SAMPLE REVOCABLE LIVING TRUST
Caution: This sample revocable living trust is purposely outdated and intended as an educational tool. Under no circumstances should anyone "copy and paste" this sample document and attempt to circumvent competent professional assistance in the preparation of your family revocable living trust.
Note: Revocable living trusts (sometimes referred to as "loving trusts") are one of the most improperly used estate planning documents. They are often no more than standard "boiler-plate" sole to consumers in little need of them, based on exploitation of fears of the purported evils of probate. This is not to mean that revocable living trusts are not valuable estate and financial planning tools. They can be. But to obtain benefits you should understand why and how you can benefit from such a trust, and how to properly use it. Proper use includes tailoring a complex legal document to meet your personal needs. This sample can help you identify personal planning opportunities to discuss with your lawyer and help you evaluate the scope and comprehensiveness of a living will which you may have had prepared. Remember, the laws differ significantly from state to state, be sure to obtain the advise of a local attorney specializing in estate planning.
Note: Why use a revocable living trust? The use of such a trust is indicated where: (1) the grantor wishes someone else to accept management responsibility; (2) the grantor wishes to assure continuity of management and income flow of a business of other assets in the event of death or disability; (3) the grantor wishes to secure investment advice; (4) the grantor wishes to protect against his or her own legal incompetency or physical incapacity or the incompetency of incapacity (physical, mental or legal) of beneficiaries; (5) the grantor desires privacy in the handling and administration of his or her assets during lifetime and at death; (6) the grantor wishes to minimize estate administration costs and delay at death; (7) the client wishes to avoid ancillary administration of assets situated in other states by placing title in the trustee (but don't assume that a revocable trust is the correct answer - a limited liability company is better in some circumstances); (8) the client would like to reduce the potential for an election against, or a contest of, the will (but this result depends on state law and what assets and lifetime transfers may be reached by an electing spouse) and (9) the client would like to select the state law under which the provisions of the dispositive document will be governed.
Note: As with all trusts, to be effective as an estate and financial planning tool, your revocable living trust should be funded. Make sure you arrange to have title transferred to the trustees as the legal title holders of the property for the benefit of the trust beneficiaries. You do not lose control over the assets since the trust is revocable (you can change, modify or revoke it at any time) and is not treated as a separate taxable entity until the death of the Grantor. No gift tax is generated by establishing or funding a revocable trust since the gift is not completed until the trust becomes irrevocable (at client's death). Since the grantor has not irrevocably disposed of any assets, the entire trust corpus will be included in the grantor's estate for federal estate tax purposes.
*LAWYER NAME, Esq.
*CLIENT NAME *Revocable Living Trust
Note: Many taxpayers use their Social Security Number for their revocable living trust instead of obtaining a Tax Identification Number by filing a Form SS-4 for the trust with the IRS. See The Complete Book of Trusts (2d ed.) published by John Wiley & Sons, Inc. for more details. While a taxpayer identification number ("TIN") is not required until the Grantor's death when the trust becomes irrevocable, by obtaining same during the Grantor's life, this may be one less step that must be taken at the death of the Grantor.
Trust EIN: __________________________
I. DECLARATION OF TRUST.
Note: For revocable living trusts, the Grantor is the person who wishes to set up the trust. The Grantor could be named as a co-trustee together with a family member (e.g., child) or trusted friend or institution if this approach were deemed more appropriate to better facilitate management of assets.
Note: In Community Property states, both spouses could be Grantors. Community property concepts have NOT been addressed in this sample trust document.
THIS TRUST AGREEMENT dated as of *MONTH *DAY, *YEAR, between, *CLIENT NAME, who resides at *CLIENT-ADDRESS ( the "Grantor") and *AGENT1-NAME, who resides at *AGENT-1ADDRESS and *AGENT2-NAME, who resides at *AGENT-2ADDRESS, and any successor Trustee appointed as provided in this Trust Agreement (the "Trustee").
WHEREAS, the Grantor desires to create a trust, and transfer the assets listed below to the trust, on the terms which are detailed below, and the Trustee has consented to accept and perform said trust in accordance with such terms;
NOW, THEREFORE, in consideration of the mutual covenants and promises of the parties hereto, and other good and valuable consideration, receipt and adequacy of which is hereby acknowledged, this Trust shall be effective as of the date and the terms following:
Note: If this is an amendment of a prior trust a paragraph should be added listing all prior trusts and stating that this amends and supersedes them.
Note: The provisions below address the transfer of property into the trust. Advise your client to arrange to transfer assets into the trust (e.g., retitling a deed to the name of the trust). Generally, the trust is intended to hold all assets of the Grantor. However, not all assets make in to the trust (e.g., some assets may not be assigned). Therefore, Grantor's will could include a "pour over" provision, providing that all assets under the will (i.e., that did not make it into the trust) are to be transferred (poured over) to the Grantor's living trust. Thus assets will be transferred into the trust during Grantor's life and after Grantor's death. Don't assume that a "pour-over will" is always appropriate. It may not be. Discuss the pros and cons with your estate planner. For example, if you are really concerned about a will challenge, using a pour-over will only serves to highlight the existence of your living trust.
II. TRUST ASSETS.
Note: Simply stating that assets are transferred, and even listing assets on the schedule attached at the end of the trust is not enough. Proper steps should be taken to legally transfer title. For example, for real estate, sign a deed.
A. Transfer of Property To Trust.
The Grantor assigns and transfers to the Trustee, and the Trustee, by the execution of this Trust, acknowledges receipt from the Grantor of the property described in Schedule "A". This property, together with any Addition, shall constitute the Trust Estate. The term Trust Estate shall also include any other property which the Grantor, the legal representatives of the Grantor's estate pursuant to the provisions of the Grantor's last will and testament, or any other persons transfer to the Trustee, as well as the proceeds from the sale or investment of such property, and the securities or other assets in which such proceeds may be invested and reinvested.
B. Additional Assets Contributed to Trust.
The Grantor, or any other person, may assign or transfer after the date of this Trust Agreement, to the Trustee, securities, policies of life insurance or interests therein (whether or not premiums are paid directly by Grantor or otherwise to the insurance company) or other property, whether real or personal, tangible or intangible, reasonably acceptable to the Trustee as an Addition to the Trust Estate. All Additions shall be added to the Trust Estate.
C. Additions To The Trust Estate Following Death of Grantor.
Following the death of the Grantor, the Trustee may collect and add to the Trust Estate the following property, if such assets are reasonably acceptable to the Trustee: (i) Amounts payable under insurance policies on the life of the Grantor held in this Trust; (ii) Amounts payable under insurance on the life of the Grantor in which the Trustee has been designated beneficiary which are not held in this Trust; (iii) Amounts payable under the Grantor's employee benefit plans in which the Trustee has been designated as beneficiary; (iv) Property payable to the Trustee by the legal representatives of the Grantor's estate pursuant to the provisions of the Grantor's last will and testament; (v) Property payable to a trust formed under Grantor's last will for the benefit of a person who is a beneficiary of a similar Trust formed hereunder, and for which the Executor of Grantor's last will has the authority to combine by transfer with a Trust formed hereunder; and (vi) Property payable by any other persons, whether pursuant to the provisions of such person's last will or otherwise, to the Trustee.
D. Trustee Dealing with Additions.
The Trustee shall accept and hold any Addition, if such property is reasonably acceptable to the Trustee, as part of the Trust Estate subject to the terms and provisions of this Trust Agreement. The Trustee shall then deal with, manage, operate, invest, reinvest, and dispose of these Additions as part of the Trust Estate, as provided in this Trust Agreement. The Trustee shall not be under any duty to accept any Addition not reasonably acceptable in the Trustee's reasonable discretion. The Trustee shall not be under any obligation to record any assignment, transfer, or other written evidence of any Addition.
III. GRANTOR'S POWERS AND RIGHTS UNDER THE TRUST.
Note: The following paragraph is key to obtaining the results most people intend to obtain from a living trust -- that you can change, amend or revoke it any time. This right, however, is also why a typical revocable living trust does not constitute a completed gift for gift tax purposes (i.e., the assets transferred will be taxed in your taxable estate when you die, even if they are excluded from your probate estate). Contrary to popular belief, revocable living trusts offer no tax advantages (they are not a separate taxable entity for income tax purposes, and the marital and by-pass trusts which they include for estate tax purposes can be provided cheaper and more simply in a will). The fact that a revocable trust can be changes is also why revocable living trusts provide little or no asset protection benefits.
The Grantor has been advised with respect to the difference between revocable and irrevocable trusts and hereby declares that any trust formed under this Trust Agreement, and the Trust Estate created hereby, are to be revocable, so that Grantor, during Grantor's life, may change, amend or modify, in any manner and to any extent, the provisions of this Trust Agreement. The Grantor has retained every right and power to alter, amend, revoke or terminate any Trust provision or interest, whether under this Trust Agreement, or any rule of law. Grantor may revoke this Trust, or amend any provision of this Trust, by giving Notice to the Trustee.
IV. DISTRIBUTION OF INCOME AND PRINCIPAL -- PRIMARY PROVISIONS GENERALLY.
A. Revocable Living Trust Distribution Provisions.
Note: Modify the provisions below to meet your specific and personal goals for the beneficiaries. Generally, distributions during Grantor's lifetime are paid or applied for the benefit of the Grantor only, unless otherwise indicated by the facts. If you have family or other loved ones dependent on your support they can or should be included. If your estate is substantial enough to be subject to estate tax, consider authorizing the making of gifts to designated persons.
Caution: Distributions to persons other than the grantor may be taxable gifts. The gift tax implications must be considered when they exceed $10,000 per year per person, exclusive of payments directly to unsteadiness for qualified tuition or medical care providers.
1. Distributions During Grantor's Lifetime - Grantor Not Disabled.
Note: the first "phase" of a revocable living trust is while you (the grantor) are alive and not disabled.
a. During Grantor's lifetime, the Trustee shall hold the Trust Estate, in trust, to pay or apply to or for the benefit of any one or more of the following persons: Grantor. The net income of the Trust shall be applied in amounts, whether equal or unequal, as the Trustee (@without regard to any Independent Trustee, even where applicable), in the exercise of absolute discretion, may consider desirable for the health, education, support or maintenance of the Grantor. The judgment of the Trustee, as to the propriety and amount of such payment, shall be conclusive.
Note: The following language must be tailored to meet your specific desires.
It is the express desire of the Grantor that the Trustee apply income liberally, without concern for the retention of any monies for future or remainder beneficiaries.
b. The Trustee may accumulate any of the net income not paid or applied for the benefit of the Lifetime Beneficiary, and add it to the principal of this Trust at least annually and thereafter to hold, administer and dispose of it as a part of the Trust Estate.
Note: The following paragraph may be modified to reflect permissible donees, e.g., children of Grantor.
c. Gifts may be made from the trust in directly to #CHILDREN NAMES ("Children") *#THRONES only, or trusts for the benefit of such persons. @#Gifts hereunder may be #unlimited #limited to *#DESCRIBE LIMITATION.
2. Distributions During Grantor's Life - Grantor Disabled.
Note: The "second phase" of a revocable living trust is when you (the grantor) are disabled. Carefully determine what requirements or conditions must be met for you to be disabled. If these conditions are met what should happen? Generally, the successor trustee or co-trustees take over management of your trust since you are unable to. But what other provisions should apply? Should gifts still be permitted? How and when should funds be disbursed? When and how should these provisions revert if you recover? What standard should be used to determine if you are no longer disabled.
