Last Updated on October 29, 2022 by Estate Planning FAQ
Once the reader had determined to have a revocable trust as part of their estate plan, it is necessary that the trust contain certain minimum sections to control the administration of the assets. This article is not intended to be conclusive of all sections that a trust should contain. The sections set forth below are those which should be included, at a minimum. As with other articles, the trust should be created for the specific needs of the person. Although there are “cookie-cutter trusts” available (usually at a cheaper cost), care should be given to make certain that each provision carries out the specific needs of the individual.
4 Main Categories of Sections for a Trust
The sections for the irrevocable trust can be categorized into four separate areas. Those areas include: (a) identification; (b) dispositive provisions; (c) powers of trustee and (d) other sections for governance but not necessarily powers.
Identification of Grantor(s) and Family
First, the trust should identify the owner of the Trust, commonly referred to a the Grantor or the in case of a married couple, Grantors. The marital status should also be identified. The state of residence of the Grantor is also commonly listed. The Trust also commonly lists the names of the children or confirmation of no children along with the names of any step-children as well.
It is essential that the Trust identify by name the Grantors. It is typical that the Grantor is also an initial trustee. As has been discussed in previous articles regarding spousal rights, it is also necessary to set forth the marital status of the Grantor. Identification of the marital status will assist the trustee in future administration. As with the discussions regarding sections that should be in a last will and testament, the Grantor should also specifically identify how many children they have, whether any of the children have predeceased the Grantor and the names of those children. As previous articles have discussed, please click here, it is necessary to identify the names of the children. It is not necessary that you leave anything to the children. However, most states have laws regarding pretermitted children. If the names of the children are excluded the presumption is that they were overlooked and would be entitled to inherit a portion of the trust. Therefore, it is good practice to have the children’s name listed.
Dispositive Provisions
After the identification category, the next section that a trust should contain are the dispositive provisions. Dispositive provisions are those which state how the trust will be administered and distributed to the beneficiaries. This distribution can include whether it is to a spouse for their lifetime or outright distribution. Alternatively, if the spouse predeceases or has their own funds it would go to the individuals or charities named.
As part of the dispositive provisions, it is typical and the trust should contain a reference to a handwritten the list. Most, if not all jurisdictions should have a statute that allows the Grantor to provide those items of tangible personal property, typically household goods, furnishings, furniture, etc. to the individuals named. It is common to have this provide to individuals that may not otherwise inherit. Family heirlooms are one type of personal property that typically gets passed down to the next generation but not necessarily inheriting any other assets. If the handwritten statement does not exist, there is typically a provision that states how the items of tangible personal property will be distributed. It has been the author’s experience that items of personal property that have sentimental value produces the largest family conflicts. Distribution of grandma’s rolling pin and favorite baking dish can cause fights that run more deep than disputes of disposition of cash.
After the tangible personal property, it is common and the trust should contain how the assets are to be distributed. This could be in bulk by stating for example “1/2 to each of my two children equally”; it could also provide on a percentage basis to individuals. If the Grantors desire that certain assets be distributed to certain individuals, for example, real estate, the Trust should identify with particularity that asset. Other than that, it is common for the trust to refer to the “rest, residue and remainder”. This provides that all of the remaining property gets distributed to the persons named. It is not necessary that each person receives an equal share of each of the assets. the only thing that is required is that the value of the rest, residue and remainder to be distributed is equal to each of the persons if that is what the Trust calls for.
Young Beneficiaries and/or Future Trust Section
In relation to the rest, residue and remainder, the trust should also contain at a minimum a young beneficiaries section. This provision would provide for the items that otherwise would be distributed to an individual to be held in trust for them until they reach a certain age.
It is also common to for a trust to provide in addition to limitations until a beneficiary reach a particular age to also provide that distribution will occur when certain milestones are achieved. Some of the milestones could include drug testing, graduate from college, lose weight, etc.
Trustees Powers
After the dispositive provisions, the Trust it should also contain a description of the powers that the trustee(s) has. It should also identify who the successor trustee is and if that trustee cannot act who would be next in line. Under the powers section, this should set forth what powers the trustee has and if there are any limitations. For example, the Trust typically contain provisions allowing for the sale of real estate, investment in certain types of Investments, management of businesses, etc.
Governance Provisions
Finally, in addition to the above, some trust contains, and these are considered optional, sections that deal with the inability of a beneficiary to pledge their interest, commonly known as a spendthrift clause; an interrorem clause which typically provides that any event a beneficiary chooses to challenge the trust that they lose any inheritance they would otherwise receive; a provision dealing with the rule against perpetuities, a legal term, along with other provisions that may be unique to the individual person.
Each trust is unique to the individual. It is up to the person to have the document tailored to them to meet their individual needs. The reader should consult with a professional in their jurisdiction to determine what, if any of the above, is applicable and discuss the terms with their providers.