• New Clothes for an Old Trust
  • June 22, 2011 | Author: Mary Sue Donohue
  • Law Firm: Buckingham, Doolittle & Burroughs, LLP - Boca Raton Office
  • This article is especially addressed to those serving as trustees for what they believed was an irrevocable trust. The information here may be helpful to you or someone you know serving in the role of trustee or beneficiary. In this article, we’ll compare a trust with the clothes in your wardrobe.

    Now that the Florida Trust Code has been in effect for a few years, we know some of the techniques that you many find useful to reevaluate a trust which has been in effect for many years and perhaps even written decades ago. The information offered below contains ideas and pointers regarding what can be changed under the new trust code, but this article is not intended to include all of the nuts and bolts.

    1. Clothes That are Too Small

    The current rule is that if the trust if $50,000 or less, it may be completely paid out because it is not economically feasible to continue a trust that small. Trustee fees, tax returns, and taxes are likely to consume too much of the trust when it is that low in value. In making a decision to collapse a trust, the trustee needs to consider the trust’s original purpose. There are at least two ways to handle the corpus of the trust that will coincide with the original purpose.

    • The trustee could purchase an immediate annuity;
    • The trustee could add the trust’s funds to an existing custodial account for a beneficiary under 21, a 529 plan (if appropriate) or simply make a distribution outright to the named beneficiary.

    That approach works for a trust under $50,000, if that is what the trustee chooses to do. It may also work for a trust that is larger in value but still not economically feasible to maintain.

    2. Clothes That Need More Inches (or Income)

    Today’s very low interest rates mean that anyone receiving “net income” from a trust is not getting very much cash. The trustee may decide that paying a fixed percentage of whatever the principal is at the beginning of each calendar year is more fair to both the person receiving the income today and whomever receives the trust after that person’s lifetime is over. A trustee may choose a specific percentage, which does need to be consistent (usually somewhere between two and a half and five percent each year), to be paid to the income beneficiary. Marking this adjustment makes it easier for the trustee to calculate exactly what a beneficiary is to receive each year. Normally, the trustee calculates the amount to pay out once a year based on the trust value at the beginning or end of the year.

    3. Clothes That Do Not Suit Any More

    If family members are parties to a trust, the trustee, the current beneficiaries and future beneficiaries can lend support to the notion that the purpose of the trust as it was created originally has been accomplished, or that there is no need for a trust any more. If that reasoning is persuasive, then the trusts can be dissolved. Examples would be a trust that was created to protect those in the family bloodline from interlopers. If the family blood line is fixed to a certain level, then interlopers are no longer a concern. Or if a trust was created to save on estate taxes, but that is no longer an issue, perhaps collapsing a trust is consistent with the grantor’s intent.

    There are certainly many other situations in which these options might be beneficial. If you have not consulted with a lawyer in the last few years about an existing trust for which you are serving as trustee or you are a beneficiary, it may be worth your while to learn more about these features associated with the trust code.

    (EDITOR’S NOTE: The Ohio Trust Code largely parallels the Florida Trust Code. Therefore, the advice given in this article is generally applicable to Ohio trusts as well.)