Timing and Distribution of Assets

When you review Article V you will see that Jane has given her successor trustee different instructions for different beneficiaries. Your plan does not have to be the same for all of your beneficiaries. The flexibility to create different plans for each beneficiary is one feature that makes a trust a very attractive estate planning document.

ARTICLE V DURATION AND DISTRIBUTION OF TRUST

5.1 Trust Share and Taxes, Debts, and Expenses. The Trustee may pay from the Trust all federal estate taxes, including any interest or penalties thereon, for which my estate shall be liable. The Trustee shall also pay from the Trust such of the inheritance, estate, succession, transfer, and other estate taxes, both federal and state, including any interest or penalties thereon, charged against my estate or any person or entity, which become payable by reason of my death, whether in respect to property passing under this Trust, my Will or otherwise. If there is no probate estate and therefore no Personal Representative of my estate, the Trustee shall pay such taxes and, in addition, all debts, expenses of my last illness, expenses of my funeral, burial, cemetery marker, cremation, or other disposition of my body, administration expenses and all other expenses and charges of a similar nature that the Trustee determines are a proper charge against my estate.

Article 5.1 instructs your successor trustee to pay all of your debts, final expenses, and any taxes you or your estate may owe after you are gone, even if there is no probate. If you have done your homework and put the title to all of your property that would have been subject to probate in the name of your trust, there will be no probate. That is why your successor trustee needs authority to pay your debts and expenses.

5.2 Distribution for the Benefit of My Husband, JOHN ALEXANDER DOE. If my husband, JOHN ALEXANDER DOE, is living, the rest and remainder of the accumulated income and principal shall be distributed to JOHN ALEXANDER DOE, Trustee of the JOHN ALEXANDER DOE REVOCABLE TRUST.

The instructions you give your successor trustee about how to distribute the trust property after you are gone is the meat and potatoes of your trust document. Jane created a trust in which her successor trustee is instructed to distribute all of her trust property to her husband's trust when she dies. Jane must have been satisfied that John's trust included a plan for any property his trust receives from her trust. Jane and John probably calculated whether John's estate would be exposed to federal estate taxes if Jane died first and John's trust ended up owning all of the marital property. If the combined property would create a federal estate tax, the trust provisions described in Chapter 18 should be considered to reduce the federal estate tax exposure.

Jane could have created her trust differently. Jane's trust could have instructed the trustee to distribute income only to John, instructed the trustee to distribute a stated amount of cash annually to John, given her successor trustee the power to evaluate and distribute what John needed, or included a provision in her trust that John receives distributions only as long as he does not remarry.

5.3 Distribution If My Husband, JOHN ALEXANDER DOE, Is Not Living. If my husband, JOHN ALEXANDER DOE, is not living, the accumulated income and principal shall be distributed as follows:

5.3(a) Trust for the Benefit of My Son, JACK JOSEPH DOE. One-half (½) of the accumulated income and principal shall be held in trust for the benefit of my son, JACK JOSEPH DOE. The Trustee shall distribute the accumulated income and principal equally over a ten-year period. The Trustee shall also distribute such amounts of income and principal as the Trustee feels my son needs for his health, education, maintenance, and welfare. Except, when Jack reaches the age of forty-five years old, the Trustee shall distribute the remaining accumulated income and principal to my son, JACK JOSEPH DOE. If JACK JOSEPH DOE is deceased before he receives his complete distribution, the undistributed income and principal shall be held in trust for the benefit of his children. The Trustee shall distribute such amounts of income and principal for the benefit of the children of JACK as the Trustee feels the children need for their health, education, maintenance, and welfare. The Trustee does not need to make distributions in equal amounts for the benefit of the children of JACK, but shall use his or her discretion to determine how much income or principal each child needs. When the youngest child of my deceased child reaches the age of twenty-five, the Trustee shall then divide and distribute the remaining accumulated income and principal equally between the surviving children of JACK JOSEPH DOE. If JACK is not living and has no surviving children, the remaining accumulated income and principal shall be distributed according to the provisions of Article 5.3(b) for the benefit of his sister.

Jane made certain decisions while she was living about what Jack should receive if John, her husband, was not living. She instructed her successor trustee to divide the trust into two equal parts, one for the benefit of Jack and one for Jamie; distribute Jack's trust equally over a ten-year period; in addition to the one-tenth distribution annually, evaluate and distribute any additional amount he determines Jack needs for his health, education, maintenance, and welfare; and when Jack reaches age forty-five, distribute all of Jack's remaining trust property to him.

