1. Trust Administration
Default Rule: Trustee can use wide discretion in investing and maintaining trust assets.
These can be altered by the trust agreement.
Factors to take into consideration include:
The long term purposes of the trust
The risk tolerance of the client
The level of trust the client has for the trustee
The legal ramifications of the discretionary trustee powers

2. Trust Distribution Provisions
Trustees may be given the authority to distribute trust assets in any way the trust agreement stipulates.
Trusts often divide trust distributions into:
Distributions of Principal
Distributions of Income
Distribution powers are also often divided based on recipient:
Grantor
“Lifetime” beneficiaries
Ultimate beneficiaries of the trust assets

3. Distributions to the Grantor
Distributions of principal to the grantor
Upon request, in revocable trusts
Discretionary, in some irrevocable trusts
But this often has the effect of eliminating benefits of an irrevocable trust in the areas of:
Estate tax
Medicaid eligibility planning
Creditor Protection
Distributions of income to the grantor
Mandatory in many trusts, including:
Income only Medicaid trusts
QTIP trusts
Discretionary
Also can cause problems in the areas referenced above

4. Distributions to the Beneficiaries
Can be of principal and/or income
Mandatory
Common in many trusts
Especially when the spouse is the beneficiary
Will cause the assets that must be distributed to be considered the beneficiary’s assets for most legal purposes
Discretionary
That a beneficiary may receive a discretionary distribution does NOT usually mean that it is his or her money for most legal purposes
Exception may apply for Medicaid eligibility

5. Other Trust Distribution Rules
Be careful not to give the trustee a “general power of appointment” or it will be vulnerable to the trustee’s creditors, be part of the trustee’s estate, etc.
A GPOA exists when a trustee can give the assets to himself or his creditors.
Limitation of power to distribute by “ascertainable standard” prevents a power from being a GPOA.
“Health, education, maintenance and support” is common
Allowing distributions to charity by the trustee is also common.
It gives the trustee the discretion to use the income tax charitable deduction when appropriate.

6. Trust Termination
The time that the trust is to terminate can be established by:
A specific point in time specified by the trust
The occurrence of an event or condition specified by the trust
Applicable law
(ex, Rule against perpetuities)
Upon termination, the trust assets may be:
Distributed outright
Held in subtrusts created by the trust agreement
“Poured over” into other existing trusts

7. Common Types of Subtrust Provisions 1
General minor beneficiary provision
This usually states that children under a certain age (e.g., 21) have their assets held for them by the trustee instead of receiving it outright
Or it can be held for them under the Uniform Transfer to Minors Act, etc.
Subtrusts to protect the benefits eligiblity of the beneficiary
These trusts do not allow the trustee to pay for the beneficiary’s benefits that would otherwise be paid for by government assistance
A supplemental needs trust is one such example

8. Common Types of Subtrust Provisions 2
Generation Skipping Transfer trusts
For estate tax purposes
Family Trusts
This keeps the assets in a “pot” for several beneficiaries that can be distributed over time by the trustee
These often terminate when the youngest beneficiary reaches a certain age
Individual Single Beneficiary Trusts
Each beneficiary gets a trust strictly for his or her share
The beneficiary may be entitled to the income and/or a certain percentage of the principal
The beneficiary typically receives all of the principal at a certain age

9. Termination of Subtrusts
Also typically established in the initial trust or by law
Assets are distributed outright upon termination of the subtrusts
Powers of Appointment Upon Termination:
General Power
Causes the trust assets to be in the estate of the holder and be considered his for most purposes
Limited (“special”) Power
Fairly safe for a beneficiary to hold
A convenient way of keeping some control over the trust assets for a beneficiary such as a spouse while removing it from the beneficiary’s name for most purposes