How do you know if you have a well-drafted Trust Agreement?


1. The Trust Agreement is at least 50 pages (single-spaced type) in length.

2. An extensive "Definitions" section (4 pages) that is designed to either eliminate or minimize questions and conflicts involving interpretations of Trust terms.

3. A "Situs" section which provides that the Grantor or subsequent Trustees may relocate the Trust administration to a different jurisdiction if beneficial to do so.

4. A "Trustees" section which provides how Trustees will be selected, and removed, under certain conditions. A designated Co-Trustee, although inactive, to insure that he/she can instantly function on behalf of the Trust in the event the Grantor is unexpectedly incapacitated.

5. A comprehensive Trustees "Powers" section (11 pages) which grants broad administrative powers to the Trustees, including: (a) broad investment (both domestic and overseas) powers; (b) right to borrow monies and pledge Trust assets as collateral; (c) right to loan Trust funds; (d) indemnification provisions for the Grantor and the Trustees should they incur personal expenses involving Trust activities; (e) environmental provisions in the event the Trust is found to hold contaminated real estate; and (f) Trustees right to make gifts on behalf of the Grantor.

6. A "Successor Trustee" section setting forth the names and order of Successor Trustees.

7. An "Irrevocability" section which provides that the Trust is revocable, but that it becomes irrevocable when the Grantor dies or becomes legally incompetent.

8. If married, then a comprehensive "Marital" Trust section (10 pages) which is designed to maximize the available exemptions from federal death taxes.

9. A comprehensive "Disclaimer" section which provides that any beneficiary may disclaim his/her right to an inheritance should it be deemed advantageous to do so.

10. A "Long-term", or "multi-generation", Trust section which provides that upon the Grantor's death the Trust will provide maximum asset protection for the heirs (i.e., children and grandchildren). In a long-term, rather than a typical short-term, Trust arrangement the Grantor's children would receive all of the Trust's annual income, with a limited right to access principal in an emergency, and upon the deaths of the children the grandchildren would then commence to receive distributions of Trust principal (usually at ages 35, 45 and 55).

11. A comprehensive "Right to Withhold or Terminate" benefits section which provides that, in their sole and absolute discretion the Trustees have the right to withhold and/or terminate a beneficiaries income and principal distributions in order to prevent a loss of funds to third parties should that particular beneficiary be determined to have: (a) a severe physical, mental or emotional impairment; (b) a serious substance abuse problem; (c) been convicted of a felony involving drugs or narcotics; (d) or is involved in pending litigation or insolvency proceedings; (e) a large unpaid judgment; (e) taken a vow of poverty; or (f) the tax advantages to the beneficiary would be disadvantageous.

12. A "Sub-chapter S" corporation section designed to prevent termination of the corporation's favorable "S" tax status after the death of the Grantor should the Trust be the owner of sub-chapter "S" corporation stock.

13. An Optional "QDOT" section which provides for the retention of the maximum marital deduction (otherwise unavailable under current law) from federal death taxes in the event the spouse has been determined to not be a legal U.S. citizen.

14. A comprehensive "No Contest" (in terrorem) section (5 pages) which provides extensive protection in the event a designated beneficiary elects to challenge the distribution provisions of the Trust agreement or to harass the designated Trustees. If such a challenge is filed in court, then the challenging beneficiary (except in Florida) is automatically disinherited and the legal costs allocated to the challenging beneficiary.

15. A comprehensive "Disabled Beneficiary" section which constitutes a "special needs trust" arrangement whereby funds would be withheld from any beneficiary who becomes disabled and who is otherwise qualified for local, state or federal financial assistance.

16. An "Incapacitation" section (2 pages) which defines who, when and in what manner a Grantor may be determined to be legally incapacitated and his/her services terminated as a Trustee. This section should contain HIPAA ("Health Insurance Portability and Accountability Act") language providing that a Trustee may obtain copies of medical records to determine if a licensed physician has concluded that a Grantor or a beneficiary is legally incompetent.

17. A "Limited Amendment" section which provides that after the death or legal incapacitation of the Grantor, if there is a change in the State or Federal tax laws that would be detrimental, then the Trustees have a limited power to amend the Trust to insure compliance with the new law and without resorting to costly court proceedings.

18. An "Arbitration" section providing for mandatory arbitration, rather than costly public litigation, in the event of an unresolved disagreement between Trustees and/or beneficiaries.

19. A comprehensive "Generation Skipping Tax" section (4 pages) that is designed to minimize or eliminate the otherwise costly imposition of the generation skipping tax (55%) for larger estates which are distributed to multiple generations.

20. A limitation on a "Grantor's Gifts or Right to Revoke section which is designed to prevent an incompetent or elderly Grantor from being taken advantage of by unscrupulous individuals (e.g., family members, church members, neighbors, new spouse, etc.) whose primary goal is to obtain access to the Trust funds.

21. A "Notice to Creditors" section concerning a public notice which must be published in a local paper at the Grantor's death to insure that creditors have been properly notified of such death and given time to file any claim against the Trust estate.

22. A privacy "Disclosure" section noting that the Trust's provisions and affairs are private and that no one has permission to publicize such without the permission of the Trustees. 

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