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2 Ways Trust Drafting Has Changed

Posted on: April 13th, 2017
document comparisonLegislation and drafting issues have prompted changes in trust drafting methods. Over the past few decades, shifts in trust drafting techniques have helped to prevent trust administration issues and preserve the best interests of beneficiaries. 

Our trust attorneys review a few key areas that have prompted provisional changes both in new and existing trusts. Unfortunately, not all existing trusts have been modified with respect to the considerations below. Many individuals and families still have documents with less-than-optimal terms. Regular reviews can help to guide discussions about trust revision or modification. Many trusts with outdated terms could encounter some of the issues described herein.
  1. Basis planning. Last year the theme was ‘Basis Planning is the New Estate Planning,’ mainly attributed to the tremendous redirection in planning efforts caused by sweeping estate tax changes in recent years. Many states, including the areas in which our attorneys practice, no longer impose estate taxes. The federal estate tax threshold only affects a small fraction of a percent of the country’s population. Old plans relied heavily on legal entities like Credit-Shelter Trusts to minimize the estate tax burden. However, property in these types of trusts can be affected by imposition of capital gains tax. While estate tax legislation has become more favorable, capital gains rates have increased. Outdated trust terms could have capital gains tax implications, which may be avoided or mitigated with proper trust modification.
  2. Trust protectors. The use of trust protectors is becoming more accepted and requested in domestic trusts. These provisions originated in foreign trusts, but as knowledge of their benefits has spread, more jurisdictions are formally adopting statutes pertaining to trust protectors. Trust protectors can be added to new and existing trusts and offer flexibility over long-term trust administration. With powers to modify the trust, add/remove trustees, and more – trust protectors can help to ease administration and ensure beneficiaries’ best interests are upheld. We currently offer a free legal guide, Trust Protectors 101.

Manage Legal Risk in Trust Drafting

Certain styles of trust drafting can expose parties to legal risks. For one, missing or ambiguous provisions can cause costly issues. Secondly, blanket terms may not adequately address the unique situation of the trust grantor or beneficiaries. Maintain regular reviews of the trust, tax considerations, and laws throughout administration to address concerns. 
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