Planning for Confidence in Unprecedented Times

The cloud of uncertainty hanging over the current and future state of our health, politics, economy and tax laws makes flexible fiduciary planning more important than ever. Modern trusts can be drafted and existing trusts can be modified, to provide flexibility for a family to navigate an unknown future and preserve family heirlooms from generation to generation. Many families will use their inheritance, gift, and generational transfer (GST) tax exemptions to fund a modern and flexible trust for important non-tax reasons. These non-tax reasons allow a family to face future uncertainties. Some of the important non-tax reasons are discussed below.

Promotion of family values ​​and social responsibility

The ability to pass family values ​​from one generation to the next is very important to many families. The modern managed trust can promote fiscal and social responsibility because family members and family counselors play such an important role as mentors in the distribution committee (DC) of the managed trust. The DC determines the trust distributions and directs the administrative trustee accordingly. Family members and their advisers can usually sit on these DCs and determine the distributions of income and capital in trust. Any distribution of trust beyond health, education, maintenance and support (HEMS) would be considered tax sensitive and would require an independent trustee (e.g., a corporate administrative trustee, a CPA, a lawyer or a combination of these) to make the DC distribution decision. In the event of illness, disability or incapacity, the CD, made up of family and family counselors, can flexibly deal with unforeseen family needs. The grantor and the beneficiaries can add or remove CD members.

Additionally, these modern non-charitable managed trusts can be crafted to allow distributions not only to family beneficiaries, but also to charitable beneficiaries. Distributions to charities from a modern non-charitable managed trust promote family social responsibility and result in an unlimited tax deduction for the trust. The charitable deduction in the trust, however, is generally secondary for most families.

Beneficiary Calm

It can also be useful for a family to keep a trust secret from one or more beneficiaries until they are ready or need to know of the existence of a family trust. Information is generally withheld from a beneficiary if he or she lacks financial maturity or does not understand family values. Other reasons are asset protection, divorce, identity theft, ransom, and other related issues. In many modern trust states, the trust can also remain silent even after the death or incapacity of the settlor.


In addition to the flexibility of investments and the distribution of trusts, many families also want to protect themselves against future divorces. The divorce rate is historically 50%. This has increased since COVID-19. Modern managed trusts offer excellent protection against intergenerational divorce. Most trusts have traditionally relied on the expense clause to protect the family trust’s assets from divorce. Generally, the expense clause prevents the seizure or assignment of a beneficiary’s interest in an irrevocable trust before the interest is distributed. The expense clause is usually the only line of defense with most traditional trusts. There have been many recent successful attacks on these spendthrift trusts, which are usually the result of the creditors’ expense clause exception. Alimony is one of these exceptional creditors. Recently, cases across the country have shown that courts can ignore an expense clause with trusts set up by parents and / or grandparents for children and / or grandchildren (third party trusts) when exceptional creditors are involved. Some of the modern managed trust jurisdictions have powerful asset protection laws and case law that protects these discretionary trust interests. These jurisdictions codified the common law and (Second) restatement of trusts, which states that a discretionary trust interest is not defined as an enforceable property or right. This discretionary protection of interests also includes the distribution powers of HEMS. This makes it difficult to seize discretionary trust property in these states directly or as an expense clause exception creditor.


Litigation, such as divorce, is also very difficult to anticipate. Future lawsuits can come from any direction, especially in times of uncertainty. Families should plan accordingly. Modern trusts offer excellent protection of assets and preservation of wealth as the discretionary interests of the trust are not defined as a property or a performance right. Additionally, many modern managed trust states have laws that provide that a court can award attorney fees and costs to the winning party. Therefore, the trustee can be reimbursed for legal fees if the plaintiff loses. All of these factors discourage lawsuits by providing barriers to litigation against a modern trust, thereby protecting a family’s wealth. It is also important that many modern trust jurisdictions seal court records, except for the names of the parties and any other interested parties as determined by the court.

Family inheritance

COVID-19 has made many people recognize their own mortality, which has given rise to a desire to support their families on an intergenerational basis. This is also important with family assets and heirlooms. Purpose trusts are a great way to preserve these items. Purpose-based trusts have no beneficiaries; on the contrary, their sole purpose is to care for, protect and / or preserve an asset for a period of several years or in perpetuity. They have a trust executor to enforce the goal as well as a trust protector to oversee the trust and the administrative trustee directed. If the objective of the trust is achieved, the protector of the trust can then convert the trust into a beneficiary trust. Many types of family assets, such as graves, antiques, cars, works of art, jewelry, memorabilia, royalties, digital assets, land, property, buildings and homes vacations are generally best suited for a trust purpose.

Pets are also valuable assets and another important reason for establishing a utility trust. A pet owner is always worried about their pet’s predecessor, and COVID-19 has caused many people to worry about their pet’s future.

Single-use trusts are also popular with families who want cryonic suspension for family members and / or pets. The hope is that they can be brought back to life at some point in the future.

Unprecedented planning

Unprecedented times and an uncertain future call for unprecedented planning. Modern managed trusts are one of the best vehicles for ensuring heritage preservation as well as intergenerational flexibility. Whether the federal inheritance tax, gift and GST exemptions are high, low or repealed, trusts still make sense for a multitude of non-tax reasons. Therefore, modern directed trust continues to gain popularity. This gave rise to a desire for long-term and unlimited-term trusts. It is important that advisors continue to educate clients about the flexibility offered by these modern trusts combined with their ability to guard against current and future uncertainties.

* The full version of this article, “Flexible trusts to face future uncertainties, ”Appears in the January 2021 issue of Trusts and Estates.

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