Trusts and Estates: 7 Steps to Designing the Perfect Trust and Estate Plan – Part 6 & 7

Welcome back and congratulations for sticking with us – this is the final post in our four-part series on Designing the Perfect Trust and Estate Plan.  If you missed either of the previous posts or just want a refresher:

Part 1 – Steps 1 & 2

Part 2 – Steps 3 & 4

Part 3 – Step 5

In essence we have saved the best for last – in this post we bring the series to a close by looking at the single most important thing you can do to help your trustee and your family: providing trustee guidance.

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Step 6 –  Provide Guidance

When you are creating your perfect trust and estate plan, you will want to pay careful attention to the instructions you provide to your trustee.  By clearly stating your intent, you can minimize the potential for any conflicts or misunderstandings later.

First, regarding distributions of principal to your surviving spouse, think about how generous you want the trustee to be in exercising his or her discretionary power. Is your focus on providing comfort and care to your surviving spouse? Or maybe you’re focused on preserving the principal of the trust for your children (careful with that one!). If you want to allow for luxury items or permit your spouse to use trust principal beyond “support,” such as charitable giving, you should work with your attorney to carefully craft that language.

Or, if you are creating a trust for children, grandchildren or even great-grandchildren, you may be wondering how to enhance their lifestyles without enabling bad behavior or creating over-entitled “trust funders.” For example, you may wish to incentivize certain behavior, perhaps by rewarding beneficiaries who stay in school and contribute to society. A number of clients have constructed salary matching programs to allow trustees to not just reward high achievers and earners, but also help out those beneficiaries that pursue their passions in other meaningful, but less lucrative, professions. Give your trustee the power and guidance to reward teachers, surgeons, artists and investment bankers in different ways.

Another critical consideration is whether your trustee should take into account the other resources available to your surviving spouse or children. For example, if a beneficiary has substantial income or assets of her own, should the trustee require her to send in tax returns or to use her own assets first before making distributions? This issue can be especially important with a blended family in which the surviving spouse may be pressured by children from a prior marriage to preserve assets for them.

And this raises the larger point: Without some direction for your trustees, conflicts can easily give rise to disagreements or litigation. Settlements and court decisions can often result in a complete reshaping of your original plan.

At the same time, you can’t anticipate every possible scenario. But giving careful guidance to your trustee can go a long way to minimize conflict and give your loved ones a fair and thoughtful gift that can improve their lives tremendously.

Ways to Provide Your Trustee With Guidance

How do you provide this guidance to your trustee? There are a two main approaches:

  • Directly in the trust agreement – certain non-binding language in the trust (known as “precatory language”) can be used to guide the trustee and also demonstrate, perhaps to a court or arbitrator, exactly what your intent is. (Grantor’s Intent is the all-important consideration that trustees and courts use to determine the best course of action when the way is unclear.) This is tricky though. If your trust’s precatory language is too rigid it can lead to a claim that your “guidance” is actually a command and therefore binds your trustee’s hands.
  • Side letters – often it is helpful to write a letter to your trustee explaining your thoughts and objectives. This can also serve as guidance as to Grantor’s Intent without running the risk of becoming a command. The letter is not part of your trust agreement, so it can never become binding on the trustee. At the same time there is always a risk that the side letters can be lost, and there can be complications if later letters conflict with the first. In fact, there can be some estate tax concern if the letters are viewed as substantial manipulations of the trustees after the fact.

A combination of these tools is usually advisable. And guidance is just that – guidance. Resist the urge to be heavy handed or try to over-engineer your trust provisions. Remember you do not have a crystal ball – there is really no telling what the laws, tax environment or your grandchildren will be like many years from now. If you doubt the truth of that notion, think back to the 1970s or 80s and try to imagine someone telling you then that you’d be carrying something called the Internet in your pocket on a portable phone.

Finally, don’t worry too much right now about the format of your guidance to your trustee. Just jot down some bullet points or notes to discuss with your estate planning attorney. He or she can guide you on the best approach.

Which leads us to the final step…

Step 7 –  Take this outline to your trust & estates attorney!

If you have read and thought about steps 1 through 6, written down some notes, and feel comfortable with your intentions, you are ready! Go visit with your trust & estates attorney to create the perfect trust and estate plan for you and your family. Trust me when I say he or she will be blown away by the level of your thoughtful preparedness!

Good luck! If you have any questions, please, get in touch. Click here to ask us a question via the website, or click here to contact us directly.

We look forward to sharing more information with you to help you plan for your family’s future. Visit our website www.OakstoneLaw.com or call us at 239-206-3454.

Oakstone Law is dedicated to helping clients build a solid future by offering a range of services focusing on estate planning and estate and trust settlement (click here to view our services). Headquartered in Naples, Florida, the practice offers easy-to-understand, fixed-cost Client Service Packages, eliminating the traditional hourly rate structure (and headaches). Oakstone Law was founded by attorney Robert Kleinknecht, member of the Florida Bar and Massachusetts Bar. Bob has 15 years’ experience, including serving as a personal, in-house estate, tax and charitable planning attorney for a Forbes 400 family for over 8 years. He also previously served as an estate planning and estate settlement attorney with prominent firms in Boston and Washington, D.C. Click here to ask us a question via the website, or click here to contact us directly.

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Oakstone Law
14710 Tamiami Trail N, Suite 102
Naples, Florida 34110
Tel: 239.206.3454