Jane obviously felt that it would be best for Jack to receive distributions equally over a ten-year period. Notice, if Jack is forty-one years old when Jane and John are both gone, Jack will receive one-tenth of his share of the trust per year for four years, and when he turns forty-five, he will receive the balance of his trust. If Jack is forty-six when Jane and John are both gone, Jack will receive all of his trust immediately because the triggering event, turning forty-five, has already occurred.

Jane also included a plan if Jack should die before he receives a complete distribution of his trust. If Jack has children, the successor trustee will keep Jack's remaining property in trust for the benefit of Jack's children and use his judgment to determine how much they need for health, education, maintenance, and welfare. The trustee does not have to treat Jack's children equally, but when Jack's youngest child turns twenty-five years old, the trustee must divide the remaining trust account into as many equal shares as Jack has living children and distribute the balance of the trust equally among them. Jack's children do not receive anything from the trust unless Jack dies before receiving his full distributions. Jane also directed the trustee to add Jack's share to Jamie's share if Jack dies without children before the trust is completely distributed.

5.3(b) Trust for the Benefit of My Daughter, JAMIE ANN DOE. One-half (½) of the accumulated income and principal shall be held in trust for the benefit of my daughter, JAMIE ANN DOE. The Trustee shall distribute one-half (½) of the accumulated income and principal when JAMIE ANN DOE reaches the age of thirty years old and the Trustee shall distribute the remainder of the accumulated income and principal to JAMIE ANN DOE when she reaches the age of thirty-five years old. The Trustee shall also distribute such amounts of income and principal as the Trustee feels my daughter needs for her health. However, if Jamie does not graduate from college with a four-year degree by the time she reaches the age of thirty years old, her share shall be forfeited, and shall be paid to her brother's trust according to the terms of Article 5.3(a). If JAMIE ANN DOE is deceased before she receives her complete distribution, the undistributed income and principal shall be held in trust for the benefit of her children. The Trustee shall distribute such amounts of income and principal for the benefit of the children of JAMIE as the Trustee feels the children need for their health, education, maintenance, and welfare. The Trustee does not need to make distributions in equal amounts for the benefit of the children of JAMIE, but shall use his or her discretion to determine how much income or principal each child needs. When the youngest child of my deceased child reaches the age of twenty-five, the Trustee shall then divide and distribute the remaining accumulated income and principal equally among the surviving children of JAMIE ANN DOE. If JAMIE is not living and has no surviving children, the remaining accumulated income and principal shall be distributed according to the provisions of Article 5.3(a) for the benefit of her brother.

Jane made different decisions for Jamie. The successor trustee must divide the trust into two equal parts, one for the benefit of Jack and one for Jamie; distribute one-half of Jamie's trust to her when she turns thirty years old and the remaining one-half when Jamie turns thirty-five (it is irrelevant that the successor trustee is distributing Jack's share equally over ten years); and distribute anything Jamie needs for her health, even if Jamie has not reached the triggering age of thirty or thirty-five. The successor trustee can distribute for Jack's health, education, maintenance, or welfare, whereas the successor trustee can distribute only for Jamie's health. The instructions to the successor trustee about how to distribute Jamie's trust property if she dies before receiving complete distributions are the same as the instructions for Jack's share.

Jamie's trust has a triggering event that is a penalty. If she does not earn a four-year degree by the time she is thirty years old, she forfeits her share of the trust for herself and her children. Maybe this provision was placed in the trust document because Jack already earned his degree, and Jane felt very strongly that Jamie should be motivated.

5.4 Absence of Named Beneficiaries. If there are no beneficiaries named as final distributees living at the termination of this Trust or any Trust created hereunder, then the property remaining in the Trust or Trusts shall be paid and distributed to my heirs at law as though I had died intestate, a resident of Florida.

You should include a provision that tells your successor trustee what to do if all of the beneficiaries you name are gone. In the unlikely event that John, Jack, Jamie, and all of the children of Jack and Jamie are gone, the trust will be distributed as if Jane died intestate. This means the successor trustee will look at the state law in Florida and distribute the trust property to the persons who would have received the property had Jane died without a will. The laws are different in each state about who receives your property when you die without a will. You don't have to have your “absence of named beneficiaries clause” direct a distribution according to the intestate laws of your state. You can include instructions to your successor trustee to distribute the trust property to other named persons or perhaps to a charity in the event your family is gone.

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