Clients must carefully consider the design of the Trust they create to hold assets for their children and future generations upon their deaths. Trusts are necessary to hold assets until the children reach a certain age (e.g., typically between 21 and 40). Often times, because of tax planning, asset protection or special needs, Trusts continue for a child’s lifetime. In any case, Clients must consider this fundamental question: when I am no longer living, how do I ensure the trustee will manage and distribute the assets for my children as I would? (The choice of trustee, e.g., bank, professional or family member, is for a different Post.)
This question is typically addressed in large part with "ascertainable standards" in the Trust instrument. Ascertainable standards are designed to balance the needs of the beneficiary and the power afforded to the trustee. The ascertainable standards are "health, education, support, and maintenance" as provided under Section 2041 of the Internal Revenue Code. Ascertainable standards apply to the trustee’s discretion over the Trust assets and provide guidelines as to the permissible reasons for distributions to a beneficiary. When a Client deviates from these ascertainable standards, there is a possibility that the trustee will be given too much latitude in the distribution of the Trust’s assets. Another danger is that the distribution standards are not clearly quantifiable and lack sufficient definition to provide useful guidelines.