A trust is among the most popular additions to a comprehensive estate plan. If you choose to incorporate a trust into your estate plan, you will need to make a number of important decisions during the creation of your trust. Among those decisions will be the amount of control you wish to retain as the creator of the trust. Our Phoenix trust attorneys at Morris Hall PLLC explains how much Trustee control is too much.
Trustee Control Basics
If you are unfamiliar with trusts, it helps to start by learning some trust basics. A trust is a legal relationship where property is held by one party for the benefit of another party. A trust can be used to help achieve a wide range of estate planning goals. The person who creates a trust is referred to as the “Settlor”, “Trustor” or “Grantor.” The Settlor transfers property to a Trustee, appointed by the Settlor. The Trustee holds that property for the trust’s beneficiaries, also named by the Settlor. The overall job of a Trustee is to protect and invest trust assets and to administer the trust terms found in the trust agreement. Your choice of Trustee is a crucial step in your trust’s ultimate success or failure.
Benefits of a Trust – Retaining Control Over Assets
One of the many benefits that make a trust such an attractive estate planning tool is the ability to retain a significant degree of control over the assets used to fund the trust – even after your death. As the Settlor of the trust, you create the trust terms. The Trustee is legally required to abide by all the trust terms unless a term is illegal, unconscionable, or impossible. That means you can use the trust terms not only to determine who will benefit from the trust, but also how those beneficiaries can use the trust assets. For example, your trust terms could require the assets to be used exclusively for educational purposes or you could require a beneficiary to provide documentation of outstanding medical bills in order to authorize a disbursement from the trust. This ability to control how the trust assets are used is undoubtedly a strong selling point for the use of a trust; however, it can also lead to the downfall of a trust if taken too far.
Can a Settlor Retain Too Much Control?
While it may be tempting to use the trust terms to micro-manage how the trust assets are used by the trust beneficiaries, retaining too much control can tie your Trustee’s hands and land your trust in court. If the trust is an irrevocable living trust and/or you are no longer alive, you cannot modify anything about the trust. If an unexpected issue arises – and they almost always do – and the trust terms do not allow any flexibility nor give the Trustee sufficient discretion, the only option will be to turn to a court. For example, imagine that your trust terms only allow trust assets to be used to pay tuition at your alma matter, but the school unexpectedly closes down, what happens to the trust assets? Retaining a certain amount of control is a primary benefit of using a trust; however, retaining too much can be detrimental. Along with being a bit more flexible with your trust terms, choosing the right Trustee, and giving him/her enough control to handle the unexpected are the keys to creating a successful trust.
Contact Our Phoenix Trust Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns relating to the creation of a trust or the choice of a Trustee, contact one of our experienced Phoenix trust attorneys at Morris Hall PLLC by calling 602-249-1328 to schedule your free consultation today.