Your estate plan undoubtedly includes trusts that will continue for the benefit of your spouse’s lifetime and then for the benefit of several generations of your family. Implementing and maintaining trusts that will cover the administration, investment, and distribution of trust property over the span of multiple decades is challenging and generally requires you to have flexibility in your trust agreements. In this issue you will learn five ways that flexibility can be incorporated into your trust agreement.
- Carefully select your trustees.
- Define your trust beneficiaries.
- Include powers of appointment.
- Allow for trust decanting.
- Provide for the appointment of a trust protector.
If you would like us to review your trust agreements and make recommendations for improving their flexibility, please call our office now.
- The Wrong Trustee Can Derail Your Ultimate Wishes
Choosing the right succession of trustees for a long-term irrevocable trust is critical to the trust’s success and longevity. You have most likely considered naming (or have already named) one or more of your family members as Trustee(s). You may have also given the ability for the Trustee to appoint additional family members because they will better understand the varying needs of your beneficiaries and will keep the costs of administering the trust down.
However, your family members will not be able to fulfill all of their fiduciary obligations without hiring legal, investment, and tax advisors. These expenses will add up and can ultimately cost more than a corporate trustee, such as a bank or trust company, which will be able to meet all fiduciary obligations under one roof for one fee.
On the other hand, forcing your trust beneficiaries to be stuck without a reasonable means for removing and replacing trustees will land your beneficiaries and trustee in court. Therefore, it is crucial to build provisions into your trust agreement which allow beneficiaries or a trust protector (more on them below) to remove and replace trustees without court intervention.
Planning Tip: Selecting a trustee is one of the most important decisions you will make when creating any long-term irrevocable trust or dynasty trust. Serious consideration should be given to naming a corporate trustee, either alone or as a co-trustee with a family member or trusted advisor. A corporate trustee will act as a neutral party to oversee discretionary distributions and investment strategies that benefit both current and remainder beneficiaries. To create flexibility, specific beneficiaries (such as current income beneficiaries) or a trust protector should be given the right to remove the corporate trustee and replace it with another corporate trustee.
- Your Trust Beneficiaries Need to Be Clearly Defined
You need to carefully consider who you want to include as beneficiaries of your trust twenty, thirty, or even fifty years into the future. Should adopted children be included (both minor and adult adoptees)? How about children born using “assisted reproductive technology”? In the past the definition of a “descendant” or “child” was straightforward, but today it can encompass much more than blood heirs.
Planning Tip: While you cannot predict or foresee everything that will happen in the future, you should carefully consider who you want to provide for after you are gone. Clearly defining the class of beneficiaries who will benefit from your trust will allow for a smooth transition between generations and potentially head off litigation.