Note: Trust assets should be expended for the Grantor's care if the Grantor is disabled. What standard? Any special instructions for care?
a. During Grantor's disability, as defined below, the Trustee shall administer the Trust Estate for the care of Grantor, and shall expend any amounts of Trust income or principal as the Trustee, in the exercise of absolute discretion, shall deem necessary or advisable in accordance with the following provisions.
Note: The following is one possible definition of disability and when the disability is over.
b. The Grantor shall be deemed to be disabled when:
(1) Grantor is unable to manage Grantor's affairs and property effectively for reasons such as mental illness, mental deficiency, physical illness or disability, advanced age, chronic use of drugs, chronic intoxication, confinement, kidnapping, detention by a foreign power or disappearance where such condition is confirmed in a writing signed by any Two (2) Trustees or Successor Trustees named herein (whether or not such persons are then acting as Trustees).
(2) For any other reason allowable by statute or law in the State.
(3) In addition to any other method acceptable to any third party relying upon the effectiveness of the appointment of any Trustee or successor Trustee, or any method allowed by law, it shall be deemed conclusive proof that the appointment of such person is effective upon a sworn statement being executed by a Trustee then acting (other than Grantor), One (1) of Grantor's natural children and any One (1) doctor properly licensed to practice in the State or the state where Grantor is then institutionalized, confined or resident, or any Two (2) doctors properly licensed to practice in the State or the state where Grantor is then institutionalized, confined or resident. Also, any additional or successor Trustee may be appointed where (as set forth below) such successor Trustee receives written certification from Two (2) physicians regularly attending the Grantor (or a then serving Trustee), at least One (1) of which physicians is board certified in the specialty most closely associated with the alleged disability, that the Grantor (or the then serving Trustee) has become physically or mentally incapacitated, regardless of cause and regardless of whether or not there has been an adjudication of incompetence, mental illness, or need for a committee, conservator, guardian or other personal representative.
(4) Grantor is unable to manage Grantor's affairs and property effectively for reasons such as mental illness, mental deficiency, physical illness or disability, advanced age, chronic use of drugs, chronic intoxication, confinement, kidnapping, detention by a foreign power or disappearance @where such condition is confirmed in a writing signed by any Two (2) Trustees or Successor Trustees named herein (whether or not such persons are then acting as Trustees).
(5) For any other reason allowable by statute or law.
|#Note: The paragraph below also must be modified to fit the client's facts.|
(6) In addition to any other method acceptable to any third party relying upon the effectiveness of the appointment of any Trustee or successor Trustee, or any method allowed by law, it shall be deemed conclusive proof that the appointment of such person is effective upon a sworn statement being executed by a Trustee then acting (other than Grantor), #Grantor's spouse, #One (1) of Grantor's natural children and any One (1) doctor properly licensed to practice in the State or the state where Grantor is then institutionalized, confined or resident, or any Two (2) doctors properly licensed to practice in the State or the state where Grantor is then institutionalized, confined or resident. Also, any additional or successor Trustee may be appointed where (as set forth below) such successor Trustee receives written certification from Two (2) physicians regularly attending the Grantor (or a then serving Trustee), at least One (1) of which physicians is board certified in the specialty most closely associated with the alleged disability, that the Grantor (or the then serving Trustee) has become physically or mentally incapacitated, regardless of cause and regardless of whether or not there has been an adjudication of incompetence, mental illness, or need for a committee, conservator, guardian or other personal representative.
c. The Grantor shall be deemed to have recovered from any such disability when@:
(1) The other then serving Trustee receives written certification from Two (2) physicians regularly attending the Grantor, at least One (1) of which physicians is board certified in the specialty most closely associated with the alleged disability, that the Grantor is no longer physically or mentally incapacitated, and that Grantor is again able to manage his or her own financial affairs.
(2) @For any other reason allowable by statute or law in the State.
(3) Grantor is no longer unable to manage Grantor's affairs and property effectively for reasons such as mental illness, mental deficiency, physical illness or disability, advanced age, chronic use of drugs, chronic intoxication, confinement, kidnapping, detention by a foreign power or disappearance, and the reversal or absence of such condition or situation is confirmed in a writing signed by any Two (2) Trustees or Successor Trustees named herein (whether or not such persons are then acting as Trustees).
The Trustee shall not be liable to any person, including Grantor, for the removal of the Grantor as a Trustee, if he or she acted in good faith on the certificates obtained in accordance with this provision.
d. Where Grantor is disabled, the next person selected from the provision below @entitled "Additional or Successor Trustee" shall serve as co-Trustee in place of Grantor.
e. During any disability of the Grantor, the Grantor directs that the following standards be used as the standards for income and principal distributions instead of the Standard for Payment set forth elsewhere in this Trust Agreement:
Note: Tailor the provisions below to fit the facts.
(1) Grantor directs that Grantor have the best medical and health care provided to Grantor and that the Trustee shall distribute Trust income and principal accordingly.
(2) Grantor directs that every effort reasonable be made to enable Grantor to continue to reside in Grantor's personal residence for as long as possible, and that every reasonable effort be made to accommodate Grantor's health care needs in such home rather than relocating to a health care facility.
(3) In the event that Grantor must be relocated to any nursing or health care facility, Grantor directs that every effort possible be made that any such facility be operated under *RELIGIOUS PREFERENCE auspices.
f. Notwithstanding anything in this Trust to the contrary, any restrictions on distributions provided in the provision below governing Distributions To A Person Under A Disability, shall not apply to restrict any distributions to Grantor when Grantor is disabled, or following any period of Grantor's disability.
Note: The provision below is included in a revocable living trust to reflect additions and distributions after the death of the Grantor. These trust provisions will often track the Grantor's will, but do not necessarily have to.
3. Distributions Following Death of Grantor.
Note: The "third phase" in a revocable living trust is often the death of the grantor.
a. Trustee Should Collect Additional Assets.
Note: The following phrases permit or instruct the Trustee to accept or receive the assets indicated, but more must occur. If the title or beneficiary designations to these assets does not reflect the trust the Trustee may have no authority to obtain the assets.
Following the death of the Grantor, the Trustee shall collect and add to the Trust Estate: (i) Amounts payable under insurance policies on the life of the Grantor held in this Trust; (ii) Amounts payable under insurance on the life of the Grantor in which the Trustee has been designated beneficiary; (iii) Amounts payable under the Grantor's employee benefit plans in which the Trustee has been designated as beneficiary; and (iv) Property payable to the Trustee by the legal representatives of the Grantor's estate pursuant to the provisions of the Grantor's last will and testament. The Trustee shall then deal with and dispose of these additions as part of the Trust Estate as provided in the following provision.
b. Trustee To Make Payments For Taxes, Bequests, and Other Items.
To the extent that the Trustee is either requested in writing by the executor or personal representative of the Grantor's estate, or required as a legal obligation of this Trust under federal or applicable state law, the Trustee shall pay:
Note: The following clauses could be coordinated with the estate tax allocation clause in the will. In addition, if there are any specific bequests in the will, and the probate estate is insufficient to pay the specific bequests, then the trustee could be given the authority to pay the estate taxes and the specific bequests. A host of complexities can arise when an estate is divided between probate (i.e. will) and revocable living trust which does not go through probate and a large tax cost is due. Caution should be exercised.
(1) Any expenses of Grantor's last illness and funeral, as well as any of Grantor's debts, as soon after Grantor's death as would be advantageous to the administration of Grantor's estate. These debts, however, shall not include: (i) Payment in full of obligations secured by mortgages on real estate or cooperative apartments, which debts the Trustee shall only pay in the sole and absolute discretion of the Trustee; or (ii) Payment in full of debts owing insurance companies secured by insurance policies, which debts shall first be satisfied out of the proceeds of the policies securing them. This provision shall not serve to revive any of Grantor's debts barred by the statute of limitations.
(2) Any cash bequests and general legacies for which the Grantor's estate lacks sufficient cash and marketable securities; and
(3) All estate, inheritance, succession, transfer, and other death taxes imposed by any domestic or foreign jurisdiction by reason of Grantor's death upon Grantor's taxable estate for the purposes of any such tax to the extent required: (i) under the provisions of this Trust; (ii) the provisions of Grantor's last will and testament, or (iii) in the discretion of the Trustee:
(a) Such payments shall be charged against and paid from the property disposed of under this Trust which would not qualify for the unlimited marital or charitable deductions, if applicable. To the extent that there is insufficient property meeting such criteria, such payments shall be charged against other assets under this Trust.
Note: The following provision must be tailored to fit your facts. Will there also be a marital/QTIP trust? a QDOT (trust for non-citizen spouse to qualify for the estate tax marital deduction)? If not, modify or delete the following as appropriate. Again, these provisions may be similar to those contained in your will (consider whether there should be a pour-over will to distribute probate assets to the trust) if there is a Revocable Living Trust).
(b) Notwithstanding anything herein to the contrary, the following taxes (and any corresponding state or foreign taxes) are, however, excluded from the previous direction and shall be apportioned and paid in the manner provided by applicable law (including without limitation state apportionment law and Code Sections 2207, 2207A and 2207B) taking into account provisions of the instrument governing such property:
i) taxes on general power of appointment property includible in my gross estate under Code Section 2041;
ii) any generation-skipping transfer ("GST") tax under Chapter 13 of the Code, which shall be charged to the property constituting the generation-skipping transfer on which such tax is imposed, as provided in Code Section 2603(b); and
(c) Taxes on any other assets included in Grantor's estate, but not passing under Grantor's last will and testament or this Trust, shall be apportioned against the legal owners of such assets and they shall not, unless required by federal or *STATE NAME law, be paid out of this Trust.
(d) The Trustee shall not be liable to any person for payments made in reliance on the written request of the executor or personal representative of the Grantor's estate, or made in reliance on an opinion of counsel that such taxes are required to be paid as a legal obligation of this Trust under federal or applicable state law.
(4) Notwithstanding anything herein to the contrary, the Trustee shall not distribute to Grantor's estate the proceeds of any life insurance policy to pay debts, liens, or other claims, which would not otherwise be subject to such debts, liens or other claims.
Note: The next provision may be applicable, if on the death of the grantor there is a surviving spouse, and a credit shelter trust and QTIP Trust is being created. Discuss this with your estate planner and tax adviser.
c. Distributions to Spouse of Grantor Subject to Renunciation.
Note: Discuss the pros and cons of providing for a disclaimer arrangement with your estate planner. If you have children, the reference to later children's trusts may be appropriate, depending on the age of the children and other facts. If no trusts are to be provided for children, or you have heirs who are not children the reference below should be modified and later provisions will have to be replaced with distribution provisions that address your particular circumstances.
(1) The Trustee shall distribute #the remaining Trust Estate to Grantor's spouse, should she survive Grantor for Ninety (90) days. Should Grantor's spouse not survive Grantor for @Ninety (90) days, the Trustee shall distribute the Trust Estate as provided in the provision below, "#*Distribution To Multiple Children's Trusts".
