The Truth About Writing Trusts

First Republic Investment Management

November 4, 2015

Clients often are confronted with long, detailed trust documents and sometimes wonder whether they need the complexity. Isn’t simpler better? The answer is not always —and certainly not when it comes to planning for your future.

Built to Stand Test of Time

The living trust used by a reputable estate planning lawyer contains parts that have been added, built up and revised as tax laws or case law on fiduciary duty have developed and changed. Because of the forward-looking nature of the trust, and the uncertainty of life, a well-planned trust is necessarily bulky. It’s built the way you make a snowball, composed of tiny bits of information with a very generalized structure. As a result, living trusts generally don’t read like a novel or even a well-written business plan. But, correctly drawn, the ultimate goal is to protect your assets.

Because trustees must always act in the best interests of the beneficiary, the passing of time may raise questions about assets they may someday contain. For instance, few trusts years ago would have explicitly referenced how to handle stock options or real property with hazardous waste problems. To handle these types of unforeseen issues, most trusts contain language giving the trustee power to deal with investment assets as he or she judges best. Many clients fear this will encourage the trustee to dabble in dangerous investments, but that isn’t the intent. Instead, the empowering language authorizes the trustee to deal, prudently, with specialized assets that the trust may contain at some time.

More Guidance = Greater Protections

If you, as the person setting up the trust, have a specific worry that your trustee may implement an investment strategy you disagree with, your trust needs to be a bit longer, not shorter. Rather than cutting out empowering language, and leaving no guidance, the trust language can express the trustor’s wishes and intentions very explicitly.

Remember that every trust also will be affected over time by changes in the tax laws, the mix of owner assets, and changes in the family structure and wishes over time. Even when uncertainty is high, good planning can help keep a family’s wealth safe.

© First Republic Investment Management, 2015

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