Trust Planning in New Jersey: What is 5 by 5 Power?
A trust can be a highly effective, efficient estate planning tool. A grantor (creator) can use a trust to provide assets to beneficiaries. Trusts can be customized to meet a person’s specific goals and needs. Five by five power is one of the more common trust planning restrictions. Here, our New Jersey trust planning lawyer provides an overview of the key things to know about five by five power in trusts.
What is Five By Five Power in a Trust?
Investopedia explains that five by five power (5×5) “is a common clause in many trusts that allows the trust’s beneficiary to make certain withdrawals.” It is a trust provision that allows the beneficiary to access no more than:
- $5,000 per year;
- Five percent of the trust per year.
The provision is often included in trusts to grant beneficiaries a limited ability to access trust assets without compromising the overall intent and asset protection strategies of the trust.
Why Use Five By Five Power for a Trust?
Setting up a trust with limited five by five power can be desirable for a number of different reasons. Here are the most common reasons why people use these types of trust powers in New Jersey:
- Limit Distributions: Incorporating a “5 by 5 Power” in a trust serves to limit distributions, ensuring that beneficiaries do not deplete the trust assets prematurely. As an example, imagine a grandparent in New Jersey wanting to leave a trust for a college-aged grandchild. He or she may want to limit how much can be taken until that child is older.
- Preserve Assets: By limiting the amount a beneficiary can withdraw annually, the “5 by 5 Power” helps preserve the larger asset base. As a properly handled trust can grow at a rate of near, at, or even more than five percent of year, such limited withdrawal power helps to keep the trust value intact.
A Trust Can Be Customized (Different Specific Parameters)
Five by five trust power is a relatively common provision. However, it is far from the only way that a trust grantor can restrict beneficiary access to the proceeds. Quite the contrary, in New Jersey both revocable and irrevocable trusts can be customized. Specific parameters may be put into place to suit the unique needs of the trust creator and their family members. For instance, the trust document can specify different ages or conditions under which increased distributions can be made or additional powers are granted to the beneficiaries. Flexibility is key for estate planning.
Speak to Our New Jersey Trust Planning Attorney Today
At Poulos LoPiccolo PC, our New Jersey trust planning lawyer is a solutions-focused advocate for clients. If you have any questions or concerns five by five power and trust administration, our team can help. Contact us today to set up your completely confidential initial appointment. We provide trust planning services throughout New Jersey.
Source:
investopedia.com/terms/f/five-by-five.asp