(2) Should Grantor's spouse renounce any portion or all of this distribution, and such renunciation is effective for purposes of federal income tax and applicable state law, such distribution shall instead be distributed as provided in the following paragraphs:
(a) The portion of such assets renounced which equal the maximum dollar amount that would be taxed for federal estate tax purposes at marginal federal estate tax rates which are less than the then highest marginal federal estate tax rate shall be distributed to, and become part of, the Credit Shelter Trust, established herein. The purpose and intent of this provision is to permit Grantor's surviving spouse to determine to take advantage of the graduated federal estate tax rates in Grantor's estate where Grantor pre-deceases Grantor's spouse.
(b) Any assets renounced by Grantor's spouse above the amount provided for in the preceding paragraph shall be distributed in accordance with the provision
#"QTIP Trust for Surviving Spouse".
#"#*Distribution To Multiple Children's Trusts", below.
Note:#The following credit shelter trust is created in the trust for the first spouse to die.
d. Applicable Exclusion (By-Pass/Credit Shelter) Trust for Grantor's Surviving Spouse.
Note: The following paragraph addresses protecting assets equal to the applicable exclusion amount ($625,000 in 1998 increasing to $1 million by 2006).
(1) If Grantor's spouse survives Grantor, then the Trustee shall set aside, in trust as provided below, the largest amount of assets which will not result in any federal estate tax payable in Grantor's estate after giving effect to the unified credit to which Grantor's estate is entitled, as well as any other credits applicable to Grantor's estate. In determining the credits applicable, state death tax credit shall only be considered to the extent that it will not result in an overall increase in the aggregate (state and federal) death tax liability due as result of Grantor's death. The amount so calculated shall be reduced by the following: (i) The value of property transferred under the provisions of Grantor's will, and property which passes outside of Grantor's Will, which is included in Grantor's gross estate and which does not qualify for the marital deduction (or for which no marital deduction is claimed in Grantor's estate); and (ii) Administration expenses and principal payments on debts that are not allowed as deductions for Grantor's federal estate tax; and (iii) the amount of any adjusted taxable gifts as defined under Code Section 2001, which were made by Grantor after December 31, 1976. For the purpose of establishing the amount disposed of by this provision the values finally fixed in the federal estate tax proceeding relating to Grantor's estate shall be used.
In making the determinations required under this provision it is Grantor's intent, but not requirement, that this applicable exclusion (unified Credit) Shelter Trust be funded so as to make the maximum use of Grantor's unified credit, even if the result is a reduction in the amount to be given out-right to Grantor's spouse, or for the benefit of Grantor's spouse in a QTIP or QDOT Trust, if any, below.
(2) Any Credit Shelter Trust established under the preceding provision of this Trust shall be administered as follows:
(a) The Trustee shall hold, manage and invest the amounts held in this Credit Shelter Trust as a separate trust, and in accordance with the provisions herein. The Trustee shall collect and receive any income on assets in the Credit Shelter Trust, and shall pay it to the extent and at such times as the Trustee, in accordance with the Standard For Payment (set forth below), for such one or more members of a class consisting of Grantor's spouse, #and Grantor's Children, #and other descendants living from time to time, (collectively, the "#Recipients"). Any net income not so paid over or applied for the benefit of the persons named in this provision, shall be accumulated and added to the principal of this Credit Shelter Trust, at least annually, and thereafter shall be held, administered and disposed of as a part of this Credit Shelter Trust.
Note: Carefully define and coordinate throughout this Trust the definition of the beneficiaries at each phase of the revocable living trust. Typically, the "third phase" (see above) of a revocable living trust is the death of the grantor. Often this is followed by a by-pass (applicable exclusion) trust and/or martial distribution or trust. Following this phase, which typically ends at the death of the surviving spouse, the final distribution plan is put into place. This could be distributions to children (or other heirs if no children). This is typically the fourth phase and last phase in the revocable living trust.
(b) The Trustee is also authorized to pay to, or apply for the benefit of, one or more members of a class consisting of the #Recipients such parts of the principal of the trust as the Trustee in absolute discretion shall deem necessary or advisable in accordance with the Standard For Payment, set forth below. These payments and applications may be made irrespective of the fact that such payments may exhaust the principal of the trust being held for the benefit of any persons. The determinations of the Trustee as to the amount of principal payments or applications under this provision shall be final and conclusive on all persons with any interest in this Trust. Upon the making of any payments or applications under this provision the Trustee shall be fully released and discharged from any further liability or accountability.
Note: If the spouse has a right of withdrawal, then unless exercised in the year of death, the greater of $5,000 or 5% of the trust assets would be included in the taxable estate of the surviving spouse. When this right is added to a QTIP trust there is no estate tax issue since the entire QTIP trust is taxable in the surviving spouse's estate in any event. The tax issue becomes relevant if this power were added to the by-pass trust above.
(c) Grantor's spouse shall have the right to request of the Trustee of this Credit Shelter Trust to pay over to such surviving spouse, upon written request, out of the principal of this Credit Shelter Trust, in each successive calendar year commencing with the calendar year in which Grantor's death occurs, a sum not exceeding the greater of Five Thousand Dollars ($5,000) or Five Percent (5%) of the assets of the principal of this Credit Shelter Trust valued as of the date of the receipt of such request, provided, however, that only one such request may be made in any one calendar year, and such right to withdraw sums of principal shall not be cumulative from year to year.
(3) This Credit Shelter Trust shall be irrevocable.
Note: the reference in the provision following should be coordinated with your ultimate distribution objectives.
(4) Following the death of Grantor's spouse, the principal and any undistributed income not then added to principal of this Credit Shelter Trust, shall be disposed of in the manner provided in the provision below
#"Distribution Outright To Children and Issue of Deceased Child".
#"Dispositions After Death of Grantor and Grantor's Spouse".
Note: The following provision must be tailored to reflect your dispositive scheme which should generally be identical (or at least coordinated with if the will is not a pure pour-over) to those in your will. As an example for purposes of this sample draft, we have assumed that the remaining assets be distributed in accordance with the provision entitled "Remaining Trust Estate Distributed in Equal Shares To Specified Beneficiaries".
B. Remaining Assets; Secondary Distribution Provisions.
All the rest and remainder of the Trust Estate and any accumulated but unpaid income of any Trust formed hereunder, wherever situated, not distributed pursuant to the provisions above, ("Remaining Trust Estate") shall be disposed of @in accordance with the provision entitled "Remaining Trust Estate Distributed in Equal Shares To Specified Beneficiaries".
Note: The following provisions will vary significantly from document to document in order to reflect the dispositive objectives of various grantors.
1. Remaining Trust Estate Distributed in Equal Shares To Specified Beneficiaries.
The Trustee shall divide the Remaining Trust Estate into the number of equal shares required by this provision, and distribute same to the persons @named or referred to below. Should any such @gift lapse, then the remaining persons shall continue to share in such Trust Estate, in the proportions set forth. The number of shares into which such Trust Estate shall be divided shall be the number of share for those distributees referred to below, and which distributions have not lapsed by the death of the distributees . The following distributees shall take under this provision:
a. One (1) Share to #CHILD1-NAME, who resides at #CHILD-1ADDRESS, outright and free of trust. If such distributee shall not be alive at such time, or shall disclaim or renounce any portion or all of the preceding distribution, then this distribution shall lapse.
b. One (1) Share to #CHILD2-NAME, who resides at #CHILD-2ADDRESS, outright and free of trust. If such distributee shall not be alive at such time, or shall disclaim or renounce any portion or all of the preceding distribution, then this distribution shall lapse.
Note: The following provides for a contingent beneficiary in the event that your heirs or family have predeceased your. It is always prudent to address "what if" scenarios in drafting trusts. Ask if the contingent beneficiaries should be other non-immediate family members? A charity?
2. Alternate Distribution When Preceding Distributions Fail.
Note: The many "#" indicate some of the many options which might be considered. Again, these provisions must be tailored to meet your personal objectives.
If any trust under the preceding provisions shall terminate as a result of the death of the beneficiary who was the beneficiary of such trust prior to
#such beneficiary reaching age Thirty-Five (35) years, #*#OTHER EVENT the Trustee shall transfer the Trust Estate of such trust,
#in equal parts to
#per stirpes to
#that beneficiary's then living issue. If there are no living issue, then per stirpes to the Grantor's then living issue. If any of Grantor's living issue is a beneficiary of a trust under the preceding provisions, then the amount such person is entitled to shall be added to the Trust Estate of that trust and shall be dealt with accordingly. If there are no living issue of the Grantor, then the Trustee shall divide the Trust Estate of that trust into the number of equal parts as there are parts in the following provisions, and transfer that Trust Estate to the following:
(1) One (1) parts to *ALTERNATE ONE, who resides at *ALTERNATE1-ADDRESS, or such beneficiary's issue, per stirpes if such beneficiary is deceased.
(2) One (1) parts to *ALTERNATE TWO, who resides at *ALTERNATE2-ADDRESS, or such beneficiary's issue, per stirpes if such beneficiary is deceased.
(3) One (1) parts to *ALTERNATE THREE, who resides at *ALTERNATE3-ADDRESS, or such beneficiary's issue, per stirpes if such beneficiary is deceased.
#to the then living descendants of Grantor's parents (but specifically excluding Grantor), *PARENTS NAME, as shall then be living, per stirpes.
#one half to the then living descendants of Grantor's parents (but specifically excluding Grantor), *PARENTS NAME, as shall then be living, per stirpes; and one half to the then living descendants of Grantor's deceased spouse's parents, as shall then be living, per stirpes. In the event that either set of parents pre-decease leaving no issue surviving me, then the bequest to that set of parents shall lapse.
Any assets not distributed pursuant to the above shall be distributed to Grantor's heirs at law under the laws of descent and distribution of the State as if Grantor had died intestate at@ that time. However, in no event shall Grantor or Grantor's estate #or Grantor's spouse or Grantor's spouse's estate# have any reversionary or similar interest in this trust or the any assets contained herein.
Note: The following provision covers minors receiving inheritances in the event that their parent is the grantor or predeceases the grantor. The inheritance is held in trust until age 35 or such other age as the client wishes, with mandatory principal distributions at age 25, 30 and 35. Consider income distributions, i.e., at what age should they become mandatory, if at all.
C. Beneficiary Under Age Thirty Five (35).
Note: The following provisions provide one approach to holding assets of a minor in trust. The options are unlimited. The key points are to provide protection for the minor and to protect the assets for the minor's future benefit.
a. If any individual ("Minor-Beneficiary") under the age of Thirty Five (35) years (who is not specifically made subject to a prior provision of this Trust governing distributions to such Minor-Beneficiary) becomes entitled to any property under any Trust established under this Trust Agreement, or any property from any trust created hereunder upon the termination thereof, the share set aside for such person shall be held further in trust by the Trustee for the following uses and purposes: to manage, invest and reinvest the same, to collect the income thereof and, to distribute such principal and interest in accordance with the Distribution by Age provided for #in the following provisions
("Distribution By Age"):
(1) To pay One (1) of such parts to the issue of each deceased Minor-Beneficiary, per stirpes, according to the provisions of this provision governing distributions to a Minor-Beneficiary Under Age Thirty Five (35).
(2) To pay One (1) of such parts to each Minor-Beneficiary who has attained the age of Thirty Five (35) years.
(3) To pay Two-Thirds (2/3) of One (1) of such parts to each of the Minor-Beneficiary who has attained the age of Thirty (30) years but has not attained the age of Thirty Five (35) years, and to hold the remainder of such part according to the terms and conditions of this provision.
