Legal Blog

Weekly Scenario: Is There Flexibility in an Irrevocable Trust Fund?

Question:  I would like to set aside funds in trust for my children.  However, I worry about the future, which if nothing else, is unpredictable.  How can I make an irrevocable trust a more flexible document?

Answer:  As the name implies, an irrevocable trust is for all intents and purposes – irrevocable.  However, there are a number of ways to make an irrevocable trust a bit more palatable if the term irrevocable is a bit hard to swallow.

One way, is to give the trustee full discretion in making distributions for the beneficiary’s benefit rather than requiring mandatory payments.  If you appoint a Trustee who exercises good judgment, the Trustee will determine what is in the best interests of the beneficiary for whom the Trustee is tasked with protecting.

Another way is to give the Trustee not only the power to make distributions, but also the authority to hold back distributions if the beneficiary has circumstances warranting it, such as in the case where a beneficiary has developed a special need or a substance abuse problem.  It is not always known if a child will develop such a problem which could occur after a trust is funded.  When the beneficiary is older, the Trustee can choose to ‘turn off the spigot’ of distributions when those distributions might be harmful to the beneficiary.

A third way is to grant limited powers of appointment.  A limited power of appointment gives someone the right to appoint the assets to someone else, typically at their death. This allows the beneficiary to use their additional knowledge of the facts which have transpired since the trust was drafted to adjust the disposition of assets.

For example, let’s say the beneficiary has assets in trust for her lifetime. At her death, the assets will go to the beneficiary’s two children equally, unless altered by the beneficiary’s limited power of appointment. The limited power of appointment allows the beneficiary to change the disposition of the trust (which otherwise wouldn’t be able to be changed) and offers a last look.

Comment:  Flexibility can add a great deal to the utility of a trust. It is essential to draft flexible provisions into your trust because none of us knows how the future might unfold.

 

 

As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.

ABOUT STEVE SHANE

Steve Shane Casual Smallsshane@offitkurman.com | 301.575.0313

Steve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.

 

 

 

ABOUT OFFIT KURMAN

Offit Kurman is one of the fastest-growing, full-service law firms in the mid-Atlantic region. With over 185 attorneys offering a comprehensive range of services in virtually every legal category, the firm is well positioned to meet the needs of dynamic businesses and the people who own and operate them. Our twelve offices serve individual and corporate clients along the I95 corridor in the Virginia, Washington, DC, Maryland, Delaware, Pennsylvania, New Jersey, and New York City regions. At Offit Kurman, we are our clients’ most trusted legal advisors, professionals who help maximize and protect business value and personal wealth. In every interaction, we consistently maintain our clients’ confidence by remaining focused on furthering their objectives and achieving their goals in an efficient manner. Trust, knowledge, confidence—in a partner, that’s perfect.

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