How to Satisfy Cash on Hand Needs for a Trust

5 of 7 in Series:
The Essentials of Holding and Diversifying Trust Assets

As much as you want to maximize the income being earned by the trust’s principal, you need to keep some cash on hand at all times for both expected and unexpected expenses. Expected expenses include scheduled income distributions and quarterly estimated tax payments. Unexpected expenses include unanticipated medical expenses for a beneficiary or larger-than-expected taxes for the trust.

You never want to sell an investment right before the April 15 tax deadline in order to pay a tax bill. Everyone else who owes taxes is facing the same tax deadline. Sales tend to flood the stock market around April 15 of every year, causing prices to plunge. Instead of selling when everyone else is, keep enough of a cushion of cash on hand in the trust to pay those bills when they roll around. After you’ve paid your bills, make sure to replenish your cash on hand.

Cash on hand doesn’t need to sit in an account earning nothing. Plenty of lower-risk money market accounts pay you something on your deposits, even if it’s usually not much. The money in the account remains very liquid, and you can pull it out at any time without a penalty when you need it. Every bank offers money market accounts, as do all mutual fund companies and stock brokerage firms.

You’ll have no difficulty opening one of these accounts wherever you keep your assets, although you may want to shop slightly farther afield. Some of the highest interest rates paid are offered by Internet banks, which have no local branches and very few employees, keeping their costs low.

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