One benefit to using a trust as part of your estate plan is that it allows you to exercise greater control over the distribution of your assets even after you’re gone. As the name implies, a trust exists when you transfer assets to the control of a trustee, who is then bound to follow your instructions in managing and distributing those assets. A trust may last for many years after the maker’s death, depending on the conditions specified in the original trust instrument.
It is not uncommon for a trust to make conditional bequests to beneficiaries. For example, a person making a trust (a grantor) may want certain assets used for the benefit of his children, but for one reason or another, he may decide it is not advisable to simply give the children everything upon his death. One solution would be to structure the trust distributions based on age: the children get one-third of their share upon turning 21, another third upon turning 25, and the remainder upon turning 30. In this way, the grantor of the trust has some assurance his children will not receive a large sum of money before they are mature enough to handle it.
Another example of a conditional bequest is a trust established to defray certain types of expenses. A grantor may decide she wants to set aside funds to pay for her grandchildren’s college education or the medical expenses of a child with ongoing special needs. In these circumstances, the trust should instruct the trustee on how and when to distribute trust assets to fulfill these specific purposes. The trust should also contain clear provisions on when to terminate the trust, and who to distribute any remaining assets to; otherwise the trust may continue indefinitely, which may not be the grantor’s intent. There is, in common law, a “rule against perpetuities,” which holds a trust should terminate no later than 21 years after the death of the last person identified as a beneficiary at the time the trust was made, but this rule may be overruled by the express terms of the trust.
Some grantors go even further and condition trust distributions on the beneficiary taking (or not taking) a particular action. There are, for instance, cases where a grantor requires a child to marry within a specific religious faith as a condition of receiving a bequest under a trust. In a recent California appeals court decision, a grantor instructed his trustee to make annual distributions to his children based on how much they earned working that year. The grantor’s son challenged the trustee’s determination that he failed to present sufficient evidence of his income. The appeals court found the trustee acted within his discretion.
One thing to keep in mind is the more unusual the conditional bequest, the more likely there will be litigation by an aggrieved beneficiary. Even under the best of circumstances, imposing specific conditions may add years to the administration of a trust, which only decreases the assets available for distribution. Before considering any such conditional bequests, it is always best to consult with an experienced California estate planning attorney. Contact the Law Office of Scott C. Soady in San Diego today if you have any questions.