When you meet with a Farner & Perrin attorney, you are asked to provide us with a financial profile so that we can assess how the structure of your plan affects your specific assets. Many of our clients are fortunate to be beneficiaries of trusts and oftentimes do not realize they have certain powers over those trusts exercisable in their own Wills and otherwise.
We always inquire about those trusts, asking you to provide us with a copy. We then review the trust instrument to determine if you have any power to do the following: (1) name successor trustees; or (2) refine/redirect how the trust passes upon your death.
Some clients are inclined to defer (default) to the successor trustees named in the original instrument, but this can be quite burdensome/costly in the wrong case. Here’s an example. Benny-the-Beneficiary is the beneficiary of a trust from his parents. Benny is also the trustee of the trust, but if he cannot serve, the back-up trustee is Big Bank. When Benny dies, the trust passes to his two children, Bill and Jeff (both of whom are independently wealthy; Bill runs a software giant called Microsoft; Jeff runs an online shopping retailer called Amazon).
Benny would be well advised to undertake two planning steps, if the trust from his parents grants him the above-mentioned powers:
1. Benny could replace Big Bank as successor trustee in the event Benny is incapacitated or dies. Without this affirmative action by Benny, Big Bank becomes trustee at Benny’s death, acting as the “conduit” to take control of the trust assets and summarily pass them to Bill and Jeff. Since Big Bank takes on a “fiduciary” role at that point, there is a “toll charge” involved before Bill and Jeff can receive the assets. The toll charge is not insignificant (given the responsibility Big Bank has undertaken, including clearing pending tax obligations etc.). If Benny has been granted the power to replace Big Bank with say, Jeff, then Jeff can serve as that conduit trustee and distribute the trust assets to Bill and himself. To exercise this power, Benny simply executes a straightforward document, separate and apart from his Will. The key is identifying the issue, and that is where our Firm focuses.
2. Depending on the wording of his parents’ Wills, Benny could direct or “appoint” the disposition of his trust upon his death. Let’s assume Benny has the power to redesign how Bill and Jeff receive this wealth upon his death. Perhaps he feels that Bill and Jeff would be better served if their respective 50% shares of the trust were to pass in further trust upon his death. Jeff’s half could be held in a trust created under Benny’s Will, wherein Jeff is the trustee. Jeff’s continuing trust is protected from creditors or divorce, and is outside the reach of the Federal estate tax at Jeff’s death (up to a limit). The same would be true for Bill’s share of the trust.
Farner & Perrin is dedicated to helping clients who have these “super powers,” so that they don’t simply default to outdated trustee and beneficiary succession. You could say we want to see these powers used for the good for which they were intended.