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Tools to Guide Your Trustee: 3 Memoranda of Intent


We’ve written before about perhaps the most significant drawback of trusts: that trustees generally use their own judgement rather than seeking to carry out the wishes of the grantor in setting up the trust. This is for two reasons: First, that most trust documents provide very little guidance. And, second, that trustees generally have little idea what choices the grantor would like them to make in specific situation.

Most trusts provide trustees with broad discretion because it’s difficult to anticipate specific circumstances. With flexibility, trustees can respond to beneficiary needs as they may arise and plan for the future. If trusts were written with specific instructions on how funds may or may not be spent, they would run the risk of being to rigid to respond to unanticipated developments.

Trustees are supposed to carry out the terms of the the trust. When these are unclear, they are supposed to follow the wishes of the grantor. However, the absence of clear instructions in trusts often means that there’s no record of the grantors’ wishes. Trustees can look to the grantor’s prior actions. For instance, what support did they give to the beneficiaries in the past?

But the reality is that trustees often simply use their own judgement as to how best to use trust funds or trust property. Often this is consistent with what the grantor would have wanted since the grantor chose the trustee or trustees at least in part because they agreed with and faith in the trustees’ good judgement. But sometimes the values of the grantor and the trustee may not coincide. This can especially be the case when the trustee is a financial institution such as a bank. It may be much more conservator and risk avoidant than the grantor may have wished.

In order to aid trustees in making decisions and help assure trust grantors that their hopes for their trusts will be carried out, we have developed three worksheets, or “Memoranda of Intent,” for trust grantors to complete to express their wishes and guide their trustees. They are:

Memorandum of Intent for Family Fund

Parents and grandparents often create trusts for the benefit of all their children or grandchildren These are sometimes referred to as “pot” trusts, since all the trusts assets are held in a single “pot” rather than divided into separate shares. Often, the division occurs after the youngest beneficiary reaches a certain age, such as age 25 when they are presumed to have completed their education. While there are multiple beneficiaries, the trustee especially needs guidance on choosing how to spend money when money spent for one beneficiary may come out of the pockets of other beneficiaries. For instance, should the trust pay for one beneficiary’s graduate school tuition when another beneficiary never even went to college?

Memorandum of Intent for Family Protection Trust

Some parents and grandparents create continuing trusts for their children and grandchildren in order to protect inherited funds from creditors and in the event of divorce. These trusts, which we call “family protection” trusts, also keep the inherited funds in the bloodline if a child or grandchild dies at a relatively young age. But since these funds will be controlled by a trustee rather than the child or grandchild themselves, it’s especially important that the trustee understand how the grantor wants the funds or property in trust to be used.

Memorandum of Intent for Special Needs Trust

The most challenging trusts for trustees are special needs trusts due to the significant needs of the beneficiaries, the interplay with public benefits programs, and, sometimes, communication challenges. In these cases, trustees need to understand not only the grantor’s intent for the use of the trust funds, but significant details about the beneficiaries needs and abilities. The Memorandum of Intent we have developed for special needs trusts includes many questions about the beneficiary their self.

Complete the memorandum of intent that is appropriate for your trust and provide a copy to the current or future trustee. Then review and update it periodically so it still matches your wishes and, with respect to special needs trust, to make sure the information provided is still current. Taking these steps will help ensure that your trust meets the purposes for which you created it.

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