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How strict are the conditions of a trust fund?

If the condition in a trust fund states that trustee (the child) shall be informed after the death of the surviving spouse, does this mean that trustee has no way of finding out before that? How strict are the conditions? Is there such a condition? I have seen it in the movies when a trustee has no idea whatsoever and is only informed after the demise of a relative. Is this possible?

Apr 13, 2012 by Sheila in  |  Flag
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Hello Sheila, Before I answer this question - I must say that this is definitely a legal question, and, as such, you should seek personalized legal advice on the issue. However, I CAN share with you my own professional EXPERIENCE in dealing with trust accounts that my firm manages.

First I want to clarify a few things in your question. The TRUSTEE is the person IN CHARGE of making decisions for the trust. Generally it is not a child (but can be, if the child referenced is an adult). Based upon your question, it is likely that the type of trust you are referencing is what is known as a QTIP trust - a Qualified Terminable Interest Property Trust. Typically, this is used when a husband and spouse have children from a previous marriage. Let me create an example that we see most commonly:

Dad has divorced Mom (or she passed away) and he has remarried. When he dies, he wants to take care of his new wife while she is alive - but pass the remaining assets to his children. Essentially, he wants to prevent his new wife from remarrying and her new husband from inheriting the assets - essentially disinheriting you and your siblings - but he wants her taken care of for her life. This desire is VERY common. This control (and guarantees) requires the use of a trust - a simple will just won't do the trick.

So - Dad dies. The surviving spouse (his 2d wife) is generally the INCOME BENEFICIARY of the trust (she can take income from it). Likely she can get money from the trust for her health, maintenance, education, and support (HEMS). The REMAINDER BENEFICIARIES (who gets whatever remains) would be his children. In this instance, the trustee (the person in charge) may be the surviving spouse, or there may be a third party such as a trust company, an attorney, or a bank that acts as the trustee, depending upon who Dad had appointed when he and the attorney wrote up the trust.

It sounds like you have one of these, or something similar to it. Generally, one does not see the remainder beneficiary (child) as the trustee since it is a conflict of interest and puts he beneficiaries at odds with each other. Usually, the income beneficiary (surviving spouse) is not the trustee either but I believe that structure is possible (but not recommended).

Simple answer to your question - YES - the trust document can (and often does) require the trustee to keep the details of trusts secret. This is not only to preserve the privacy of the family, but also to have the children pursue productive lives and careers instead of relying upon the trust for their future income. The income beneficiary may have needs which drain the trust - health care, long-term care, and other needs often legitimately and through no fault of their own, drain down trusts so that there is nothing left. Were the children to have relied on the existance of an imagined inheritance instead of pursuing successful careers or managed their finances thriftily, they might end up retiring in poverty, which is likely NOT what Dad would have wanted.

Again - seek legal advice. The only way to know for sure is to get a copy of the trust document itself - and take it to a TRUST lawyer licensed to practice in the state in which the trust was created. Ask your attorney if you actually have a right to see the document - or if it can be witheld from you. Trust laws vary from state to state - so making sure the attorney you consule with has relevant experience is important.

Comment   |  Flag   |  Apr 13, 2012 from Jacksonville, FL

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Steve Casull Level 13

I'm afraid that the child will have to abide by the rules stated in the conveyed wishes of the decedent, otherwise known as the Trust document.

Comment   |  Flag   |  Feb 11, 2015 from South Jordan, UT

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