficiaries ... Read Full Answer >>
  6. How do I change my contingent beneficiary?

    Keeping your beneficiary designations up to date is an important aspect of comprehensive estate planning. Listing a primary ... Read Full Answer >>
Related Articles
  1. Taxes

    Distribution Rules For Inherited Retirement Plan Assets

    If you've recently inherited a retirement plan, you must get to know the rules for distributing the funds.
  2. Retirement

    Gifting Your Retirement Assets To Charity

    There are several things to consider when it comes to this type of charitable giving. Make sure you're well informed.
  3. Options & Futures

    Getting Started On Your Estate Plan

    With some preparation, you can save your heirs from paying a hefty estate tax. Here are some tips.
  4. Options & Futures

    An Estate Planning Must: Update Your Beneficiaries

    Life changes make it time to rewrite your plan's designations.
  5. Professionals

    5 Estate Planning Must-Dos Before Saying "I Do"

    There are many exciting things to look forward to when a couple gets married; not among them is putting financial affairs in order. Advisors can help.
  6. Personal Finance

    Which Estate Transfer Technique is Right for You?

    This article explains the difference between the two estate transfer methods -- a will and a trust, and the circumstances under which each can be used.
  7. Professionals

    Estate Planning and Elderly and Passed Clients

    By keeping up with new estate tax rules, financial advisors can help elderly clients save big on tax costs.
  8. Economics

    What is a Fiduciary?

    A fiduciary is a person who acts on behalf of another person (or people) to manage assets.
  9. Retirement

    Retirement: The Journey Of 1000 Miles

    Substantial time should be set aside to fully outline one's vision for retirement and the specific steps that must be taken to realize it.
  10. Retirement

    Are You Getting The Best Retirement Advice?

    What you need to know in order to check.

You May Also Like

Hot Definitions
  1. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  2. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  3. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  6. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
Trading Center