Trust me: practical advice for drafting Florida trusts.

• Author: Freeman, Nancy S.

Many Florida residents engage attorneys only rarely, perhaps to administer a family member's probate estate or to draft the client's own will or revocable living trust. Thousands of attorneys' practices focus on matters relating to estate planning and administration, and thousands more attorneys perform this work as part of a more generalized practice. Regardless of whether an attorney is a wills, trusts, and estates specialist or drafts only a few estate planning documents each year, it is important to consider carefully the practical application of the provisions included in a client's will or trust, as well as their legal validity.

In drafting a client's testamentary or inter vivos trust, an attorney often creates and defines long-term business relationships among parties the attorney has never met or communicated with, and who sometimes have never met or communicated with each other, namely, the trustee (or successor trustee) and beneficiaries. The trustee and beneficiaries will be legally required to abide by the trust terms established by the grantor and drafting attorney, sometimes long after the grantor has died and the attorney has lost touch with the grantor's family or has retired. In particular, the trustee must fulfill its fiduciary duty to the beneficiaries according to the terms of the trust instrument, as supplemented by applicable law, even if those terms are not well-suited to the grantor's assets or family circumstances at the time of grantor's death, or when the trust otherwise becomes irrevocable. (1)

Therefore, the drafting attorney should try to foresee issues that could arise with respect to the client's intended trust provisions, especially in light of the assets available to fund the trust and the characteristics of the intended beneficiaries and trustee(s). The client relies on the attorney to be more than an "order-taker," dutifully translating the client's vision into the legalese of a trust instrument. Although the attorney should try to effectuate the client's intentions, the attorney also should question those intentions in light of his or her professional experience. The attorney should consider whether the client's wishes are realistic, point out issues that could arise in trust administration, assist the client in considering whether to alter his or her initial intentions, and devise alternate methods to resolve potential issues.

This article considers some pitfalls commonly encountered by attorneys in drafting trusts; how those pitfalls can impact the trust administration; and some ways to avoid or resolve common issues. (2) These issues are organized as follows: 1) provisions regarding distribution of trust assets; 2) provisions regarding investment of trust assets; 3) provisions regarding choice of trustee; and 4) miscellaneous trust provisions.

Provisions Regarding Distribution of Trust Assets

1) Give the trustee clear guidance regarding when and to what extent trust assets should be distributed to beneficiaries, but also allow flexibility in case of changed circumstances. Most trust instruments give the trustee fairly broad discretion regarding distribution of trust assets to or for the beneficiary, or direct that the trustee distribute trust income to the beneficiary and allow principal invasion at the trustee's discretion. (3) Florida courts respect this arrangement and review the trustee's distribution decisions to determine whether the trustee abused the discretion granted in the instrument, not whether the court would have exercised that discretion as the trustee did. (4) Granting discretion to the trustee is often wise because it allows the trustee the flexibility to accommodate unforeseen circumstances. However, the language used to define the scope of the trustee's discretion can be problematic.

One common direction is for the trustee to distribute trust assets to or for the benefit of a beneficiary to the extent necessary "to allow the beneficiary to maintain the lifestyle to which he or she has become accustomed." This language provides little assistance to a trustee who is unfamiliar with the beneficiary's lifestyle, such as a corporate trustee. Moreover, even if the trustee is a family member or friend who is familiar with the beneficiary's lifestyle, this language is ambiguous regarding whether the lifestyle at the time of signing the instrument is to be maintained, or that at the time the trust becomes irrevocable (usually, at grantor's death), or even afterward, during the term of the trust. Lifestyles can change over time, especially if many years pass between the date of the trust instrument and termination of the trust. The ambiguity inherent in this trust direction can give rise to disputes between the trustee and beneficiaries that may have to be resolved through litigation. (5)

Another common trust direction is to distribute trust assets to provide for the "health, education, maintenance and support of the benefi ciary." This language also appears indefinite, but many trustees are more comfortable with this language because it is taken directly from both the Internal Revenue Code and the Uniform Trust Code.6 The Uniform Trust Code uses this language as an ascertainable standard requiring the trustee to distribute funds for the beneficiary's reasonable expenses, and Treas. Reg. [section]25.2514-1(c)(2) notes that this standard is not limited to the beneficiary's "bare necessities of life." The reasonableness of expenses may be determined according to the beneficiary's need, the purposes expressed in the trust, and the assets and liquidity available in the trust to meet those purposes; it is not measured solely from the personal lifestyle choices that constitute the beneficiary's accustomed standard of living.

Additionally, the drafting attorney can thoughtfully supplement standard form distribution directions. A trust instrument can include precatory or explanatory language to guide the trustee regarding the grantor's desires. For example, is the grantor's primary intent to provide for a first-class education for the beneficiaries? Does the grantor desire the beneficiaries to contribute substantially to their own support after completion of their education, and that interim distributions from the trust not supplant the beneficiaries' own personal industry? Or does the grantor desire that the beneficiaries be able to travel for educational purposes and to maintain personal contact with distant family members, to the extent that trust assets allow? Does the grantor desire that the trustee exercise discretion conservatively, in order to preserve trust assets for the beneficiaries' retirement?

Guidance such as this not only assists the trustee in better implementing the grantor's intent, it also can avoid disputes between the trustee and beneficiaries. However, it does not hamstring the trustee by prohibiting distributions outside certain closely defined circumstances. (7) The trustee retains flexibility to make distributions in the event of a beneficiary's legitimate, if unforeseen, need. Inclusion of additional guidance such as this does require more of the drafting attorney's time than relying solely on standard form language, but it benefits all parties by providing clarity and flexibility, and by increasing the likelihood that the grantor's intent will be more fully implemented.

Finally, when the trustee has discretion regarding distribution of assets for a beneficiary's support, uncertainty can arise regarding whether the trustee should consider other assets and income available to the beneficiary, such as the beneficiary's own resources, or those of a minor beneficiary's parents. This uncertainty can be especially problematic for a trustee directed to provide for the support of a beneficiary, such as a surviving spouse, for his or her lifetime, and then to distribute the remaining trust assets to separate beneficiaries, such as step-children of the lifetime beneficiary. If the surviving spouse beneficiary has significant assets of his or her own, a dispute could arise among the beneficiaries as to whether the surviving spouse must resort to his or her own assets, even to the...