G. Calculating Income from Assets - Specific Types of Assets

1. Trusts.

   • a. Explanation of trusts.

     • (1) A trust is a legal arrangement generally regulated by state law in which one party (the creator or grantor) transfers property to a second party (the trustee) who holds the property for the benefit of one or more third parties (the beneficiaries). A trust can contain cash or other liquid assets or real or personal property that could be turned into cash. Generally, the assets are invested for the benefit of the beneficiaries.

     • (2) Trusts may be revocable or nonrevocable. A revocable trust is a trust that the creator of the trust may amend or end (revoke). When there is a revocable trust, the creator has access to the funds in the trust account. When the creator sets up a nonrevocable trust, the creator has no access to the funds in the account.

     • (3) The beneficiary frequently will be unable to touch any of the trust funds until a specified date or event (e.g., the

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Section 1: Determining Annual Income beneficiary’s 21[st] birthday or the grantor’s death). In some instances, the beneficiary may receive the regular investment income from the trust but not be able to withdraw any of the principal.

• (4) The beneficiary and the grantor may be members of the same family. A parent or grandparent may have placed funds in trust to a child. If the trust is revocable, the funds may be accessible to the parent or grandparent but not to the child.

• b. How to treat trusts.

  • (1) The basis for determining how to treat trusts relies on information about who has access to either the principal in the account or the income from the account.

  • (2) Revocable trusts. If any member of the tenant family has the right to withdraw the funds in the account, the trust is considered to be an asset and is treated as any other asset. The cash value of the trust (the amount the family member would receive if he or she withdrew all that could be withdrawn) is added to total net assets. The actual income received is added to actual income from assets.