I wrote recently about pot trusts and how they can be used to provide for a more equitable distribution for minor children. As I mentioned, pot trusts allow all trust assets to be held in a common “pot” for the benefit of children until a certain triggering event occurs (attaining a certain age, graduating from college, etc.) for all of the children. Pot trusts are used as an alternative to the more-common method of dividing the trust into separate shares at the death of the trust creator.
I’ve been working on a pot trust for a client and thought I’d share the clause I’m drafting. This particular client wants the trust assets to be held in trust until all of his children have either graduated from college and had two years of graduate education or have reached age 26. One of the children has already been in drug rehabilitation, so the client wants to be sure that the pot trust isn’t drained to provide for that child’s drug problems. He wants to do this by capping the total amount of drug and alcohol related expenses to $20,000.00 for any one child. Here’s the clauses that I’m using:
4.01 Management of Trust for the Benefit of My Children.
Until all of my children have either completed all undergraduate education and at least two years of graduate education or attained the age of twenty-six (26) years, whichever occurs first, the Trustee shall from time to time pay to or use and apply for the benefit of any child of mine so much of the net income of this Trust and principal thereof, in such amounts and proportions, equal or unequal, as the Trustee may deem necessary for the health, support or maintenance of such child in accordance with his or her standard of living prior to my death, and for the education of such child at any available level and at any formal educational institution, whether or not accredited, including college and postgraduate schools; provided, however, that in no circumstances shall my Trustee make more than Twenty Thousand Dollars ($20,000.00) in aggregate distributions to pay for any single child’s care in alcohol or drug rehabilitation facilities or programs. In each case, the Trustee shall take into consideration other income and assets of such child and trusts of which he or she is a beneficiary and which are known to the Trustee. The Trustee (i) may pay all or part or none of the net income or principal of the Trust or both; (ii) may make unequal payments; (iii) may from time to time exclude one or more of such persons from payments hereunder; and (iv) may make payments to any such person who is living at the time of such payments even though such person is not living at the time of the creation of the Trust. Any part of the net income of the Trust not so paid or used shall be accumulated, added to and made a part of the principal of such Trust.
4.02 Distribution of Trust.
As soon as practical after the date upon which all of my children have either completed all undergraduate education and at least two years of graduate education or attained the age of twenty-six (26), whichever occurs first, the Trustee shall divide the Trust into as many shares as there are children of mine then living, and one share for the then living descendants, collectively, of each deceased child of mine (a “Child’s Share”). The Trustee shall distribute, outright and free of trust, one Child’s Share to each child of mine and one share to the living descendants, collectively, of each deceased child of mine, the lineal and adopted lineal descendants of any child who predeceases me to take the share such deceased child would have taken if living, per stirpes and not per capita, subject to the provisions of Section 4.03 hereof.
4.03 Trust for Descendant of a Deceased Child of Mine.
If any part or share of the Trust becomes distributable to a descendant of a deceased child of mine who is under the age of twenty-six (26) years, then though his or her share shall be vested in him or her, the Trustee may, but shall not be required to, continue to hold the same in trust with all of the powers and authority given to the Trustee with respect to other trust property held hereunder, until such descendant attains the age of twenty-six (26) years.
So what do you think? Is it helpful? Any room for improvement? Let me know in the comments below.
Thanks for this post. “Reached the age of 26 years of age” seems redundant.
Thanks for the comment. I agree. I deleted the redundant language.
I cannot speak to the substance, but as a drafting matter, with respect to numbers, why do you both spell the number followed by the number (e.g. “twenty-six (26)” ). While I realize this was a very common historical practice (i.e. old school), it doesn’t seem to serve any purpose. Additionally, it would seem to increase the chance of error and provide fodder for litigation.
Thanks for the comment. That’s a holdover from days when documents were sometimes drafted by hand and photocopying was not what it is today. I think the most important thing, though, is to be consistent. Since the other forms that I use as a basis when drafting a new estate plan already use that convention, I stick with it.
I suggest expanding the phrase, “alcohol or drug rehabilitation facilities” to include, “alcohol or drug rehabilitation facilities or programs.” As worded the cap may be interpreted to apply to only in patient facilities or even if it is an out-patient program, it may be interpreted to only cap payments to a physical institution ot facility. Program will make the cap’s applicability broader to any type of alcohol or drug treatment, whether it be through a dedicated facility, hospital, state run/sponsored/subsidized program and/or community based program.
Agreed. Done.