Trust Drafting Advice

Jonathan C. Lurie (Partner, McDermott Will & Emery LLP, Los Angeles, Calif.) and William R. Burford (Counsel, McDermott Will & Emery LLP, Los Angeles, Calif.) have recently published their article entitled Drafting Flexible Irrevocable Trusts, 33 ACTEC J. 86 (2007).

Here is the introduction of this article:

Trusts drafted in the United States have traditionally been narrowly tailored and well defined in scope and purpose, requiring judicial intervention—sometimes unsuccessfully—to adapt to changing wishes, needs and circumstances. Domestic trusts generally include a host of details that would be found in a nonbinding letter of wishes, if at all, in trusts drafted outside of the United States. Indeed, many trusts drafted outside of the United States include such a degree of flexibility—or, some would say, obscurity—that it can at times be difficult even to ascertain the identity of the beneficiaries from the document alone.

Much of the prolixity and constraint imposed on trustees and beneficiaries of domestic trusts may be ascribed to United States tax laws, which often require a variety of specific incantations to secure desirable tax consequences. Other factors, however, may also be at work, including mistrust of fiduciaries or a desire to control beneficiaries from the grave. While the type of broad, open-ended discretion common outside of the United States remains relatively rare in domestic trusts, the increasing adoption of multi-generational or dynasty trusts, coupled with the uncertainty surrounding the future scope and impact of estate taxes, have whet the appetite of many for greater flexibility in our drafting to allow future trustees and beneficiaries to adapt trust terms to unknown future circumstances.  This article discusses several relatively simple techniques that may be employed to add flexibility to a trust instrument as well as some of the tax considerations attendant to including such provisions in a trust.