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 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.
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.
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.
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.
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.