Gifts to Irrevocable Trusts and Prudent Planning Provisions

When making a gift to irrevocable trusts to take advantage of the transfer tax rules this year, clients might want to include some of the following adaptable features:

• Defined Value Clauses: These limit the quantity of assets that are gifted or sold until the IRS makes a final determination of value.
• Powers of appointment: It may be a good idea to grant broad special powers of appointment that allow the primary beneficiary to rewrite the trust among children, grandchildren, charity, and friends. You can also indluce a power to decant so the trustee could pay over the trust corpus from the existing trust to a new trust to cure current trust issues.
• Trust Protectors: If the beneficiary could remove and replace a trustee, trust protectors are often included in the trust. Powers of the trust protector include, but are not limited to: overseeing the trust, mediating, modifying investments, or giving financial advice. Carefully consider which specific powers you dole out.
• Trustee and Distribution Provisions: The primary trustee as sole trustee can make some permissible discretionary distributions to themselves and others. You can also add a springing trustee to make discretionary distributions to the primary beneficiary and to hold tax-sensitive administrative powers.

Some additional prudent planning provisions include, tie-breaker language if co-trustee are named, permitting trustees to make loans to beneficiaries, giving trustees broad discretion with investment powers, authorizing trustees to change trust situs and governing law, and permitting trustees to terminate and “uneconomical” trust, among several others.

See Adaptable Planning Advice for 2012 and Beyond, WealthCounsel, Apr. 18, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.