The purpose of a trust document is to convey information to its intended audience. But that audience is typically a very disparate group in terms of its education in general and its knowledge of trusts and taxes in particular. How can you write a trust that’s understandable to them all?
The audience for a trust document includes the settlor, trustee, beneficiaries, family CPA, Internal Revenue Service, local superior court judge, and third parties who may conduct business with the trust. Drafting a document that’s clear to everyone is a challenging task.
Indeed, some experienced practitioners claim to have abandoned the task in favor of simply making sure that the document won’t be misinterpreted by the IRS or the courts, reasoning that other interested parties can be informed in separately stated explanations.
But for those who aren’t willing to abandon the effort of drafting an understandable document, these suggestions may be helpful:
- Keep the document short. This helps both the reader and the drafter.
- Have a table of contents.
- Use informative headings.
- Organize the document by logical topics.
- Put the most important information near the beginning of the document.
- Include one or more clauses near the beginning of the document that state the purpose of the trust and any special intended tax consequences.
- Separate less substantive boilerplate from the more substantive clauses.
- Don’t hide important provisions in the boilerplate. For example, a distribution power shouldn’t be inserted in the middle of a list of routine administration powers.
- Avoid overly subtle cross-references to provisions determining rights to receive distributions. For example, if a trust contains a custom definition of “issue,” the definition should usually be placed in the portion of the trust containing the distribution provisions, and references to “issue” should alert the reader that the term has a specific definition in the document. Particularly with lengthy documents, the often-encountered drafting technique of putting all definitions in one place, usually amidst boilerplate at the end of the document, is burdensome for the reader and may create doubt about whether the settlor (or even the drafter) was fully aware of the definition each time the word was used.
There’s no single correct way to draft trust documents. There are few statutory requirements for a valid trust, and drafting practices vary considerably by locality, practitioner taste and philosophy, demands of the practitioner’s drafting system, and the demands of the practitioner’s firm. But there are better and worse ways to do it. Get sample forms in the appendixes of CEB’s Drafting California Revocable Trusts. And for guidance through every step of drafting a revocable trust, check out CEB’s program The Revocable Trust Drafting Process.
Fresh to the estate planning field? CEB’s new online course Practice Skills │ Estate Planning will give you the detailed guidance and instruction you need to begin practicing as an estate planner.
Other CEBblog™ posts you may find useful:
- Should You Go with a Living Trust?
- How to Amend a Trust
- Attorney as Trustee: Watch Out for Double Compensation
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