In my early years practicing estate planning, I worked in an office where routine estate planning documents were relatively concise. At the time, I believed that was the smartest and most efficient way to practice estate planning. I often joked about any lawyer or firm whose Last Will and Testament exceeded four pages or whose Living Trust agreement exceeded fifteen pages. I believed, and often conveyed to clients, that much of the additional language was unnecessary “word salad” designed primarily to justify higher fees. More than a decade into my estate planning practice, I no longer believe that is entirely true.
While I still believe a 100-page trust agreement is probably 70% “fluff” for most clients, I now believe that flexibility in estate planning documents is often more important than brevity for brevity’s sake.
Over the years, I have come to appreciate that certain provisions should be included in estate planning documents even when they are not currently applicable to the client’s circumstances at the time the documents are signed.
If I have learned one thing through years of practice, it is that clients generally do not update their estate planning documents as often as they should and, frankly, that is completely understandable. Life happens. Meeting with an attorney is not always a top priority in the days and months after welcoming a new child or grandchild, starting a business, relocating, dealing with health issues, or experiencing other major life events.
Accordingly, I believe there are several provisions that should appear in virtually all testamentary estate planning documents even when they are not immediately relevant. I will discuss a few of those provisions below.
Age Restriction Provisions
In North Carolina, individuals under the age of 18 generally cannot inherit property outright. Instead, a guardian of the estate must typically be appointed by the court unless the governing estate planning documents establish a trust arrangement for the minor beneficiary.
Most clients, however, believe that 18 is far too young for a person to inherit a substantial amount of money outright. As a result, one of the most important provisions in testamentary estate planning documents is an age-restriction provision coupled with detailed instructions regarding how the trust assets will be managed until the beneficiary reaches the designated age.
Common age selections include 23 or 25, although some clients prefer much later ages or staggered distributions. For example, a trust may distribute one-third of the principal at age 25, another third at age 30, and the remainder at age 35.
Alternatively, these trusts can be drafted with greater flexibility by allowing the trustee broad discretion to retain control of the assets while still making distributions for the beneficiary’s health, education, maintenance, support, or other needs. In many cases, larger expenditures are made directly to third parties on behalf of the beneficiary rather than distributed directly to the beneficiary.
It may be tempting to omit these provisions when clients have older and financially responsible children to whom the provisions would not currently apply. However, I have found it to be best practice to include them regardless.
Most clients use per stirpes distribution schemes in which a predeceased child’s share passes to that child’s descendants. Accordingly, age-restriction provisions may suddenly become extremely important under unexpected circumstances.
For example, what happens if parents and their adult children are all involved in the same tragic accident while minor grandchildren who were spending the weekend with an Aunt survive? Life can produce unusual and unpredictable situations. For that reason, it is often prudent to include provisions that may not seem immediately relevant but could become critically important under unforeseen circumstances.
Special Needs Provisions
Another important provision to include in nearly every Will and Trust is a third-party special needs trust provision.
It is not uncommon for me, while finalizing a probate estate, to contact a beneficiary regarding a final distribution only to learn that the beneficiary wishes to renounce the inheritance because the beneficiary is receiving disability benefits or participating in another governmental assistance program.
Unfortunately, by that stage, the planning opportunity may already have been lost if the governing documents do not contain appropriate special needs provisions. A disclaimer or renunciation of inheritance can jeopardize eligibility for certain governmental benefits programs.
Accordingly, I believe it is extremely important to include third-party special needs trust provisions in virtually every Will and Trust agreement.
Even if clients are unaware of any current disabilities within the family, circumstances can change unexpectedly. A child or grandchild may later develop a disability due to illness or accident. A young child may later receive a diagnosis involving autism spectrum disorder or another long-term condition. Older beneficiaries may later require long-term care and Medicaid assistance. A surviving spouse may also someday require long-term care planning.
Again, the point is not that these provisions will necessarily be needed. Rather, the point is that thoughtful planning anticipates not only current realities, but also future possibilities.
Spendthrift and Delayed Distribution Provisions
Another important provision in Living Trusts and testamentary trusts is a spendthrift provision.
Spendthrift provisions are generally designed to protect inherited assets from the beneficiary’s creditors and from certain financial risks involving the beneficiary, such as lawsuits, bankruptcy, creditor claims, or contentious divorce proceedings.
Although a revocable Living Trust generally does not provide creditor protection for the creator of the trust, the trust typically becomes irrevocable upon death. At that point, properly drafted spendthrift protections may help shield inherited trust assets from claims against the beneficiaries.
Similarly, age-restriction trusts and other holdback trusts should often contain provisions allowing a trustee to delay distributions even after the beneficiary reaches the designated distribution age if the beneficiary is experiencing serious financial instability, substance abuse issues, creditor problems, or similar concerns.
Most clients do not want inherited assets to be immediately consumed by a beneficiary’s creditors or assigned away to satisfy debts and judgments. Properly drafted spendthrift provisions can help prevent those outcomes and are, in my opinion, essential components of well-drafted testamentary documents.
Tax Provisions
Finally, every Trust and Will should generally contain tax-related provisions even if those provisions are not currently applicable based upon the client’s existing net worth.
In the modern estate planning environment, the vast majority of clients do not currently have federally taxable estates. However, estate tax exemptions are subject to legislative change, and client wealth can increase dramatically over time due to investment growth, inheritance, business success, or unexpected financial events.
For example, with married couples using joint revocable living trust I still commonly include provisions allowing a surviving spouse to disclaim assets into a credit shelter or bypass trust, a strategy historically used in taxable estate planning. Similarly, I often include provisions authorizing the Executor to make portability elections for a surviving spouse and expressly allowing associated professional fees and costs to be treated as expenses of estate administration.
While many clients may never ultimately need these provisions, circumstances and laws can change unexpectedly. A family’s wealth may increase substantially. Congress may alter estate tax exemptions. A client may inherit significant assets shortly before death.
In those situations, clients are often very thankful that their estate planning documents were drafted with sufficient flexibility to accommodate changing circumstances.
Summary
Over the years, I have come to value flexibility in estate planning documents far more than mere brevity and simplicity.
While I still believe that excessive provisions without thoughtful purpose can constitute poor drafting, I also believe there are certain carefully selected provisions that should be included in virtually every estate plan, even when they are intended primarily to address remote but plausible future scenarios.
Good estate planning documents should not merely address a client’s circumstances on the day the documents are signed. They should also provide enough flexibility to adapt to the many unexpected changes that life can bring in the years and decades that follow.
Andrew M. Brower is a Board Certified Specialist in Estate Planning & Probate Law at Law Firm Carolinas, which has five offices and a statewide practice. For questions about estate planning and administration, wills and trusts, guardianships, or Medicaid/long-term care and asset protection, contact Law Firm Carolinas.