A person might establish a trust as part of their overall estate plan. When doing so, they serve as the grantor. The grantor names a trustee who oversees and administers the trust and a beneficiary who receives assets from the trust. All details regarding the trust are outlined in an agreement that is included in the estate plan.
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What is Included in the Trust Agreement?
This truth agreement outlines what is expected of the trustee and provides parameters for the trustee regarding discretion over investment decisions and asset distribution. Trustees have fiduciary duties to the named beneficiaries and must abide by the terms of the trust.
What should a trust beneficiary know to ensure they are receiving fair treatment? How can they know what they are entitled to? Trustees and beneficiaries must work together. However, a benificiary must have the following information to receive the best return from this arrangement.
A Benificiary’s First Steps
When a person learns they have been named a trust beneficiary, they must request a copy of the trust agreement. This document might confuse the beneficiary, and the trustee, an attorney, or a financial advisor can provide information on its contents.
Trust agreements outline the current distributions beneficiaries are entitled to and additional distributions they may receive at the trustee’s discretion or when the beneficiary fulfills certain requirements. These documents share information about future distribution provisions and when the trust terminates. They also detail what happens to any remaining trust property at its termination.
The trust agreement may contain other provisions. However, all agreements should have the elements described above. They provide the basic information every trustee needs.
Conditional Distributions
A trustee must adhere to the trust agreement’s contents. Conditional distributions are one area of contention for many. For example, the trust may state that a beneficiary may only request a distribution for a specific purpose. They may state a beneficiary can only request funds for a down payment on a new home, to pay for further education, or when they have health issues and need funds to receive proper care. Nevertheless, distributions may also be earmarked for a particular purpose, but the language can be much broader. Support distributions are a good example.
Support Distributions
Things may become a little murky when a trust agreement provides support distributions. Each person may define support differently. The trustee must consider several factors when determining a reasonable amount of support. They look at the beneficiary’s age and the overall size of the trust.
In general, young children need additional support. When a person reaches working age, this support may decrease. If the trust funds allow it, the support will increase when the person reaches retirement age. However, the trustee might consider other factors when determining a support amount. The trust may or may not provide information on selecting an appropriate level of support. It may fall on the trustee to make this determination.
When doing so, the trustee considers the trust income. It uses this information to balance the interests of both current and future beneficiaries. Beneficiaries should meet with a trust officer to talk about the management and administration of the trust.
Some trust agreements allow the trustee to make all distributions as they see fit. However, the trustee must still balance the needs of current beneficiaries with the interests of future ones. They must show that each distribution they authorize is aligned with the grantor’s wishes and abides by the trust agreement’s terms. Failing to adhere to the terms of the trust agreement can lead to the removal of a trustee and possible legal action.