(4) To pay One-Third (1/3) of One (1) of such parts to each Minor-Beneficiary who has attained the age of Twenty Five (25) years but has not attained the age of Thirty-Five (35) years, and to hold the remainder of such part according to the terms and conditions of this provision.
(5) To hold One (1) of such parts or the remaining portion thereof (whichever shall be applicable for each Minor-Beneficiary) as a separate trust fund in trust for the benefit of each Minor-Beneficiary who shall not have attained the age of Thirty Five (35) years, and to manage, administer, invest and reinvest the principal of such part, collect and receive the income and principal thereof, and pay over and distribute the income and principal as follows:
(a) Until the termination of the trust, the Trustee shall pay over to each Minor-Beneficiary who has reached the age of Eighteen (18) years all of the net income of such part, at convenient intervals but not less often than annually.
(b) Until the Minor-Beneficiary for whose benefit a part is held in trust attains the age of Thirty Five (35) years, the Trustee, at any time that they deem it advisable, may apply for the benefit of such Minor-Beneficiary, or pay over to such Minor-Beneficiary, so much, all or none of the principal of such Minor-Beneficiary's part, as the Trustee shall deem advisable to provide for such Minor-Beneficiary in accordance with the Standard For Payment, (defined below).
(c) Upon any Minor-Beneficiary reaching the age of Twenty Five (25) years the Trustee shall distribute to that Minor-Beneficiary One-Third (1/3) of the remaining principal of that part. Upon any @Minor-Beneficiary reaching the age of Thirty (30) years the Trustee shall distribute to that Minor-Beneficiary One-Half (1/2) of the remaining principal of that part. Upon any Minor-Beneficiary reaching the age of Thirty Five (35) years the Trustee shall distribute to that Minor-Beneficiary any remaining principal of that part, together with all undistributed income.
(d) Upon the death of such Minor-Beneficiary before reaching the age of Thirty-Five (35) years:
Note: If child, creditors of the child, and creditors of the Child's estate are excluded, then the Child Minor-Beneficiary would not have a general power of appointment and the generation skipping transfer tax (GST) issues would have to be addressed. Carefully consider these with your tax adviser.
i) The Trustee shall transfer the principal of the trust to such persons other than the Minor-Beneficiary, his or her estate, #but including his or her creditors and the creditors of his or her estate, to such extent, in such amounts or proportions, and in such lawful interests or estates, whether absolute or in trust, as such Minor-Beneficiary may by his or her last will and testament appoint by a specific reference to this power.
Note: If the minor does not exercise the power of appointment by including in his or her will a provision stating how the assets should be distributed, then the provision following will govern how the assets are distributed.
ii) If the power of appointment is for any reason not validly exercised in whole or in part by such Minor-Beneficiary, the principal of the trust, to the extent not validly appointed by such Minor-Beneficiary, shall, upon his or her death, be transferred to such Minor-Beneficiary's then living descendants, per stirpes, or, if no such descendant is then living, then the principal of the trust, shall upon his or her death, be transferred to #in equal shares to such Minor-Beneficiary's siblings then living, or the issue of any deceased sibling, per stirpes. @If there are living siblings or issue of any deceased sibling, then the principal of the trust, shall be transferred #to the Grantor's issue, per stirpes.
Such shares to be disposed of as provided for in this provision. Any Minor-Beneficiary of such amounts under the age of Thirty-Five (35) shall have such amounts held in trust as provided herein, unless the application of the provision concerning the Rule of Perpetuities would require otherwise.
b. If any tangible personal property shall at any time be held as part of such individual's trust, the Trustee shall have no duty to convert the same into productive property and the expenses of the safekeeping thereof, including insurance, shall be a proper charge against the assets of the trust.
c. If the Trustee shall determine at any time not to transfer in trust or not to continue to hold in trust any part or all of such property, they shall have full power and authority to transfer and pay over such property, or any part thereof, without bond, to such individual, if an adult under the law of the state of his or her domicile at the time of such payment, or to his or her parent, the guardian of his or her person or property, or to a custodian for such individual under any Uniform Gifts to Minors Act or Uniform Transfers to Minors Act, pursuant to which a custodian is acting or may be appointed, or to the person with whom such individual resides.
d. The receipt of such individual, if an adult, or the parent, guardian or custodian or any other person to whom any principal or income is transferred and paid over pursuant to any of the herein provisions shall constitute a full discharge to the Trustee from all liability with respect to such transfer.
V. OPERATIVE TRUST PROVISIONS.
Note: This provision is included in a trust if there is any possibility that the trust may hold stock in an S corporation so as to qualify the trust as a Qualified S Corporation Trust or "QSST". (1) S corporation stock may also be held by electing small business trusts (ESBT), i.e., trusts that have more than one potential beneficiary. Thus, a shareholder can put S corporation stock in a "sprinkle" trust without causing the S corporation to lose its qualification. (2) The post-death period during which grantor trusts (i.e., a revocable living trust) and testamentary trusts may hold S corporation stock is increased to two years (from 60 days). This provides more time and flexibility in dealing with S corporation stock held by these trusts after the death of the Grantor. Be certain that your business attorney considers these matters in drafting the shareholders' agreement for the corporation. Also, if the entities have not yet been formed give consideration to using limited liability companies, since they may be a preferable option depending on state law.
A. S Corporations and Qualified S Corporation Trust (QSST).
1. With respect to any part of the Trust Estate which is stock in a corporation electing under the provisions of Code Section 1362 to be taxed as an S corporation ("S corporation Assets"), this Trust Agreement is intended to be a Qualified Subchapter S Trust, as such term is defined under Code Section 1361(d). Notwithstanding any provision to the contrary in this Trust Agreement the Trustee shall, with respect to such stock, operate such part of any such trust in a manner consistent with such requirements. All provisions of this Trust Agreement which affect such part of any such trust shall be construed consistently with the requirements of a Qualified Subchapter S Trust.
2. Notwithstanding anything herein to the contrary, as to the S corporation Assets, the Trustee shall:
a. During the life of the beneficiary of such part of such trust there shall be only One (1) current income beneficiary of any such part of such trust formed under this Trust Agreement. In the event that more than one person could be a current income beneficiary under any such part of such trust under this Trust Agreement which could hold stock in an S Corporation, the Trustee is authorized to divide such trust into as many individual trusts as necessary in order to comply with the applicable provisions of the Code, if the Trustee deems appropriate in their absolute discretion.
b. All of the income, as defined in Code Section 643(b), of the S corporation Assets shall be distributed currently to the current income beneficiary.
c. Any corpus distributed during the life of such current income beneficiary, pursuant to the provisions elsewhere in this Trust, may be distributed only to such beneficiary.
d. The income interest of the current income beneficiary in this Trust shall terminate on the earlier of such beneficiary's death or the termination of this Trust.
e. If this Trust terminates during the life of the current income beneficiary, the Trustee shall distribute all S corporation Assets to such beneficiary.
f. If upon the death of the beneficiary of such part, if such trust would not meet the requirements of a Qualified Subchapter S Trust, then the Trustee shall distribute the S corporation Assets to the person or persons then constituting income beneficiaries of such part of such trust, if and only if, such distribution would enable the S corporation Assets to continue to meet the requirements of an S corporation in their hands. Any such distribution shall be made within the time periods required by the Code to prevent disqualification of the S corporation elections of the S corporation Assets.
g. The Trustee is authorized to make any minor technical corrections necessary to the terms of this Trust Agreement to assure that, with respect to the S corporation Assets, such part of such trust shall continue to meet the requirements of a Qualified Subchapter S Trust.
h. The Trustee may pay to the current income beneficiary, in addition to all other payments provided under this Trust, an amount approximately equal to the federal, state and local income taxes imposed on the current income beneficiary with respect to the S corporation Assets, on account of any income or gain allocated to trust principal, according to applicable accounting principles.
B. S Corporations and Electing Small Business Trusts (ESBT).
1. With respect to any part of the Trust Estate which is stock in a corporation electing under the provisions of Code Section 1362 to be taxed as an S corporation ("S corporation Assets"), this Trust Agreement is intended to be an Electing Small Business Trust, as such term is defined under Code Section 1361(c)(2)(A)(v). Notwithstanding any provision to the contrary in this Trust Agreement the Trustee shall, with respect to such stock, operate such part of any such trust in a manner consistent with such requirements. All provisions of this Trust Agreement which affect such part of any such trust shall be construed consistently with the requirements of an Electing Small Business Trust.
2. Notwithstanding anything herein to the contrary, as to the S corporation Assets, the Trustee shall:
a. The Trust shall not have any beneficiaries other than individuals, estates or charitable organizations described in Code Section 170 (c)(2), (3), (4) and (5).
b. No interests in the Trust shall have been or shall be acquired by purchase.
c. An election to be a Small Business Trust applies to the Trust.
d. The Trust has not made a QSST election with respect to any stock held by the Trust and is not a tax-exempt trust.
e. The Trustee is authorized to make any minor technical corrections necessary to the terms of this Trust Agreement to assure that, with respect to the S corporation Assets, such part of such trust shall continue to meet the requirements of an Electing Small Business Trust.
C. Post-Death Eligibility of Trust to be S Corporation Shareholders.
This Trust shall continue to be an S Corporation shareholder for a period not to exceed two (2) years from the death of the Grantor, without regard to whether the entire Trust corpus is includible in the Grantor's estate. After such period, the Trust shall not be authorized to hold such stock.
D. Generation Skipping Transfer Tax (GSTT) Provisions.
Note: This provision is included in a revocable living trust if there is any possibility that a "skip" person may receive a distribution from the trust. If GST issues are possibly relevant, be certain to consult with a tax adviser to be certain that GST considerations are addressed in your overall planning. This may include designating specific trusts or gift plans designed to maximize the use of the annual gift tax exclusion and $1 million (to be indexed) GST exemption amount. This planning has not been addressed in this trust.
With respect to the tax on generation-skipping transfers set forth in Chapter 13, the Generation Skipping Transfer Tax (the "GSTT") of the Code, the Grantor grants the following powers to the Trustee:
1. The power to allocate any portion of the Grantor's GSTT exemption, as set forth in Code Section 2631(a), as amended, or any successor statute, not allocated during the Grantor's lifetime, or by Grantor's executor, to any property with respect to which the Grantor is treated as the transferor for purposes of Chapter 13 of the Code, including, but not limited to, any property transferred by the Grantor during the Grantor's lifetime, at such time and in such manner as set forth in Code Section 2632 or any successor statute and the regulations promulgated there under.
2. The power to divide property in any Trust or part thereof being held under this Trust Agreement with an inclusion ratio, as defined in Code Section 2642(a)(1), of neither One (1) nor Zero (0) into Two (2) or more separate Trusts representing fractional shares of the property being divided, with One (1) or more of said shares having an inclusion ratio of Zero (0) and the other share or shares having an inclusion ratio of One (1).
