How To Read A Trust

If you are getting divorced, you may find that your marital assets include interests in one or more trusts.  It could be that you and your spouse established the trusts during your lifetime, or perhaps a family member created the trusts for the benefit of you or your spouse.  Either way, you need to know what the trusts say.  They may play a crucial role in the division of your assets or the support you will receive.

It is not uncommon for folks to know little about what the trusts say or do.  It happens all the time and is no reason for embarrassment.  It is a good idea to begin to read the trusts yourself and to ask questions about them.  You should rely on the advice of a trusted estate planning attorney.  If your divorce lawyer does not have an estate planning lawyer that he or she works with, you will need to find one.   Here are a few tips in reviewing your trust:

Familiarize yourself with the terms.  There are basic terms of the trust that you will need to know.  (Hint: A lot of this information will be found on the first page of the trust.)

  • Who created the trust? This person is often referred to as the donor, grantor or settlor.
  • You should also identify the trustee. The trustee will hold the trust assets and administer them for the benefit of the beneficiaries.  Identify who the successor trustees are as well.
  • Find out who the beneficiaries are. Sometimes the beneficiaries are clearly spelled out:  This trust benefits my nephew Billy.  However, often the trust benefits a class of people.  If the trust states the assets are held for your descendants or issue, this means the trust benefits your children, grandchildren, and great-grandchildren.
  • Is the trust revocable or irrevocable? If the trust is revocable and you are the donor, you will be able to change it.  If the trust is irrevocable, you will not be able to make any changes.

Focus on important provisions.

  • Does the Trustee have to distribute the assets all at once to a specific beneficiary, or does the Trustee give the money out in installments over time? Perhaps distributions are completely in the discretion of the Trustee and the beneficiary does not have a right to demand that the trust assets be distributed.
  • Look to see whether the Trustee can distribute both income and principal.
  • Do the assets have to be paid to one person, or does the Trustee have discretion to distribute to many different beneficiaries?
  • Find out when the trust ends. Does it continue until a certain date, or does it terminate upon the happening of an event such as someone’s death?   Often, trusts will end on the death of a beneficiary.
  • Can the beneficiaries remove and replace a trustee? This is good to know in case you do not agree with the decisions the Trustee is making.  You may be able to remove the Trustee and name a successor.
  • Does the trustee have to provide the beneficiaries with accountings? The accounting will allow the beneficiaries to see what assets are in the trust and who the assets are getting paid to.

 

Review Boilerplate.  The boilerplate language will be tedious.  Give these provisions a once over and follow-up with your attorney as to specific questions.

Tax provisions.  The tax provisions will be more tedious than the boiler plate.  Don’t feel like you have to grasp all of them.  However, they are important so be sure to speak to your attorney about the trust’s tax implications.

The more you read the document, the more familiar you will become with the trust provisions.  Believe it or not, the language does become more familiar over time.