One hundred years ago there were no commercial airplanes, women couldn’t vote, the average family had 5 children, divorce was rare, children born outside of marriage had no inheritance rights, and surrogacy was virtually unheard of. In 2019 we have same-sex marriage, flexible gender identity, assisted reproductive technologies, digital assets, cryptocurrencies and an epidemic of lonely seniors. What will our society be like in 20 years? The pace of change is increasing, so while you draft your documents today, make sure that these documents are sufficiently flexible to adapt to our unknown future.
1. Have your trust incorporate almost all of the possible trusts that could be created upon the Grantor’s passing. It’s impossible to know in advance whether your beneficiary will be going through a divorce, be part of a polyamorous relationship, will be in a drug rehab center, will be sued by a passenger in a nearby vehicle, will have estate tax problems, or will have special needs that require government benefits. A flexible trust can incorporate all these future needs.
2. Provide maximum flexibility. This should include:
- avoiding using gender pronouns and words like husband and wife.
- a provision for a Trust protector who can amend the Trust if needed, even if the Trust is irrevocable.
- ability for the Trust to be decanted in the event conditions change so dramatically that the old Trust just does not answer the present needs.
3. Consider using broad power of appointments (POAs) for grantors and beneficiaries, to ensure that assets can be distributed in the most optimal way.
4. Include a power to substitute assets for the Grantor. The Grantor may want to substitute high basis assets for low basis assets in the Trust. This way the high basis assets will be out of his estate, while the low basis assets will be included in his estate upon death and will receive a step up in basis upon passing.
5. Consider giving the Trustee a power to add charitable beneficiaries to an irrevocable trust. This will reduce the amount available to the beneficiaries and, as a result, may reduce potential litigation amongst the beneficiaries.
6. Allow for change of situs. Every state may adopt different laws that could result in significant financial penalties for a Trust. A flexibility to move the situs may result in savings of hundreds of thousands.
7. Provide creditor protection. Given how prevalent law suits are, most Grantors are concerned about their beneficiaries getting sued. Some of the provisions that provide creditor protections include:
a) Beneficiary trustees having an ability to resign their trusteeship,
b) Ability to appoint an independent trustee with a right to make all distributions and
c) Discretionary distributions only by independent trustees.