3. With respect to all, or any part, of the principal of any such Trust or part thereof being held under any trust formed under this Trust Agreement which may be subject to the GSTT, by an instrument filed with the Trust records:
a. The power to create in a beneficiary, #other than Grantor's spouse, *SPOUSE NAME, a general power of appointment within the meaning of Code Section 2041, as amended, that may dispose of the property upon the death of that beneficiary. However, the exercise of such power shall require the consent of the Trustee, other than the beneficiary, provided that such consent requirement shall not prevent the power from being treated as a general power of appointment as defined in Code Section 2041. If such consent requirement prevents the power from being treated as a general power of appointment, said requirement shall be interpreted and applied in the minimum manner necessary in order to qualify it as a general power of appointment.
b. The power to eliminate such a general power of appointment for all or any part of the principal as to which such power was previously created.
c. The power to irrevocably release the right to create or eliminate such power.
d. The power to divide the Trust Estate into Two (2) fractional shares based upon the then portion of the Trust Estate that would be included in the gross estate of the beneficiary holding such power if he or she died immediately before such division (in which case the power shall be over the entire principal of One (1) share and over no part of the other share) and each such share shall be administered as a separate trust. However, the Trustee, other than any beneficiary, shall in their sole discretion have the right to thereafter combine such separate trusts into a single trust. In authorizing such action, the Grantor's expresses hope, but does not require, that a general power will be kept in effect when the Trustee, other than any beneficiary, believe the inclusion of the property affected by such general power of appointment in the beneficiary's gross estate, may achieve a significant savings in transfer taxes by having an estate tax rather than a GSTT imposed on the property subject to the general power of appointment, which may also permit a greater use of the GSTT exemption under Code Section 2631(a) of any beneficiary, or spouse of any beneficiary.
e. The power to exercise the special election provided by Code Section 2652(a)(3) as to any trust created for the benefit of Grantor's spouse which qualifies for the marital deduction. If the Trustee shall so elect and an allocation of GST exemption is made to such trust, the Trustee may, in such Trustee's sole discretion, set apart a fractional share of the such trust in a separate trust to cause its inclusion ratio to be zero.
VI. Distribution Standards, Generally.
A. Standard For Payment.
Note: Watch the implications of the following provisions to the marital deduction. If a distribution is to be made to the grantor's surviving spouse, it is best to use an out-right bequest, QTIP (or other qualifying marital trust).
1. No Limitations Shall Apply During Life of Grantor of Revocable Living Trust.
While Grantor is alive, there shall be no restriction or limitation of any nature on the distributions made to Grantor or for the benefit of Grantor.
Note: The provisions below are intended to provide that trust distributions (principal and income) be in accordance with an "ascertainable standard" as defined by the tax laws.
2. Ascertainable Standard For Payment of Income and Principal.
Unless specifically provided to the contrary in this Trust Agreement, any payment of principal or income by the Trustee shall be made in accordance with the ascertainable standards contained in the provisions following ("Standard For Payment"):
3. #Standard For Payment of Principal.
The Trustee of any trust created under this Trust Agreement are authorized, at any time, with respect to any beneficiary of any Trust formed under this Trust Agreement then eligible to receive the net income from such trust, to pay to, or apply for the benefit of such persons such sums out of the principal of such trust (including the entire principal amount), as the Trustee considers advisable to provide for such beneficiary in accordance with the broadest definition of an "ascertainable standard" as such term is defined by Code Section 2041(b)(1)(A), the regulations under Section 20.2041-1, including but not limited to Treasury Regulation Section 20.2041-1(c)(2). This shall include the power to consume, or invade principal for the benefit of the particular beneficiary as limited by an ascertainable standard relating to the health, education, support or maintenance of such person. Such power shall be limited to the reasonably measurable terms of the beneficiary's needs for health, education or support (or any combination of such items). The words support and maintenance are not limited to the bare necessities of life. This power shall include: the power to support such beneficiary in reasonable comfort; provide for the maintenance in health and reasonable comfort of such beneficiary; support such beneficiary in such beneficiary's accustomed manner of living (this shall not limit, however, distributions where greater distributions could be made in accordance with an ascertainable standard even though such distributions exceed the beneficiary's accustomed manner of living); provide for the education, including college and professional education of such beneficiary; and provide for the health, medical, dental, hospital, nursing expenses and expenses of invalidism of such beneficiary.
4. Standard For Payment of Income.
The Trustee shall pay any portion, or all of the income of any trust formed under this Trust Agreement to the designated beneficiaries of such trust in accordance with the instructions provided for any such trust. Where no specific instructions are so provided, or such instructions are unclear, the amount of income distributed shall be payable in the discretion of the Trustee, in accordance with the ascertainable standard described in the preceding provision. Notwithstanding anything in this Trust to the contrary, this provision shall not be interpreted or applied in a manner to restrict the required income distributions from any trust intended to qualify for the unlimited estate or gift tax marital deduction.
B. Special Distribution Standards.
1. Guidelines for Discretionary Distributions.
It is the desire of the Grantor that in making any discretionary distributions of income or principal the Trustee shall take into account other resources that the beneficiary may have at his or her disposition.
2. Spendthrift Clause.
Note: Consider using the following restriction only for a revocable living trust where the grantor (you) wishes to have no restrictions on the use of funds during his or her life.
The following provision shall only apply following Grantor's death:
Except as may be otherwise provided in this Trust Agreement, no transfer disposition, charge or encumbrance on the income or principal of any trust created under this Trust Agreement, by any beneficiary by way of anticipation shall be valid or in any way binding upon the Trustee. The right of any beneficiary to any payment of income or principal is subject to any charge or deduction which the Trustee makes against it under the authority granted to them by any statute, law or by any provision of this Trust Agreement. No beneficiary shall have the right to transfer, dispose of, assign, or encumber such income or principal until the assets shall be paid to that beneficiary by the Trustee. No income or principal shall be liable to any claim of any creditor of any such beneficiary.
3. Distributions to Person Under Legal Obligation.
Note: The following paragraph could, in some form, be included if a trustee could be a parent or other responsible person for a beneficiary. If the trustee/parent has the power to use the trust assets to discharge their legal obligation of support, whether or not this power is limited by an ascertainable standard, the income earned by the trust assets will be taxed at the parent's rate. In addition, the assets may be included in the trustee's estate, since the parent is indirectly benefiting him or herself and that power is taxable under Sections 2041 and 2514. This is one of the reasons for having another co-trustee and to provide in the trust document that the parent/trustee is barred from participating in the exercise of any discretion to determine the propriety, or amounts of payments to the trustee's dependents. Should this apply to the grantor since the assets are included in the grantor's estate in any event?
The following provision shall not apply to distributions made by Grantor where Grantor is serving as a Trustee:
The Trustee shall not pay or expend the Trust Estate in a manner that would discharge any Trustee's legal obligation to support a particular beneficiary, if any. Therefore, no Trustee shall have the power or discretion, or be deemed to be a Trustee with respect to the making of payments, applications or allotments of income or principal to, or for the use or benefit of, himself or herself as a beneficiary of any Trust hereunder or for any person whom such Trustee, in his or her individual capacity, is legally obligated to support if such payment or application would constitute the discharge of any part of such Trustee's support obligation. No Trustee shall make payments to himself or herself or for his or her benefit where such payments or application would cause the inclusion of the assets form which such payments are made in the Trustee's personal estate. Where a Trustee is prohibited from taking an action as a result of this provision, then the other serving Trustee who is permitted after the application of this provision to serve, shall then serve alone with respect to such action (the "Independent Trustee"). If no Trustee is then qualified to serve as an Independent Trustee, the person listed herein as the next successor Trustee shall be appointed as Co-Trustee.
Note: The following paragraph is generally not used since it could permit a parent to pay a child's necessities, etc.
Note: The divorce provision may or may not be included, depending on your situation and feelings.
If a divorce judgment is entered into between Grantor and Grantor's spouse, *SPOUSE NAME, then Grantor's spouse shall be deemed to have predeceased Grantor as effective on the date of such judgment, and all provisions of this Trust Agreement, and any trust formed hereunder, shall be interpreted accordingly.
Note: It is important that you identify the names and addresses of successor agents in case the initial trustee (or co-trustees) are unable to act. The reasons for having co-trustees as opposed to one trustee may include: (1) to share the burden of trust administration, (2) provide continuity in trust administration when Grantor/Co-Trustee becomes disabled, (3) etc.
VII. TRUSTEE - RIGHTS, OBLIGATIONS AND POWERS.
A. TRUSTEE SELECTION.
1. Additional or Successor Trustee.
a. #If either of the Two (2) persons named above to serve as Trustee are unable or unwilling to serve, then *AGENT3-NAME, who resides at *AGENT-3ADDRESS, shall serve as Co-Trustee. If *AGENT3-NAME is unable or unwilling to serve, then *AGENT4-NAME, who resides at *AGENT-4ADDRESS shall serve as Co-Trustee. If *AGENT4-NAME is unable or unwilling to serve, then *AGENT5-NAME, who resides at *AGENT-5ADDRESS, shall serve as Co-Trustee.
*# [Add names of any additional alternate Trustees furnished by you].
b. If Grantor is unable or unwilling to serve, then *AGENT3-NAME, who resides at *AGENT-3ADDRESS, shall serve as Co-Trustee. If *AGENT3-NAME is unable or unwilling to serve, then *AGENT4-NAME, who resides at *AGENT-4ADDRESS shall serve as Co-Trustee. #If *AGENT4-NAME is unable or unwilling to serve, then *AGENT5-NAME, who resides at *AGENT-5ADDRESS, shall serve as Co-Trustee.*#*.
(1) Trustee May Appoint Additional Trustee.
Note: The provision below is used in case the individuals listed above are unable or unwilling to act. The last acting trustee is authorized to appoint an additional trustee.
If at any time any person is the last acting Trustee under any Trust created hereunder, such Trustee is authorized to designate, in such Trustee's reasonable discretion, any individual or succession of individuals, or bank or trust company as co-Trustee, or successor Trustee, to act jointly as co-Trustee, or jointly or independently as successor Trustee. However, this authorization specifically excludes the right to designate Grantor #or Grantor's spouse, as a successor Trustee. This designation shall be made by the Trustee by written instrument signed and acknowledged by the Trustee making the appointment and shall become effective upon the successor Trustee qualifying as required under applicable law. Any such designation of a co-Trustee, may be revoked by the Trustee at any time before the designated co-Trustee's appointment becomes effective.
Any designation of a successor Trustee, or any revocation of such designation, pursuant to the authority granted in this provision , shall be in a written instrument, duly executed and acknowledged by the Trustee exercising such authority and filed in the Court which has jurisdiction over this Trust.
Note: The Grantor has established this trust to provide for management of Grantor's assets in the event of Grantor's disability. In many instances, a bank may be named as co-trustee where there are no family members. In perhaps more instances, a bank is not named because of the client's perceived fears of banks not acting in the manner desired. An alternative approach to address the need of an institutional fiduciary, while considering the Grantor's (or beneficiary's) concerns about the potential for poor service or insensitivity on the part of the bank is to vest in the Grantor or beneficiary a limited right to remove and replace the institutional fiduciary. If the power to remove is too broad, the corpus of the trust could be included in the estate of the Grantor or beneficiary holding the power to replace the trustee. Revenue Ruling 95-58 gave certain rights to remove an institutional trustee. Who should be given this right? Grantor (what if too old, risk of estate inclusion if excessive)? The non-institutional trustee (creates conflict)? Beneficiary (what if too young or disabled)?
