As a Relationship Manager for a corporate fiduciary, I am often asked by my peers in the estate planning community about typical problem areas to keep in mind when drafting a trust document. Here are three topics to closely consider to ensure the grantor’s intentions are met:
Outside Resources
A standard question most planners will ask their client is whether they would like the trustee to consider a beneficiary’s outside resources when making trust distributions. It has come to my attention that many practitioners do not realize that if a trust is silent on this issue, the default rule used by most corporate fiduciaries is to consider a beneficiary’s outside resources. If the grantor’s intent is for the trustee to distribute without regard to outside assets, it is prudent to specifically state so in the document.
Pot Trusts
While pot trusts can be appropriate in some instances (after all, fair does not always mean “equal”), we too often see significant inequality in distributions among a class of siblings, especially when a large age-range exists. The result is often negative feelings toward the sibling who receives more. Go through the potential scenarios of pot trust administration with your client. Is it important to them that there is an equalization provision? What if one beneficiary goes to an Ivy League school and the other attends community college? One sibling may potentially utilize considerably more of the pot trust assets before the beneficiaries receive their individual shares. When utilizing a pot trust, be specific about whether equalization is important to the grantor.
Duty to Inform and Report
Minnesota’s version of the Uniform Trust Code (effective January 1, 2016) defines a Trustee’s “Duty to Inform and Report” under 501C.0813. The new law creates a duty for the Trustee to keep the qualified beneficiaries…reasonably informed about the administration of the trust…” Minn. Stat 501C.0813(a). However, the grantor may expressly provide that the duty does not apply. 501C.0813(b). “Qualified beneficiary” is a new term and includes current income and principal beneficiaries as well as remainder beneficiaries. 501C.0103(m). The grantor should consider who he/she would want to know about the existence of the trust when drafting a document. If the grantor does not want remainder beneficiaries to be notified of the trust’s existence, the drafter must expressly state that in the document.
Misunderstandings tend to occur when specificity is sacrificed in the name of flexibility. I think most corporate trustees would agree that clear direction is appreciated in order to administer a document that most accurately reflects the grantor’s intentions.
