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.

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.