When creating a trust, you want to make sure that it really addresses all of the potential future outcomes for your heir. If the trust is too specific and doesn’t have any flexibility, that can create some unforeseen problems.
For instance, perhaps you want to use an incentive trust. The goal of the trust is to make sure that your heir continues working. You don’t want them to just live off of your money. You set things up so that they get a yearly payout from the trust, but they only get as much as they earn during the year. This means they have to keep working in order to get their inheritance.
This sounds good in theory, but what if your heir is fired through no fault of their own? Maybe it’s a wrongful termination based on discrimination. Or what if your heir wants to go back to college and get a better education, but now they feel like they can’t do it because they’ll be unemployed and they won’t get their inheritance? Wouldn’t you rather have them get the inheritance to help fund this education?
Giving the trustee room for discretion
There are different ways to address this, but one popular tactic is to allow the trustee to use their own discretion. This really means that you need someone that you can absolutely trust to work in line with your wishes. But they get to consider all of the different factors at play and decide what you would have wanted to happen. If your heir was wrongfully terminated, for instance, or if they headed back to school, then the trustee could just decide to give them their annual payments anyway, even though it doesn’t meet the exact wording of the original trust.
There’s a lot to consider when creating a trust and all the other parts of your estate plan, so be sure you do this carefully.
