Q&A with Loraine: Benefitting From a Trust

Question: As sole beneficiary of a trust, it states that the funds be used for my care, comfort, and support. Are my pets covered?

 Background: I rescue cats who didn’t have a stable home. I own seven now. I am trying to cover their vet bills which are too high for me, so I wish to use the trust. The trustee has dogs and considers them his support, so can I do the same since these cats do actually help my mental and emotional support?

Answer from Loraine: The short answer to your question is “maybe.” If you can convince the Trustee that your cats are important to your comfort, and if the trust’s actual terms do not explicitly prohibit the Trustee from providing you with funds for the care of companion animals, then pet-related expenses sound like something that could be covered.

However, with trusts, the actual wording of the trust is critical. Without seeing the trust document,  it’s not necessarily possible for anyone to tell you whether or not the expenses associated with your companion animals are permitted trust expenses.

Another issue in dealing with a trust is that the trustee must be reasonable and fair, taking into account ALL potential beneficiaries. You can be the only current beneficiary of a trust but that does not generally mean that you are actually the SOLE beneficiary of the trust. If you are not truly the sole trust beneficiary, then the trustee has to consider not only your needs and wishes, but also those of other potential beneficiaries. Even if you are the only beneficiary of the trust who can receive distributions today, the Trustee must take all of the following into consideration when making financial decisions about distributions:

  • Current beneficiaries – Named individuals who can enjoy benefits from the trust now.
  • Remainder/Future beneficiaries –Other beneficiaries who will be entitled to enjoy the assets that are left in the trust after all current beneficiaries’ interests stop- these beneficiaries are often descendants of the original beneficiary or of the creator of the trust.
  • Contingent beneficiaries – Specified family members, charities or others who will receive benefits from the trust if all of the other beneficiaries’ interests end and there is still property left to be distributed.

Consider a trust that is written to benefit a client’s child. The trust is to be used for the benefit of that child throughout the child’s lifetime. After the child’s death, the remaining trust property might go to the client’s grandchildren. The grandchildren would be generally referred as the “remainder” beneficiaries because they would receive the remainder of the trust at the death of the current beneficiary.

If there weren’t any grandchildren living at the death of the client’s child, as in a case where the client’s child didn’t have any children of her own, then the property may go to what are usually called contingent beneficiaries – other family members, charities, or whomever else the creator of the trust specifies. These parties are contingent beneficiaries because they might not receive anything depending on what happens at higher beneficiary levels.

A Trustee has to consider not only the interests of the current beneficiary of the trust but also the interests of any remainder and contingent beneficiaries. If the trust does not very clearly say that the Trustee is allowed to favor the current beneficiary over other potential beneficiaries, then the Trustee will often have to be very careful in spending for the benefit of the current beneficiary. If the spending is deemed unreasonable by any other beneficiary, the Trustee can be sued and held liable for the overspending.

If you want to understand your rights under the trust, you need to hire a trust attorney to review the document for you. That attorney may then be able to help you complain to the trustee if you think the Trustee is being unduly frugal. Don’t rely on an attorney who has been hired by the Trustee – that attorney generally represents the Trustee, not the beneficiaries.

Key Estate Planning Takeaway: The sole current beneficiary of a trust is not necessarily the only person whose needs must be considered by the Trustee, and is likely not the only person who can actually benefit from it. When making decisions about distributing the assets contained in a trust, the Trustee, the person selected to administer the trust, must consider how financial decisions made now will affect the current beneficiary as well as any future or contingent beneficiaries. If you want to better understand your rights as a current beneficiary of a trust, engage the services of a lawyer who specializes in trust law as your advocate.

This “Q&A with Loraine” blog series features answers from Morgan + DiSalvo Partner Loraine DiSalvo to questions posted on www.avvo.com. A key takeaway from each exchange highlights an important facet of estate planning.

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