Page 10 THE EVERETT ADVOCATE – FRiDAy, MAy 30, 2025 If We Happen To Meet By Accident ... You’ll Be Glad You Found Us! There is a difference between the rest and the BEST! Celebrating 46 Years In Business! TONY’S AUTO BODY Call or Visit 781-321-0032 34 Sharon Street Malden, MA 02148 TONYSAUTOBODYLLC.COM COME VISIT OUR STATE OF THE ART BODY SHOP • Computerized Paint Matching (State of the Art Spray Booth) • Computerized Frame Machines • P.P.G. Refinishing System • R134 + 1234yf A/C Machines Fully Insured -RS2415 Insurance Company Approval ALL OUR WORK IS GUARANTEED! TONY BARTOLO Owner 46 Years Let Us Handle Your Next Insurance Claim. Go With the BEST It Doesn’t Get BETTER! RENTAL CARS Available A 5 or 5 power 5 or 5 power provides a beneficiary of a Trust the power in any calendar year to withdraw the greater of $5,000 or 5% of the Trust principal. Therefore, for any Trust that has assets less than $100,000, the beneficiary can withdraw up to $5,000. For any Trust that has more than $100,000 in assets, the benefi ciary can withdraw up to 5% of the Trust assets. The situation usually occurs when the Settlor of a revocable Trust dies, which in turn results in the Trust becoming irrevocable and the Trust then provides for the benefi t of a surviving spouse. Per the Internal Revenue Code, YOUR LOCAL NEWS & SPORTS IN SIX LANGUAGES. SUBSCRIBE TO THE ADVOCATE ONLINE BY SCANNING HERE! there has to be a limit on what the beneficiary can withdraw each year in order to avoid any negative tax consequences. If a Trust provision allowed the benefi ciary to withdraw more than $5,000 or 5% of the Trust principal each year, then the IRS would consider this to be a “general” power of appointment and some or all of the Trust assets could be included in the benefi ciary’s estate for estate tax purposes. What is one advantage of including such a provision in a trust document? Such a provision might be suitable in a situation of a second marriage wherein one spouse does not want the surviving spouse to have unfettered control over the Trust assets. Such a power would provide a minimum of a $5,000 withdrawal on the part of the surviving spouse each year. This could be important if the Trust itself generated very little income for the year that was required to be distributed to the surviving spouse pursuant to the terms of the Trust. Alternatively, if the Trust principal ended up being $1,000,000 at the time of the fi rst spouse’s death, the surviving spouse could take up to $50,000 each year (5% of $1,000,000). Furthermore, such a right might put some of the Trust’s assets at risk if the surviving spouse was involved in litigation. Generally speaking, creditors can reach what you can reach as a benefi - ciary of a Trust. The 5 or 5 power also allows the beneficiary to withdraw up to 5% of the Trust’s assets, even if the withdrawal is not for an ascertainable standard such as for the health, education and support of the surviving spouse. This allows the surviving spouse to simply take a withdrawal without meeting any such standard. The surviving spouse would not have to answer to a Trustee that might not be so cooperative when it comes to Trust distributions. The other benefi t of the 5 or 5 power is that so long as the surviving spouse does not exceed its parameters, upon the surviving spouse’s death, the assets in the Trust not subject to the 5 or 5 power will not be included in her taxable estate for estate tax purposes. In this situation, the fi rst spouse to die has the ability to exempt $13.9 million in assets from his or her taxable estate by funding the so-called “family trust” portion of a marital deduction trust wherein the surviving spouse still would enjoy rights to income, discretionary Trustee distributions of principal to the surviving spouse based upon a health, education and support standard and the 5 or 5 power. Upon the surviving spouse’s death, the remaining Trust assets not subject to the 5 or 5 power will be distributed free of estate tax to the children of the first spouse to die. However, the Trust assets subject to the 5 or 5 power in the hands of the surviving spouse would be taxable in her estate upon her death. If her federal taxable estate ends up being $13.9 million or less, there would be no federal estate tax anyway. If there were $5,000,000 of Trust assets, at most, only $250,000 would be taxable in the surviving spouse’s estate. It also looks as though Congress may extend most of the key provisions of the 2017 Tax Cuts and Jobs Act meaning the federal estate tax exemption may not be dropping down to approximately $6million as of January 1, 2026. A huge diff erence from an estate planning standpoint. Joseph D. Cataldo is an estate planning/elder law attorney, Certifi ed Public Accountant, Certifi ed Financial Planner, AICPA Personal Financial Specialist and holds a masters degree in taxation.
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