Fixing “Broken” Trusts

What’s a “broken” trust?

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A “broken” trust in the estate planning context is a trust that:

  • Was wrong when written
  • Is inconsistent with current wishes
  • Lacks newer provisions that protect loved ones

Wrong when written

Example: Quicken Family Lawyer, Nolo Press, or LegalZoom.com will often suggest inclusion of what lawyers call a “5 & 5” power in a joint trust.  This can require the surviving spouse to take 5% of the principal of the property allocated to the trust of the spouse who died first, supposedly for the benefit of the surviving spouse.  I say “supposedly” because if the surviving spouse doesn’t need this distribution, it could be subject to an estate tax rate in the surviving spouse’s estate of 55%, when leaving it in the deceased spouse’s trust means it is not taxed at all.  This is a very common scenario about which most people are completely ignorant, including many estate planning lawyers.

Inconsistent with current wishes

Families change; circumstances change; assets change; the legal environment is constantly changing.  Noticing a theme here?  Change is constant, as the Greek philosopher Heraclitus said.  If you’re not consistently re-visiting your estate plan, it can quickly become out of date because it’s not always clear in our memories what we said or did.  Even if it is, if our hopes and aspirations about the future of our loved ones changes, that should be reflected in the estate plan.  Is it in yours?

Lacks newer provisions

In the last 10 years or so, it has become more common to offer so-called “protective” trusts as an option in the construction of trusts that hold property for the benefit of spouses, children, or other loved ones.  Protection from what?  Creditors, lawsuits, divorce, remarriage, or, most commonly, bloodline protection.  What is bloodline protection?  Imagine your child marries and has children, and after your death, your child dies.  If you left what you gave to your child outright, it is very easy to envision that your child’s spouse could remarry and part or all of what you intended to benefit your grandchildren could be re-directed to those completely outside your family bloodline.  Newer protective trusts prevent that scenario from occurring.

What to do?

Call me to schedule a review of your current estate plan.  If I revise your estate plan, the cost of the review will be applied to the cost of revising your estate plan.