Another Planning Resolution by Phil Runyon

Another Planning Resolution

In addition to resolving to being nicer people this year, let's also resolve to keep our planning documents in good order - and let's start with our trusts.

Many of us have trusts that say to use the assets for our children's or grandchildren's "health, maintenance, support and education" (HMSE) until they hit certain ages, and then to distribute what's left to them outright.  Maybe the children (or a particular child) have already reached those ages but still need some oversight to use the assets responsibly. That might call for pushing the distributions out a little farther, or at least dividing them into two or more installments so poor choices at one age won't completely drain the tank.  But consider . . . . 

The HMSE standard for distributions can itself be problematic these days, in the event a child is faced with divorce.  More and more courts (most recently in Massachusetts) are holding that trusts based on that standard can be valued and considered in property settlements with the child's soon-to-be-ex-spouse.  The better plan in this judicial climate is to make distributions to or for the children completely discretionary by the trustee - so there's no quantifiable expectation of distributions at all.  And to eliminate all specific ages for final distributions - so there's no way to compute (and award the ex-spouse) the present value of what may eventually be distributed.  Needless to say, it's also important that the child not be his/her own trustee, or the court will see right through that arrangement - so consider using either an independent trustee or multiple trustees who would have to act by majority or unanimous consent.  Of course, if you figure your kids just have to sink or swim at some point, then fine as long as you understand the issues.

While we're on trusteeship, consider this issue, as well.  Many banks and brokerage firms have gotten extremely skittish and aren't willing to allow an agent to act for a trustee through the trustee's power of attorney - no matter what it says.  That can cause real problems if you've gone to the trouble of titling all your assets in your trust's name (say, to avoid probate), but you're still the sole trustee.  If you want a child or another agent to be able to act for or with you, you may need to appoint that agent as a co-trustee of the trust, or even to resign so the successor trustee can carry on for you.

This emphasizes how important the role of successor trusteeship can be, and why it's critical to make sure the ones you've designated are still right for the job.  Maybe they've had health or financial setbacks of their own, or perhaps a new job has taken them several time zones away.  Maybe if they're your contemporaries, you just need a new generation of trustees who can carry on as long as the trust is likely to be needed.  

Finally, if your trust is more than 10 years old and hasn't had a recent physical, it's time for one.  In addition to what I've already said, maybe the people or organizations you named as partial or contingent beneficiaries are no longer the apples of your eye; or perhaps the joint trust you have with your spouse says the surviving spouse can't make any revisions after you're gone, and now that seems like a good safety valve to include.  And these are just the low-hanging fruit. 

Posted 01/25/2016 EP