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What’s a Trustee to Do?

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Trusts typically give trustees considerable discretion to determine how best to distribute or use trust assets on behalf of beneficiaries. They typically have to balance the current and future needs of beneficiaries and the interests of current and future beneficiaries.

Usually, trustees are given little guidance by grantors about what sort of decisions they would like the trustees. Sometimes the trust instrument provides no guidance at all, simply leaving everything to the trustees’ discretion. Often, however, trusts use standard language that doesn’t provide much more help, saying the the trust assets should be distributed for the beneficiaries’ “health, education, maintenance and support,” referred to as the “HEMS” standard.

The HEMS standard can also be confusing. For tax purposes, it means that the trust can’t be used to for other purposes, such as to buy a yacht or a Bentley. But many people also interpret it as an obligation to pay for the beneficiaries’ health, education, maintenance and support as needed, carrying with it an obligation to be aware of the beneficiaries’ needs in these areas.

Why Trusts Provide Little Guidance

There are good reasons that trustees are given so little guidance, the main one being that it’s impossible to predict the future. Trustees may be making decisions many decades after the trust’s creation. The world, the needs of beneficiaries, the identity of the beneficiaries, and the resources of the trust may have all changed considerably over the intervening years. Specific terms in trusts that bind trustees may become unworkable or give rise to costly litigation.

What Do the Grantors Want?

Yet, trustees are supposed to do their best to carry out the wishes of the trust grantors as best they can. They can only do so if they know what those wishes are. The best approach is for grantors to provide such guidance outside the trust either in discussions or in a written document or “letter of intent” or “memorandum of intent.” These are often prepared in the context of special needs trusts but are appropriate for almost all trusts.

We have prepared downloadable forms for creating these documents for various kinds of trusts. They are described here. Our forms are Word documents that can be filled out on your computer or by hand.

The Across Generations Workbook

Susan Turnbull, a pioneer in helping individuals to write ethical wills, has created a more robust and attractive Memorandum of Intent booklet that can be filled out on-line or ordered in print. As she describes it: “The Across Generations tool guides the contemplation and creation of a written personal statement for your heirs, successors or beneficiaries. Prompting exercises and helpful examples invite you to imagine your audience, reflect on your values, consider your vision, review the rules of governance and outline and compose your expression of intent.”

You can learn more about the workbook, Across Generations: A Five-Step Guide for Creating an Expression of Donor Intent here. Also, while you’re at it, check out my discussions with Susan about ethical wills as part of the AskHarry podcast series.

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