Statements of intent or purpose for a trust are important. The reasons a trust-maker creates a trust emerge as important. However, your intent or purpose for creating a trust imparts legal ramifications. Therefore, a trust-maker must express (in writing) their intent or purpose for creating the trust. Two different ways of documenting a trust-maker’s intent exist. Each serves slightly different purposes. And, sometimes, legal eagles refer to both as a “statement of intent.” Let us examine each.
Statement of Intent or Purpose within Trust Documents
In section 801 of the Uniform Trust Code (UTC) requires a trustee to administer a trust “in accordance with its terms and purposes.” The official comment for this section begins by stating this:
This section confirms that a primary duty of a trustee is to follow the terms and purposes of the trust and to do so in good faith. Only if the terms of a trust are silent or for some reason invalid on a particular issue does this Code govern the trustee’s duties. Yet most trust documents are strangely silent when it comes to expressing the trustmaker’s purpose for establishing the trust.
As a result, many trustees may not understand the trustmaker’s purpose for creating the trust they are now tasked with administering. A solution to this dilemma is to include a statement of intent or purpose as a separate provision in the trust document.Further, a trust’s purpose will not only guide the trustee in administering the trust, but it can also determine whether a trust can be modified or terminated by a court.
The UTC provides that a trust may be modified with all the beneficiaries’ consents if a court concludes that the modification is “not inconsistent with a material purpose of the trust.” Under the UTC, a trust may be terminated with all of the beneficiaries’ consents if a court finds that “continuance of the trust is not necessary to achieve any material purpose of the trust.
Purpose or Intent of a Trust is to:
- Eliminate or reduce estate taxes;
- Protect the trust’s accounts and property from beneficiaries’ creditors or divorcing spouses;
- Educate trust beneficiaries in financial management;
- Provide for a disabled beneficiary; and
- Preserve the family home, regardless of the cost, so that your family can enjoy it for many generations to come.
The material purpose of a trust may vary widely. However, the importance of documenting the trust-maker’s material purpose remains constant.
Trust-Maker Language
Language of intent or purpose in a trust document educates beneficiaries about the trust-maker’s reasons. Thus, this may ease hard feelings among beneficiaries. This is especially true if the trust-maker unequally divides money and property. Mentioning a “family tradition of passing it from eldest daughter to eldest daughter” might soothe a younger daughter’s hurt feelings.
Letters of Intent Apart from the Trust Document
You may know how you wish others to carry out your estate planning wishes. However, avoid including every detail in the trust document. Leave some discretion in the hands of the trustee. They should provide flexibility in administering a trust that may last for many generations. For example, few people disagree that members of the Greatest Generation have a different point of view than Millennials.
Trustmaker Intentions
For example, the question “What is necessary for one’s health, education, maintenance, or support?” would most likely result in very different answers from members of the two generations. We often expect trustees to answer such questions with no guidance or direction about what the trustmaker meant. On the other hand, your estate planning attorney may hesitate to include too much detail in your trust document. They may fear about tying the trustee’s hands when circumstances and expectations inevitably change over time.
Letters of Intent
In general, a non-binding letter of intent guides the trust-maker in exercising their discretionary powers. It should not be a law firm’s form letter simply repeating time-worn legal phrases. Credit a well-drafted letter of intent to express the trust-maker’s goals or purposes. Consider including it along with the trust document itself. A letter of intent provides additional guidance to a trustee. Someone should exercise discretion in interpreting concepts such as “health, education, maintenance, and support. If a trust-maker wants family cruise vacations to continue after the trust-maker’s death, they may state so in a letter.
Trust-maker’s concerns
Letters of intent can also guide a trustee when a trustmaker might have concerns about a particular beneficiary but does not want to detail such concerns in the trust document where they might prove embarrassing for the beneficiary and anyone else who reads the trust. For example, if a trustmaker is concerned about their beneficiary son’s gambling addiction, they might include in their letter of intent a statement such as “Do not give money outright to my son because I worry that he will simply gamble it away. I prefer that you make distributions directly to the payee.”
Updating Your Intent or Purpose
As changes in your circumstances occur over time, you should review your estate plan to ensure that it still accurately reflects your wishes. You should also regularly review any statements of intent within your trust document or letters of intent apart from your trust document to ensure that they, too, accurately communicate your wishes.
About Skvarna Law in Glendora & Upland, California
Skvarna Law Firm operates offices in Glendora and Upland, California. Also, we provide legal services. We cover San Bernardino, Los Angeles, Orange, and Riverside Counties. This includes several cities. Upland, Ontario, Rancho Cucamonga, Fontana, Colton, Rialto, Chino, Chino Hills, Glendora, Claremont, Pomona, La Verne, Montclair, San Dimas, Azusa, Covina, West Covina, Diamond Bar, Walnut, La Puente, Corona, Norco & Mira Loma.