2. Replacement of Institutional Trustee.
Note: The provisions below are merely illustrative. You may prefer much more lenient provisions which give the beneficiaries almost unfettered control over changing a trustee from one institution to another. Another alternative would be to consider naming a person other than a trustee or beneficiary, called a "trust protector" who may have specified limited authority to change trustees, move the situs of the trust to another jurisdiction, etc.
A unanimous vote of all current income beneficiaries, or by the written Notice of Grantor (where the successor institutional Trustee is independent of Grantor), it shall be permissible to remove an institutional Trustee, if one should then be serving, for "cause", as defined by the following thirteen factors:
(a) The legal incapacity of a trustee.
(b) The willful or negligent mismanagement by the trustee of the trust's assets.
(c) The abuse or abandonment of, or inattention to, the trust by the trustee.
(d) A federal or state charge against the trustee involving the commission of a felony or serious misdemeanor.
(e) An act of stealing, dishonesty, fraud, embezzlement, moral turpitude, or moral degeneration by the trustee.
(f) The use of narcotics or excessive use of alcohol by the trustee.
(g) The poor health of the trustee such that the trustee is physically, mentally, or emotionally unable to devote sufficient time to administer the trust.
(h) The failure by the trustee to comply with a written fee agreement or other written agreement in the operation of the Trust.
(i) The failure of a corporate trustee to appoint a senior officer with at least five (5) years of experience in the administration of trusts to handle the trust account.
(j) Changes by a corporate trustee in the account officer responsible for handling the trust account more frequently than every five (5) years (unless such change is made at the request of or with the acquiescence of the other trustee).
(k) The relocation by a trustee away from the location where the trust operates so as to interfere with the administration of the trust.
(l) A demand from the trustee for unreasonable compensation for such trustee's services.
(m) Any other reason for which a court of competent jurisdiction, in the State, would remove a trustee.
Notice of the removal and replacement of an institutional Trustee shall only be given once in any Twenty Four (24) month period by the Grantor or once in any Twenty Four (24) month period by the current income beneficiaries. In the event that any aspect of this provision could result in the inclusion of any portion of the Trust Estate in Grantor's estate, than the Trustees shall have the express authority to modify and limit this provision to prevent such inclusion. Notice of any replacement of an institutional Trustee shall be given to the Grantor (if still alive), the then serving Trustees, the next successor Trustee named hereunder, and the current income beneficiaries.
3. Selection of Trustee Where No Trustee Serving.
Note: If no trustee is able to act for 30 days, then a person or institution may be appointed after consultation between our firm and the client's family.
In the event that there should be no Trustee acting hereunder for a period of Thirty (30) days, then Grantor appoints as a successor Trustee the individual, or the bank, or the trust company, to be designated by an instrument in writing signed by the law firm of *YOUR FIRM NAME HERE, or any successor firm if and only if such firm or successor firm determines to act hereunder in its @ discretion and without obligation. Notice of same shall be given as provided in this paragraph. Such Notice shall be delivered to:
a. The Grantor. If the Grantor is not alive, or has been adjudicated incompetent by a court then the Notice shall be delivered to the legal representatives of the Grantor, Grantor's committee, conservator or guardian, or the estate of the Grantor.
b. Notice to the Trustee shall be made to the last Trustee serving hereunder. Such Notice shall be given to the legal representatives of such Trustee, such Trustee's committee, conservator or guardian, or the legal representative of the estate of such Trustee.
c. Any adult current income Beneficiaries under this Trust.
d. Notice may also be given to such person as designated by a court of competent jurisdiction.
These procedures are referred to as the "Notification Procedure".
4. Trustee Acceptance.
The acceptance of trusteeship by any Trustee not a party to this Trust Agreement shall be evidenced by an execution of a counterpart to this Trust Agreement delivered in accordance with the Notification Procedure.
5. Trustee Resignation.
a. Any Trustee hereunder may resign at any time without obtaining prior judicial approval. Such resignation shall be deemed complete upon the delivery of an instrument in writing declaring such resignation to the Grantor, if the Grantor is alive, and to the remaining Trustee hereunder, or should there be no remaining Trustee, to the successor Trustee hereunder, or in accordance with the Notification Procedure defined above. Such resigning Trustee shall promptly deliver the assets of the Trust Estate to the remaining or successor Trustee hereunder.
b. The resigning Trustee shall, at the request of the remaining or successor Trustee hereunder, promptly deliver such assignments, transfers and other instruments as may be reasonably required for fully vesting in such remaining or successor Trustee all right, title and interest in the Trust Estate.
c. If any Trustee named in the preceding provisions is, or becomes, divorced or legally separated from *RESIGNATION DIVORCE-NAME to whom such person was married at the date this Trust Agreement was executed, then such person shall cease to serve as Trustee of any trust created under this Trust Agreement, and such Trustee shall immediately be deemed to have tendered a resignation hereunder.
B. TRUSTEE RIGHTS AND OBLIGATIONS.
Note: The following provides generally for Trustee compensation in accordance with state law, which generally depends on the amount of trust principal. If a bank is used, then their customary fee structure can govern. You may provide for specific rates or amounts of compensation provided that they are reasonable. Exercise caution in drafting such specific provisions. If a client wanted you to specify an hourly rate, what rate should apply in 30 years if the trust is still in existence? Consider as well the interplay of intended investment strategy and compensation. If the Trustee is to hire a money manager should the trustee's compensation be reduced? What if load mutual funds are used?
1. Trustee Compensation.
a. Each Trustee acting hereunder shall be entitled to withdraw from the Trust Estate, without obtaining court or other approval, the compensation which is allowed to a trustee under the laws of the State which govern this Trust Agreement, computed in the manner and at the rates in effect at the time the compensation is payable.
b. Where an institutional Trustee is serving hereunder, such institutional Trustee shall be entitled to the compensation set forth in such institutional Trustee's regularly issued fee and compensation schedule which is applicable to such institutional Trustee's trust customers at the time the services are rendered, or as otherwise agreed in writing.
c. The commissions and fees payable from income for any given tax year may be paid from either the Trust income of that year @or from the trust income of any other tax year. However, the preceding sentence shall not be applied in the case of any Trust hereunder for which a marital deduction is sought. In such instances compensation and fees shall be payable from principal or income or partly from @ each in the discretion of the Trustee.
2. No Bond Required.
No bond or security of any kind shall be required of any Trustee acting hereunder or appointed pursuant to the provisions hereof.
Note: The cost of the trust administration can be reduced if there is no formal accounting. In some cases a formal accounting will be necessary or desirable.
a. No Trustee acting under this Trust Agreement are under any duty to render a judicial accounting upon resignation or otherwise. However, the Trustee may submit any account to a court for approval and settlement.
b. The Trustee may render an accounting upon the termination of any trust created under this Trust, and at any other times which the Trustee may deem necessary or advisable. The written approval of all persons, who are not subject to a legal disability, and who are entitled to receive the net income of any trust created under this Trust Agreement, and of all persons not subject to a legal disability then presumptively entitled to the principal of any trust, as to all matters and transactions shown in the account, shall be final, binding and conclusive upon all such persons, and upon all persons who may then be, or thereafter become, entitled to any income or principal of any trust created under this Trust Agreement. The written approval or assent of the persons mentioned in this provision shall have the same force and effect in discharging the Trustee as a decree by a court of competent jurisdiction. However, any such written approval shall not enlarge or shift the beneficial interest of any beneficiary of any trust created under this Trust Agreement.
c. If the Trustee is accounting to another fiduciary, then the written approval of the other fiduciary shall be final, binding and conclusive upon all persons beneficially interested in the Trust Estate represented by such other fiduciary.
4. Trustee Responsible For Care of Assets Comprising Trust Estate.
The Trustee shall have the entire care and custody of all of the assets comprising the Trust Estate and shall keep the assets with the same care as given to other property held by him in a fiduciary capacity. The Trustee shall become responsible for the Trust Estate only when, as and if the same shall have been received by such Trustee. No Trustee shall be responsible for any act or omission of any prior Trustee, nor shall any Trustee be under a duty to take any proceedings against any prior Trustee, but shall be entitled to rely on the propriety of the actions of the prior Trustee as such actions appear from the records and accounts of the prior Trustee. In determining which assets constitute the Trust Estate, a Trustee shall be responsible only for the making of reasonable inquiry from records of the prior Trustee reasonably available to such Trustee.
5. Investment Goals.
Note: The provisions below are intended to address the recent wave of new state legislation on the Prudent Investor Act. The new prudent investor rule looks at the portfolio as a whole, rather than at individual investments. The new rule considers the trade-off between risk and return and imposes a diversification requirement. Optional provisions may be used. The simplest approach, although not necessarily the ideal approach, is to simply give broad discretion to the trustee. The preferable approach is for the trust to outline in some detail its purposes, when and how money should be spent, etc. This detail (see discussions above in distribution provisions) can enable the trustee to construct a rough budget, make projections of needs and expected expenditures, and then develop an investment strategy to fit those criteria. The problem with this approach is that it requires custom drafting. This takes time and increases bills. Consult an attorney in your state. The laws differ significantly in various states and many are in the process of changing.
Note: The following paragraph is used to provide discretionary authority to the Trustee to invest the trust assets in one or two investments, so that the Trustee is absolved from having to comply with the diversification requirement of the Prudent Investor Act.
a. Trustee Responsibility For Implementing Investment Policy.
@#The Trust Estate may consist of securities of one issuer, or securities of a few issuers, or a diversified portfolio of various types and issuers of securities. The Trustee is not directed to distribute or dispose of any particular securities or other assets which may come into the Trustee's possession, where such distribution or disposition is primarily for the purpose of diversification of investment holdings of the Trust Estate. The Trustee is not required to liquidate or adjust holdings solely because such holdings have a limited market. The Trustee is not obligated to diversify the investment holdings of the Trust Estate and is hereby indemnified and held harmless from any such failure to diversify.
b. Investment Standards.
Note: The following paragraph is used to provide discretionary authority to the Trustee to invest in any type of asset even if deemed "imprudent" under the Prudent Investor Act.
In addition to the investment powers and discretion conferred on the Trustee under this Trust, the Trustee is authorized (but is not directed) to acquire and retain investments not regarded as traditional or prudent for trusts, allocations of investments within the Trust's portfolio which would not be deemed prudent or advisable, including but not limited to investments and/or investment strategies that would be forbidden by the prudent investor standard applicable at such time. The Trustee may therefore invest, any portion or even all of the Trust Estate in any manner in the Trustee's discretion, including in any type of security, option, improved or unimproved real property, tangible or intangible property, direct or indirect interests, joint ventures, limited liability companies, general partnerships, limited partnerships, mutual funds, corporations, foreign or domestic investments, closely held business investments, and so forth. This authorization, however, shall not be given, and shall not be executed to such extent that, where such investment must be made in a particular manner to avoid an adverse tax result, by way of example and not limitation the disqualification of a trust for the marital deduction where such deduction would be advisable or intended.
This provision is also intended, and shall be interpreted so as to, prevent the application of (and hereby to elect out of) the Prudent Investor Act of the State or any other similar or related Act.
Note: Consider adding a provision to authorize the Trustee to specifically hold closely held business interests. It may or may not be included, depending on the client's facts. We are assuming for purposes of this model trust that it is not applicable. It should always be considered and modified as necessary.
c. Trustee Authorized #and Directed To Retain Specified Investment.
