The primary reason individuals create a trust is to establish detailed instructions for the delivery of their assets after they have passed and can’t direct the assets themselves. Where a will can instruct a one-time delivery of assets, the structure of a trust can provide ongoing guidance. The “5 or 5 Power” is simply a way to provide some parameters around the access a beneficiary has to the funds in a trust. It basically means that in each calendar year, they have access to $5,000 or 5% of the trust assets, whichever is greater. So if the trust has $10,000 in it, a beneficiary can take out $5,000 even though this is 50% of the trust corpus. Conversely, if the trust has $10 million they can withdraw $500,000 under this arrangement.
Adam C. Harding, CFP® Investments & Financial Planning