Changes to the federal tax laws in 2017 increased estate exemption amounts and provided other benefits for a trust. But, this law is complex and may expire in 2025, if not earlier. Because of this unpredictability, trusts may need more flexibility.
In addition to dealing with the potentially changing tax laws, flexibility also helps deal with changes with a family’s circumstances, finances and various laws and regulations. If trusts are unable to deal with certain circumstances, a court may become involved and make amendments. This can absorb money and time.
Recently, more fully discretionary trusts have been drafted. Beneficiaries under these trusts are not entitled to distributions and must wait for the trustee to use their distribution powers. These trusts help protect assets when beneficiaries are irresponsible or have poor money management skills.
The trustee decides when and the amount of distributions to beneficiaries who have no property interest but a mere expectancy. Trustees, in a fully discretionary trust, have no restrictions on their decisions. It is important to place certain standards in the trust to govern their actions.
Other flexibility involves decanting which is permitted in Michigan and other states. This allows distributing assets from an old trust into a new trust which was created because of changed family circumstances, better terms or more investment flexibility. Decanting allows for correcting an irrevocable trust that has ineffective or incorrect terms.
A trust protector is another option for trust flexibility, especially over trusts that will be in effect for a long period. A trust protector is not a trustee but a person who has powers over the trust and watches over it.
Protectors are useful for dealing with issues that were not known or anticipated when the trust was created. They may remove or replace trustees, change trust beneficiaries, veto decisions, revise administrative provisions and change the trust’s legal location. Lawyers can help provide options that meet a person’s trust needs. They can draft needed and valid estate documents.