Volume 10, Issue 1
The Wealth Counselor
Five Ways to Make Trusts More Flexible
Trusts that continue for the benefit of a surviving spouse’s lifetime and then for the benefit of several generations have become the norm. Drafting trust agreements that will cover the administration, investment, and distribution of trust property over the span of multiple decades is challenging. In this issue you will learn how trust agreements can be made flexible to address changes in the lives of beneficiaries and governing laws by:
1. Carefully selecting trustees.
If you would like us to review any of your clients’ trust agreements and make recommendations for improving their flexibility, please call our office now.
The Wrong Trustee Can Derail Your Client’s Wishes
On the other hand, forcing trust beneficiaries to be stuck with the wrong trustee without a reasonable means for removing and replacing the trustees will land the beneficiaries and trustee in court. It is crucial to build provisions into the 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 a client will make when creating a long-term 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.
Trust Beneficiaries Need to Be Clearly Defined
Planning Tip: While clients cannot predict or foresee everything that will happen in the future, they should still take time to consider who they want to take care of after they are gone. Clearly defining the class of beneficiaries who will benefit from the trust will allow for a smooth transition between generations and potentially head off litigation.
Powers of Appointment Can Add or Eliminate Beneficiaries
Planning Tip: Powers of appointment at each generation should be considered when designing a trust that is intended to last for decades into the future. The powers can be as limited or as broad as the client desires without creating any gift tax or estate tax problems.
Trust Decanting Takes Something Old and Makes it New
Reasons for decanting a trust may include the following:
Planning Tip: Clients may be concerned that including decanting provisions into a dynasty trust will defeat their long-term goals and intent. However, including the authority to decant a trust provides flexibility into the trust agreement from the beginning, reducing the risk that a client’s beneficiaries will end up in court to fix a trust that no longer makes practical or economic sense.
Trust Protectors Can Fix Just About Any Problem
Planning Tip: Of any of the options clients can include in their trust agreements to insure flexibility, a trust protector is in and of itself the most flexible. This is because a trust protector can be given the right to appoint, remove and replace trustees; include or exclude beneficiaries; adjust powers of appointment; and decant the trust into a new one. Therefore, trust protector provisions should be included in all trust agreements.
Are Your Clients’ Trust Agreements Flexible?
If you are interested in learning how to help your clients build flexibility into their trust agreements or how a client’s existing irrevocable trust can be modified, please contact us.
Law Offices of J.R. Hastings • 1003 Third Street, San Rafael, California 94901 • 415-450-6692