Note: The provision below authorizes the Trustee to specifically hold closely held business interests. Delete if not applicable.
The Trustee is expressly authorized, in the exercise of the Trustee's discretion, to retain any interest in *INVESTMENT NAME, which shall be at any time held as par of any Trust hereunder, and the Trustee shall not be liable to anyone whomsoever for any loss, liability or other detriment resulting, directly or indirectly, from the retention of such investment or interest.
Note: The provision below is intended to limit the trustee's liability when there is a loss in value of the trust estate. Is such a broad standard appropriate where a bank, institution or other outside fiduciary is used? Should different standards be used for different trustees?
6. Limitation On Trustee Liability.
a. No Trustee shall be individually liable for any loss to, or depreciation in, the value of the Trust Estate occurring by reason of (i) the exercise or non-exercise of the powers granted to the Trustee under this Trust; or (ii) a mistake in, or error of, judgment in the purchase or sale of any investment or the retention of any investment, so long as the Trustee shall have been acting in good faith.
b. Every act done, power exercised or obligation assumed by the Trustee, pursuant to the provisions of this Trust Agreement, shall be held to be done, exercised or assumed, as the case may be, by the Trustee acting in the Trustee's fiduciary capacity and not otherwise, and every person, firm or corporation contracting or otherwise dealing with the Trustee shall look only to the funds and property of the Trust Estate for payment under such contract or payment of any money that may become due or payable under any obligation arising under this Trust Agreement, in whole or in part, and no Trustee shall be individually liable for such matter even though the Trustee did not exempt itself from individual liability when entering into any contract, obligation or transaction in connection with or growing out of the Trust Estate.
c. The Trustee shall be liable for gross negligence and for such acts, neglect and defaults which constitute a breach of trust and which are committed in bad faith.
Note: The provision below authorizes the Trustee to seek advice from counsel with respect to duties of a trustee.
7. Trustee Consultation With Counsel.
The Trustee may consult with legal counsel (who may be counsel to the Grantor) concerning any question which may arise with reference to the Trustee's duties or obligations under this Trust Agreement, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by the Trustee in good faith and in accordance with the opinion of such counsel.
Note: The provision below is intended to discharge the trustee from any further liability after the beneficiaries have received their final distributions. State law may not permit this. A final accounting may be required.
8. Receipt By Beneficiary Discharges Trustee.
The receipt of any beneficiary upon distribution hereunder shall discharge the Trustee from any further obligation with respect to the property so distributed. Upon final distribution hereof, the Trustee shall be fully discharged, and this entire trust shall terminate.
C. Trustee Decision Making and Authority.
1. Trustee Decision Making.
Note: Make sure that you are willing to have one co-trustee handle routine banking matters. Consider implications to Independent Trustee, how to define, etc. Also, if you opt for one trustee handing such transactions be sure the trustees complete the bank/brokerage account applications accordingly. Should different rules apply during the grantor's tenure as trustee?
Any authority, discretion or power granted to or conferred upon the Trustee by this Trust may be exercised by any such Trustee who shall be acting under this Trust Agreement at such time, or by such of them who shall be so designated by an instrument in writing executed by any other Trustee. #However, any individual Trustee acting alone and without any requirement for joint action is authorized and permitted to complete alone any ministerial and administrative acts, including but not limited to routine banking, investment, and brokerage transactions. This paragraph, however, shall not be interpreted or applied in a manner that violates any restriction in the provisions governing an independent trustee, person under legal obligation or applicable to a Holder. Therefore, where the provisions governing an Independent Trustee apply, the Independent Trustee alone may make any such decisions or take any actions reasonably within the purview of such Independent Trustee.
Where there are more than Two (2) Trustees at anytime the decision of a majority of them shall control and shall be binding on all of the Trustees.
If Two (2) or more Trustees are acting hereunder, the following provisions shall apply where the context permits:
a. The corporate or institutional Trustee shall have custody of the Trust Estate and of the books and records of the Trust.
b. With respect to any matter as to which the Trustees have joint authority, a Trustee from time to time may delegate any or all of that Trustee's rights, powers, duties, and discretion as Trustee to the other Trustee, with the consent of the latter.
c. The Trustee may establish bank accounts and it shall be assumed unless specified otherwise in the application for such account that checks or drafts may be drawn on, or withdrawals made from, any such account on the individual signature of either Trustee.
d. A Trustee shall be presumed to have approved a proposed act or decision to refrain from acting if that Trustee fails to indicate approval or disapproval therefore within Thirty (30) days after written Notice requesting approval.
2. Trustee Decision Is Final and Conclusive.
The exercise by the Trustee of the discretionary powers herein granted with respect to the payment, distribution or application of principal or income of any trust created under this Trust Agreement is final and conclusive upon all persons and shall not be subject to any review whatsoever. Grantor intends that the Trustee shall have the greatest latitude in exercising such discretionary powers, and that the persons entitled to receive the principal of any trust created under this Trust Agreement shall upon the termination of such trust be entitled only to such principal as may remain after the last exercise of the Trustee's continuing discretionary powers.
3. Trustee Decisions Are Non-Reviewable and Binding.
Any decision to be made by the Trustee is to be made in such Trustee's @discretion and shall be binding on all parties affected unless specifically provided to the contrary in this Trust Agreement.
4. Court Approval of Trustee Acts Not Required.
No Trustee shall be required to obtain the approval of any court for any action of such Trustee unless such approval is required by law or by a specific requirement in this Trust Agreement.
5. Limitations On Trustee Discretionary Authority.
Note: If the Grantor is serving as Trustee, consider including the sentence below.
The following provision shall not apply to distributions made by Grantor where Grantor is serving as a Trustee:
Note: Since Grantor is not serving as Trustee, consider deleting the sentence below and modify the paragraph below to reflect the fact that this is not a revocable trust.
a. Only the Independent Trustee shall: Participate in any decision to exercise, or not to exercise, any discretionary power over payments, distributions, applications, appointments or accumulations of income or principal; Exercise discretion to allocate receipts or expenses between principal and income; Exercise any discretionary power with respect to any insurance policy held under this Trust insuring the life of such individual, or insuring the life of such individual's spouse; Hold property as a custodian for a minor or as donee of a power during minority, or selecting any such custodian or donee; Determine tax elections; Amend or otherwise affect any beneficiaries withdrawal rights over additions to the Trust Estate of any Trust; or Determine the selection of property to be allocated to a QTIP, QDOT or other qualifying marital deduction trust, if any, created under a preceding provision of this trust.
b. For these purposes, an Independent Trustee is defined as a Trustee who has no legal obligation to support the beneficiaries affected by any decision in the preceding paragraph, and who cannot appoint Trust income or principal to himself or herself, his or her creditors, his or her estate, creditors of his or her estate, or to or for the benefit of any child or other person to whom he or she owes a legal obligation of support and for which such appointment of income or principal would constitute a discharge of such legal obligation of support.
c. Notwithstanding anything in this Trust to the contrary, , no Trustee shall make any decisions regarding the discretionary distribution of income or principal to himself or herself, or to or for his or her benefit.
d. In the event any Trustee is in a position where such a decision would have to be made, such Trustee shall not participate in such a decision and instead any co-Trustee shall make such decision. Further, if there is no co-Trustee then the next named successor Trustee under this Trust Agreement who is willing and able to participate, shall so make such decision.
D. TRUSTEE ADMINISTRATIVE POWERS.
Note: The powers below are generally provided in many trusts. They should ideally be reviewed and modified to fit your particular situation, and each trust's objectives, etc.
1. Trustee General Powers.
Except as specifically provided to the contrary in this Trust Agreement, the Trustee shall have in addition to, and not in limitation of, the powers granted elsewhere in this Trust Agreement, or the powers allowed by law, the following powers:
Note: The following paragraph should be coordinated with the investment decisions above.
a. To invest and reinvest any assets comprising the Trust Estate in any securities or other property, whether real or personal, tangible or intangible, of any class, kind or nature (including an undivided interest in any one or more common trust funds), as the Trustee may deem advisable without regard to any restrictions of law on a trustee's investments.
b. To exercise voting rights in person or by proxy, rights of conversion or of exchange, or rights to purchase or subscribe for stocks, bonds or other securities or obligations which may be offered to the holders of any asset, and to accept and retain any property which may be acquired by the exercise of any such right with respect to any stocks, bonds or other securities or obligation included in the Trust Estate.
c. To employ or retain accountants, custodians, agents, legal counsel, investment advisers, and other experts as the Trustee shall deem advisable. To rely on the information and advice furnished by such persons. To fix the compensation of such persons, and in the case of legal counsel, who may also be acting as a Trustee hereunder, to make payments on account of legal fees in advance of the settlement of the Trustee's account without applying to or procuring the authority of any court.
d. To the extent permitted by the laws of the State, the Trustee may hold securities in the name of a nominee without indicating the trust character of such holdings, and may hold unregistered securities, or securities in a form that will pass by delivery.
e. To retain and continue for any period deemed appropriate by the Trustee, any asset, whether real or personal, tangible or intangible, included in the Trust Estate.
f. To sell at public or private sale and to exchange or otherwise dispose of any stocks, bonds, securities, personal property, or other asset constituting the Trust Estate at the time, price, and terms as the Trustee deems advisable.
g. To grant options for the sale or exchange of any asset comprising the Trust Estate, at times, prices and terms which the Trustee deems advisable, without applying to or procuring the authority of any court.
h. To sell, exchange, partition, convey and mortgage, and to modify, extend, renew or replace any mortgage which may be a lien on all, or any part, of any interest in real property included in the Trust Estate.
i. To lease any real or personal property, whether or not for a term beyond the period of time fixed by statute for leases by a trustee, and whether or not, extending beyond the termination of any trust established under this Trust Agreement, and upon such terms as the Trustee deems advisable, without obtaining the approval of any court.
j. To foreclose mortgages and bid in property under foreclosure and to take title by deed in lieu of foreclosure or otherwise.
k. To extend the time of payment of any bond, note or other obligation or mortgage included in the Trust Estate, or of any installment of principal thereof, or of any interest due thereon. To hold such instrument after maturity, as a past due bond, note or other obligation or mortgage, either with or without renewal or extension. To consent to the modification, alteration and amendment of any terms or conditions of such instrument, including those regarding the rate of interest, and to waive any defaults in the performance of the terms and conditions of such instrument.
l. To compromise, adjust, settle or submit to arbitration upon terms the Trustee deems advisable, in absolute discretion, any claim in favor of or against the Trust Estate. To release with, or without, consideration any claim in favor of the Trust Estate.
m. To participate in any refunding, readjustment of stocks, bonds or other securities or obligations, enforcement of obligations or securities by foreclosure or otherwise, corporate consolidation by merger or otherwise or reorganization which shall affect any stock, bond or other security or obligation included in the Trust Estate. To participate in any plan or proceeding for protection of the interests of the holders of such instruments. To deposit any property under any plan or proceeding with any protective or reorganization committee and to delegate to such a committee the discretionary power with respect thereto. To pay a proportionate part of the expenses of a committee. To pay any assessments levied under such a plan, and to accept and retain any property which may be received pursuant to any such plan.
n. To borrow money for the purpose of raising funds to pay taxes or for any other purpose deemed by the Trustee beneficial to the Trust Estate, and upon such terms as the Trustee may determine. To pledge as security for the repayment of any loan any assets included in the Trust Estate.
o. To make any distribution under any Trust, in cash or in property, or in any combination of cash and property. To make non-pro-rata distributions of cash and property then included in the Trust Estate.
p. To exercise for the benefit of the Trust Estate, and for any property included in the Trust Estate, all rights, powers and privileges of every nature, which might or could be exercised by any person owning similar property absolutely and in his or her own right. To exercise any or all of such rights, powers and privileges, even where such right, power or privilege may not have been specifically mentioned in this Trust Agreement. To negotiate, draft, enter into, re-negotiate, or otherwise modify any contracts or other written instruments which the Trustee deems advisable, and to include in them the covenants, terms and conditions as the Trustee deems proper.
