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. Trustee

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

    Anybody who gains an advantage and/or profits from something. ...
  6. Fiduciary Risk

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

    Tips for Spreading the Wealth to Relatives

    There are many ways that your clients can move money or other assets to relatives in order to reduce their tax bills. Here's a primer on best practices.
  6. Professionals

    Tips for Handling Client Inheritance

    When clients leave or receive an inheritance, be prepared to deal with much more than mere paperwork or financial transactions.
  7. Professionals

    Advice on Dealing with Unequal Inheritances

    When it comes to inheritances, the concept of equal versus equitable can be hard to navigate, even when all parties are reasonable.
  8. Professionals

    Top Tips for Family Wealth Transfers

    Essential tips for tackling family wealth transfers.
  9. Professionals

    Estate Planning Tips for Financial Advisors

    Estate planning is not a set-it-and-forget-it proposition. Here are some tips for you and your clients.
  10. Personal Finance

    What's an Irrevocable Trust?

    In an irrevocable trust, the grantor gives up the right to revise, amend or terminate the trust without the permission of the beneficiary. An irrevocable trust is best used as an estate-planning ...

You May Also Like

Hot Definitions
  1. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  2. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  3. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  4. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  5. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  6. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
Trading Center