15.11 Standby Trust

• Library: A Lawyer's Guide to Estate Planning: Fundamentals for the Legal Practitioner (ABA) (2018 Ed.)

15.11 Standby Trust

An older couple have none of their children living near them. Because of this, they are concerned about the handling of their financial affairs in the event of the disability of one or both of them. They are not prepared to transfer their estate to a trust at the present time, but they recognize that this may be needed in the future if required due to disability.

The trust that follows is designed to respond to this need. It permits the trustee to provide for the financial needs of both spouses and, on the death of the second spouse, for the trust estate to be distributed to the couple's children. A pour-over will should be used by each spouse that will transfer into the trust any property that has not earlier been transferred into the trust. Sample pour-over wills have not been provided, but can easily be adapted from the pour-over will at 15.3. A power of attorney also should be granted to an individual or to the trustee, which will permit the couple's property to be transferred into the trust at such time as disability or other appropriate circumstances require. A general power of attorney can be used, or, if preferred, a limited power of attorney can be drafted for use only in this event. A sample general power of attorney is provided.

If the couple so desires, they can transfer their property into the trust during their lifetime. This creates the so-called living trust, which often will simplify the probate process. If the settlor desires to act as trustee with a corporate trustee acting as successor, an article similar to Article V in the trust at 15.5 should be inserted.

AGREEMENT

THIS TRUST AGREEMENT is entered into between the Settlor, __________, __________, Kentucky, and the Trustee, XYZ Bank and Trust Company, Madisonville, Kentucky.

? Comment: This trust does not make use of marital deduction and portability planning. If the couple's estate approaches the combined federal estate tax exclusion amount exemption, it is more appropriate to use the A-B Trust approach to lessen federal estate taxes. The A-B trust can be drafted to permit early funding because of disability. The trust at 15.3 permits this in Article VI. Thus, in larger estates the will and trust provided at 15.3 can be used, coupled with a power of attorney to fund the trust during the settlor's lifetime.

WITNESSETH:

The Settlor has delivered or will deliver to the Trustee the property described in Schedule A. Upon receipt of this property, the Trustee agrees to hold it in trust and to manage and dispose of it according to the provisions of this Trust Agreement.

ARTICLE I

A. During the Settlor's lifetime, the Trustee shall pay to the Settlor and the Settlor's wife, or pay for their benefit, as much of the net income and principal from the...