E. Trustee Discretionary Powers.
1. Unified or Separate Accounts.
For the Trustee's convenience the Trustee is authorized to administer as a unified account the assets of any one or more Trusts created under this Trust Agreement and Donee Property then being held by the Trustee, so long as such action would not result in any adverse tax consequence to the Grantor or any income beneficiary. However, the Trustee shall keep a separate record of all transactions.
2. Merger Of Trusts.
In the event that any Trusts have been created under this Trust Agreement and/or under a trust under Grantor's last will and testament, #or by Grantor's spouse, for the same beneficiaries, with substantially similar terms, then the Trustee shall be authorized to merge said trusts.
Note: The provision below is inserted when drafting a revocable living trust to provide for beneficiaries under a disability at the time of receipt of a trust distribution.
3. Distribution To A Person Under a Disability.
a. Retention and Distribution of Income and Principal to a Person Under a Disability.
Whenever pursuant to the provisions of any trust formed under this Trust Agreement, any Donee Property is to be distributed, title to that property shall vest in that person under a disability, but the payment or transfer of the property may be deferred until the disability ceases. If the transfer of property is deferred under this provision, that Donee Property shall be held by the Trustee, who shall apply so much of the principal and income as they deem necessary, and in accordance with the Standard For Payment, for the benefit of the person under a disability.
b. Transfer of Donee Property.
When the disability ceases, the Trustee shall transfer to the person formerly under a disability the remaining Donee Property, and any accumulations of income or principal (collectively, both such items are referred to as the "Remaining Property"). If the person under a disability should die, the Trustee shall deliver the Remaining Property to the legal representatives of the estate of that person. Notwithstanding the foregoing provisions the Trustee may, at any time, deliver all or any part of the Donee Property which shall then remain, together with any accumulations, of income, to a parent, guardian, custodian under the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act, committee, conservator of the property, or an individual with whom such person under a disability resides, and the receipt by such person or entity shall constitute a full discharge of the Trustee for such payment or delivery. The powers granted to the Trustee shall be applicable to any Donee Property dealt with in this provision and shall continue until the actual distribution of such Donee Property.
c. Virtual Representation Clause.
In any proceeding involving the Trust Estate created under this Trust, it shall not be necessary to serve process upon, or to make a party to any such proceeding, any person under a disability where another party to the proceeding who is not under a disability has the same interest as the person under a disability.
4. Modification of Trust Agreement by Trustee.
a. Any Trustee, may modify or amend any trust formed under this Trust Agreement to facilitate the administration of the Trust Estate or to conform such Trust to laws or regulations affecting trusts; the requirements of qualifying as a Qualified Subchapter S Trust; to meet the requirements of a Qualified Domestic Trust; to properly address the Generation Skipping Transfer Tax issues which may be created by any transfer or Trust contemplated hereunder as the same may be amended from time to time; to amend the Annual Demand power herein to assure its compliance, to the extent feasible, with the annual gift tax exclusion, with any new legal interpretations of the required structure of such trust.
b. No such modification or amendment, however, shall affect the possession or enjoyment of the Trust Estate, nor shall any action under this provision be undertaken in a manner that could cause the inclusion of any portion or all of the Trust Estate in the taxable estate of any person not contemplated hereunder.
c. Such modification shall be effected by an instrument filed with the Trust records. Any Trustee may exercise this power from time to time, in whole or in part, or may release this power in whole or in part.
F. Third Party Reliance.
No bank or trust company, corporation, partnership, association, firm, or other person dealing with the Trustee, or keeping any assets, whether funds, securities or other property of the Trust Estate, shall be required to investigate the authority of the Trustee for entering into any transaction involving assets of the Trust Estate. Nor shall such person be required to see to the application of the proceeds of any transaction with the Trustee, or to inquire into the appropriateness, validity, expediency or propriety thereof, or be under any obligation or liability whatsoever, except to the Trustee; and any such person, bank or trust company, corporation, partnership, association or firm shall be fully protected in making disposition of any assets of the Trust Estate in accordance with the directions of the Trustee.
G. Further Assurances.
Grantor agrees to execute any documents reasonably necessary for the Trustee to implement such Trustee's duties under this Trust Agreement.
Note: The provision below addresses the technical legal issue of the rule against perpetuities. The concept could be addressed in any trust. The following provision should be reviewed and considered in light of applicable state law. Some trusts are intentionally formed under Delaware, Alaska, South Dakota or other state laws to take advantage of less restrictive rules governing a trust's duration.
H. Rule Against Perpetuities.
Notwithstanding any provisions of this instrument to the contrary:
1. If any Trust created under this Trust Agreement shall violate any applicable rule against perpetuities, accumulations or any similar rule or law, the Trustee is hereby directed to terminate such trust on the date limited by such rule or law, and thereupon the property held in any Trust under this Trust Agreement affected by this provision, shall be distributed to the persons then entitled to share the income from that property in the proportions in which they are then entitled to share such income.
2. No power of appointment granted under this Trust Agreement shall be so exercised so as to violate any such rule or law, and any attempted exercise of any such power which violates such rule or law shall be void.
The following terms when used in this Trust are defined as follows:
1. "Addition" means any cash or other assets transferred to the Trust after the date of the initial execution of this Trust Agreement, and which is to be held as part of the Trust Estate. The amount of any contribution is its federal gift tax value, as determined by the Trustee at the time of the transfer.
2. #"Child" is an issue in the first degree.
Note: the definition of "Child" and "Children" must be coordinated with the various trust provisions above. These are generally defined in the applicable trust provisions above so you must be certain that any definitions here are consistent with those stated earlier.
3. "Code" means the Internal Revenue Code of 1986, as amended, or any corresponding provision of any subsequent federal tax law. Any reference to any Code Section shall also include a reference to any successor statute of like import, and any regulations issued hereunder.
4. "Donee Property" is any net income of any Trust created under this Trust Agreement, and/or all, or any part, of the Trust Estate of any Trust created under this Trust Agreement, which is, or could become, distributable to a person under a disability.
5. "Income", "Principal" are defined as follows. All cash dividends, other than those described hereafter, shall be income. All corporate distributions in shares of stock (whether denominated as dividends, stock splits or otherwise, and cash proceeds representing fractions thereof) of any class of any corporation (whether the corporation declaring or authorizing such distributions or otherwise) shall be principal. Dividends on investment company shares attributed to capital gains shall be principal whether declared payable at the option of the shareholders in cash or in shares or otherwise. Liquidating dividends, rights to subscribe to stock and the proceeds of the sale thereof, and the proceeds of unproductive or under-productive property shall be principal. There shall be no apportionment of the proceeds of the sale of any asset of the Trust Estate (whether real or personal, tangible or intangible) between principal and income because such asset may be or may have been wholly or partially unproductive of income during any period of time. Notwithstanding anything in this definition to the contrary, all income attributable to S corporation stock shall be distributed as required for the trust to retain its status as a qualified S corporation trust.
6. "in trust" is to manage, invest and reinvest the principal of a trust and to collect the income thereof.
7. "Issue" is a descendant in any degree, whether natural or adopted.
8. "Notice" is a writing containing any information required by this Trust to be included therein, with a copy sent to every Trustee then serving as a Trustee under any Trust and to the beneficiaries intended to be bound thereby. Where this Trust is revocable, the Grantor shall also be sent a copy of such Notice. Notice shall be sent via certified mail return receipt requested, registered mail, hand delivery, or by a recognized overnight courier. Notice shall be effective Three (3) business days after dispatch by mail, upon receipt when sent by hand delivery, and on the next business day when sent by overnight courier.
9. A "person under a disability" is a person who, for such period as the Trustee shall determine, is deemed by the Trustee to be physically or mentally incapable of managing such person's affairs. A judicial declaration is not required to be made with respect to such disability.
J. "Per stirpes" is a disposition of property whereby issue take a portion thereof in representation of their deceased parent, with division to be made into such number of equal shares at each succeeding degree of relationship from the common ancestor that there shall be one share for each person of such degree living at the time of such division and one share for the issue collectively then living of each person of such degree who is then deceased; such division to be made although there may not then be any person living within such degree.
1. "Trustee" is the trustee named in this Trust or appointed by a court or pursuant to the terms of this Trust and any and all successors, and may be masculine, feminine or neuter and singular or plural, as the sense requires.
2. "Trust Estate" is the property which Grantor assigns and transfers to the Trustee, the property described in Schedule "A", any Addition, any other property which the Grantor, the legal representatives of the Grantor's estate pursuant to the provisions of the Grantor's Last Will and testament, or any other persons transfer to the Trustee, as well as the proceeds from the sale or investment of such property. The "Trust Estate" is the remaining principal of any Trust formed under this Trust Agreement, as then constituted, and upon the termination of any Trust any accrued and undistributed income.
1. Governing Law.
Note: Depending on your goals and wishes, we generally provide that the Trustee is authorized to change the situs and the governing law of the Trust in the event the state where you reside enacts Prudent Investor legislation or other trust legislation not to your liking or if you are contemplating a move in the future to another state or country.
The validity, construction and effect of the provisions of this Trust shall be governed by the laws of *STATE NAME and wherever the term "state" is referred to in this Trust, it shall be interpreted as "*STATE NAME".
This Trust Agreement may be executed in more than one counterpart, each of which is an original, but all taken together shall be deemed one and the same instrument.
Captions, provision numbers and headings have been inserted for convenience only and such shall not be construed to affect the interpretation of any provision of this Agreement or to limit or broaden the terms of any provision.
4. Binding Agreement.
This Trust Agreement shall extend to and be binding upon the executors, administrators, heirs, successors and assigns of the Grantor and the Trustee.
5. Partial Invalidity.
Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of such prohibition without invalidating the rest of this Trust Agreement which shall be interpreted to conform, to the extent permitted by law, with the original intent of the Grantor.
IN WITNESS WHEREOF, the undersigned Grantor and Trustee have executed this Trust as of the date first-above written.
*CLIENT NAME, Grantor
Property Transferred to Trust
1. Cash in the amount of $100.00.
2. *DESCRIBE OTHER ASSETS.
Note: Funding of the trust can occur at the establishment of the trust of at any later date although most states require at least a token funding at the creation of the trust. The holder of a durable power of attorney may be authorized to make transfers of assets. We generally provide for an initial contribution of $100 to set up the trust account. #A listing of all assets transferred should be kept by the Trustees. Since the list will be changing over time, it is best kept with the trust but not stapled to the document itself.
Caution: This is a sample form only. Be certain to discuss your specific situation, state laws that affect you, and any recent developments with a local attorney, and other professionals.