Planning for the unknown is important in many areas of life – and planning your trust is no different. When planning all areas of your estate – it’s essential to think about the unexpected happening. By intentionally including long-term flexibility in your trust, you can ensure that your desires and intentions are carried out after you are gone – no matter what happens!
Changing times, circumstances and tax laws are inevitable, and building maximum flexibility into your trust documents ensures that your trust can adapt down the road in ways that you would be proud of!
Possible changes in tax laws are perhaps the most universal variables in estate planning. While the current Tax Cut and Jobs Act (TCJA or Act) benefits many high net worth individuals and families, the Act is complex and many of its provisions expire at the end of 2025. Because tax law is an important facet of estate planning, it’s important to make sure that all the elements of your estate (such as trusts) can adapt effectively to changing tax laws. Otherwise, your beneficiaries and other loved ones could face challenges you never intended for them.
And tax laws aren’t the only variable – people and family circumstances can change too. You want to consider that in your trust planning, otherwise your assets and legacy could be misused or be passed down to someone other than your intended beneficiaries.
So, what’s the secret to a flexible trust?
According to retirement experts at Forbes, three key considerations can help you ensure that your trust can be adapted as both your circumstances and tax legislation evolve. Keep reading to understand how to implement those key elements into your trust!
There’s a growing trend towards drafting trusts that are fully discretionary, meaning no beneficiary is entitled to any distributions. Instead, the beneficiaries must wait for the trustee to exercise its distribution powers. Discretionary trusts can be helpful when beneficiaries have the potential to erode trust assets due to, among other reasons, irresponsible behavior or poor money management skills, says Forbes. When trustees are given discretion, beneficiaries have no property interest in the trust, only “mere expectancy.” The trustee decides if, when and how much to distribute to the trust beneficiaries. In a fully discretionary trust, the trustee has no decision-making restrictions. Therefore, when drafting trust documents for a discretionary trust, it’s important to build in certain standards by which the trustee must abide.
And no, we’re not talking about wine here! In estate planning, decanting is a term used to describe a flexibility tactic that allows for the distribution of assets from an old trust into a new one. The reason for this is that in some cases, a new trust might better reflect changing family circumstances, more favorable terms, or broader investment parameters. Decanting can address an existing irrevocable trust with terms that are incorrect, inappropriate or insufficient to accomplish the grantor’s intentions. However, decanting is not legal in all 50 states. Fortunately, Florida is one of the states that currently allows decanting in trust planning. Learn more by talking to an estate planning attorney today!
Another popular strategy for building flexibility into trusts is establishing a trust protector. A trust protector is a person who has powers over the trust but is not the trustee. A protector is typically named to provide supervision over a trust that will be in effect for a long time. The longer a trust will be in effect, the more susceptible that trust is to changing circumstances.
Trust protectors are practical for addressing issues and solving problems that were not or could not have been anticipated at the time of the trust’s creation. After all, you can’t know the future! Trust protectors have the power to remove or replace trustees, change beneficiaries, veto investment decisions, change administrative provisions, and change trust situs as appropriate.
Building flexibility into trust documents is essential now more than ever if you want your trust to adapt to changing circumstances. Without the proper provisions, court involvement may be necessary to make amendments to an existing trust. These legal processes can become expensive and time consuming for your loved ones, but you can save them the headache by thinking ahead when developing estate planning documents. By working now to incorporate flexibility that accommodates an ever-changing future, you will be maximizing your legacy for your beneficiaries and loved ones.
At The Estate, Trust, and Elder Law Firm we help you set up a trust that will stand the test of changing times and changing families. Contact our Vero Beach office at 772-410-5156 or online to get started on flexible trust planning.
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The Estate, Trust, and Elder Law Firm, P.L.
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