How Your Property Should Be Distributed
When you think about how your property should be distributed, it may affect what each beneficiary will receive. If you instruct your trustee to divide your property equally among your beneficiaries, such as your children, he must decide who gets what. He will consult with your beneficiaries regarding how to divide your trust property but, if your beneficiaries disagree, any of them can petition your local probate court to resolve the controversy. When the beneficiaries argue about the trust property, the probate court becomes involved, lawyers need to be hired, and things get expensive. This outcome can be avoided if you provide more specific instructions to your successor trustee.
There are three types of instructions you can give a trustee: specific instructions, general instructions, or a blend of specific and general instructions. The types of instructions you put in your trust document will depend on the nature of the management plan you are creating for your beneficiaries.
Most people think that if they have a trust, the property in the trust will avoid the probate process. This is true as long as there are no disagreements among the beneficiaries.
The first thing you need to understand is that your trustee has no choice but to follow the instructions you put in your trust document. Specific instructions can be a one-time instruction or continuing instructions. It depends on how long you want your trust to remain in place after you are gone.
Specific One-Time Instructions
Specific one-time instructions are typically included in a trust document because the trust is going to terminate shortly after you are gone or there are certain immediate distributions you want your successor trustee to make. You could list all of your property and give your trustee specific instructions on how to distribute the trust property. For example, you could instruct your trustee to distribute:
My two-carat diamond ring to my daughter
My Rolex watch to my son
My ABC brokerage account to my son
My XYZ savings account to my daughter
My 2003 Saab to my son
If you took the time to give your trustee specific instructions about each piece of property you own, the trustee would have no discretion. This is a rather unrealistic example because it would be almost impossible to create a trust document that describes every single piece of property you own. You would need to change your trust document every time you bought something!
Specific instructions are also commonly included in a trust document when you want to include persons or organizations as beneficiaries who are not your family members. For example, you may instruct your successor trustee to distribute $20,000 to your friend Mary Smith and $30,000 to your religious organization.
Continuing Specific Instructions
Continuing specific instructions are included in a trust document when you want to provide money or property to a beneficiary over a period of time, but you don't want to put the successor trustee in a position of deciding how much money or property should be distributed. The specific continuing instructions can be a stated amount of money or a percentage of the trust. For example, you can instruct your successor trustee to distribute $1,000 per month to your beneficiary until the beneficiary reaches age twenty-five. Or you can instruct your trustee to distribute 5 percent of the value of the trust to your beneficiary each year for a period of twenty years.
There are any number of reasons you may choose to have continuing specific distributions. For instance, perhaps you don't trust your beneficiary to make the right decisions if she receives too much property at one time. Or you may want to make sure that if your spouse dies, the remaining trust property will be distributed to your children and not other beneficiaries your spouse might choose.
General Instructions
General instructions give the successor trustee the power to exercise his discretion in deciding the amount or timing of a distribution from your trust. While you are living and serving as the trustee, your trust document typically gives you 100 percent discretion to do anything you want with the trust property. You can create your trust document to give the successor trustee as much discretion as you had when you were alive. Most people would only consider giving this amount of discretion to a spouse who is the successor trustee, and the spouse and the natural children of both spouses are the beneficiaries.
Specific and General Instructions Combined
There are instructions you can give your successor trustee that are a blend of specific instructions and general instructions. The most common example of a blended instruction is to direct your successor trustee to make any distributions to a beneficiary that he believes the beneficiary needs for a particular purpose. The purpose you define can be narrow or broad. A broad, blended instruction would be to instruct your successor trustee to distribute such amount of money or property for health, education, maintenance, or welfare. Although this instruction is broad and gives your successor trustee a great deal of discretion, he cannot make distributions that are not necessary for health, education, maintenance, or welfare. If your beneficiary wants to buy a $100,000 car, your trustee can refuse the request for funds because the car does not fall under one of the specified categories.
If you give general instructions to your spouse as your successor trustee, you may be giving your spouse so much control that you subject her estate to federal estate taxes that could have been avoided had you not given your spouse such broad discretion. See Chapters 17 and 18 for further details.
You may decide that you want to give your successor trustee general instructions, but you want to limit her discretion. You could put in your trust document that the successor trustee is to distribute $1,000 per month, plus any amount of money she feels the beneficiary needs for health or education. Now you have given your successor trustee a specific instruction as well as a general instruction. It is difficult for a beneficiary to argue that he needs money to buy a car or take a vacation when the instructions to the successor trustee are that additional money can be distributed only for health or education.
You could give your successor trustee an intentionally vague instruction. For example, “My trustee shall pay for all housing costs for the beneficiary.” This leaves the window open for the beneficiary to demand a large amount for housing. If you wanted a little more restriction, you could have instructed your successor trustee to distribute a reasonable amount to the beneficiary for housing costs. There is still room to argue about the magic word reasonable, but it adds some restrictions on what the successor trustee can distribute for housing, and therefore limits what the beneficiary can demand.
If your instructions are specific, and the successor trustee fails to make the required distribution, the beneficiary is entitled to petition the local probate court to force the successor trustee to make the distribution defined in the trust.
