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Flexibility in Trust Planning

VIEW PLANNING UPDATE (PDF)

SUMMARY

The use of trusts for long-term planning can provide many benefits; however, setting up a trust at one point in time to cover all potential future circumstances without flexibility is not advisable. From the start, it is wise to incorporate trust provisions to accommodate changing family needs, new tax and legislative implications, and varying economic conditions.

This planning update addresses the use of grantor trusts to transfer wealth to family members and how to incorporate flexibility so that long-term planning is enhanced, not restricted, through the use of the trust. Topics covered, among others, include providing for beneficiaries through income distributions and access to principal, adding “what if” provisions, comparing limited and general powers of appointment options, and understanding a process known as “decanting” the trust.

 

KEY TAKEAWAYS

  • Structuring a trust as a grantor trust can enhance the transfer of wealth by allowing assets to grow without the drag caused by income tax.
  • Incorporating provisions that contemplate the presence or absence of what was once thought of as permanent can provide flexibility and serve as another means to communicate the grantor’s wishes.
  • The question of how much income and/or principal to make available to a beneficiary should be addressed with thought given to different scenarios that may occur in the future.
  • In addition to federal law, state trust law is evolving on a regular basis. Consider the impact of the state the trust is established in and the possibility of changing trust situs in the future.
  • Naming a “trust protector” can be beneficial to accomplishing many goals. The individual in this role can ensure the grantor’s intentions are carried out after death and that the trust is not adversely affected by regulatory changes or other unforeseen circumstances.