5. Protect Beneficiaries From Themselves
Sometimes, a remainder beneficiary isn’t ready to handle a large influx of money responsibly. In that situation, the trustees may be able to effectively extend the trust term by decanting the trust (essentially paying the trust assets to a new trust without the mandatory payouts) in accordance with either express permission to do so in the trust instrument or authority granted under state law.
Notably, when a trust is terminated due to the expiration of the applicable perpetuities period (as will usually be the case with 1930s trusts), decanting isn’t an option. There are still, however, some steps worth considering.
One vehicle that can address concerns about a beneficiary’s readiness is an “arm-twisting” trust, in which parents may persuade the beneficiary to immediately contribute the received assets into a trust that requires parental (or another’s) consent for distributions. However, this method depends on the cooperation of the beneficiary, which may present a roadblock.
Another option, if the trust agreement allows it, would be to bypass the beneficiary in question by making discretionary distributions to other beneficiaries before termination. This option could be coupled with an equalization adjustment to senior-generation members’ estate plans, similar to that mentioned in a previous slide, that leaves assets to the beneficiary in question in trust, rather than outright.
The trustee might also consider transferring trust assets into an entity (such as an LLC) with a third-party manager, so that ultimately the beneficiary receives interests in an entity with a management structure, distribution control and transfer restrictions already in place.