Volume 9, Issue 1
The Wealth Advisor
5 Ways to Modernize Your Estate Planning Using Flexible Trusts
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.
1. Carefully select your trustees.
If you would like us to review your trust agreements and make recommendations for improving their flexibility, please call our office now.
1. The Wrong Trustee Can Derail Your Ultimate Wishes
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.
2. Your Trust Beneficiaries Need to Be Clearly Defined
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.
3. Powers of Appointment Can Add or Eliminate Beneficiaries
Planning Tip: Powers of appointment at each generation should be considered when creating a trust that is intended to last for decades into the future. In many cases, the powers can be as limited or as broad as you desire without creating any gift tax or estate tax problems.
4. Trust Decanting Takes Something Old and Makes it New
Planning Tip: You may be concerned that building decanting provisions into your dynasty trust will defeat your long-term goals and intent. Nonetheless, without building any flexibility into your trust agreement from the beginning, it is likely that your heirs will end up in court to fix a trust that no longer makes practical or economic sense.
5. Trust Protectors Can Fix Just About Any Problem
Planning Tip: Of any of the options you can include in your trust agreement 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 of your trust agreements.
Are Your Trust Agreements Flexible?
If you are interested in learning how to build flexibility into your revocable trust or how to modify an existing irrevocable trust, please contact us.
Sellers Johnson Law • 1 Research Court, Suite 450 • Rockville, Maryland 20850 • (240) 988-5530