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Creating Trust to Ensure a Trust’s Success

Posted: June 26, 2017

One of the biggest missteps of clients is to create a trust without communicating its purpose with the adult beneficiaries. Without guidance from the client/grantor and his or advisors, beneficiaries sometimes become suspicious that they have been isolated from decisions. They may also suspect that the trust was formed for purposes that are not in their best interests. As a consequence, they may try to destroy long-term relationships with trustees, investment advisors and other beneficiaries. They may also try to destroy the trust. Though the New Jersey’s Uniform Trust Code now requires trustees to inform beneficiaries who have reached age 35 about a trust, while helpful, the new provisions may not fully address this issue.

Our courts have long been the arbiters of battles, often initiated by beneficiaries who resent the idea of a trust, the selection of trustees or the grantor’s well-meaning intentions. Ongoing litigation can cost thousands, and sometimes millions, of dollars, as in the famous series of Johnson family trust lawsuits. Of course, there are sometimes other, more subtle reasons for resentment, but an early intervention initiated by a grantor and his or her advisors, will sometimes avert a crisis down the road.

When beneficiaries are young, a trust is often managed by other family members or independent professionals. In these situations, and where appropriate, trustees should introduce trust administrative and investment and tax decisions to the beneficiaries well in advance of distributions. Doing so enables beneficiaries to learn about the protections the trust affords, their rights and important tax issues. More importantly, the beneficiaries are more likely to become invested in the goals of the grantor who formed the trust. Open communications also foster better family and professional relationships, which are sometimes damaged when beneficiaries become suspicious of what they perceive to be “secret trusts.”

Despite the apparent benefits of trusts, many beneficiaries would prefer to receive assets outright. However, a well-informed beneficiary might make a different decision. Rather than raising the risk of having an otherwise well-conceived plan challenged, the grantor and trustees might ensure success by having regular communications with the beneficiary. Both informing and listening to a beneficiary often provides the understanding that ensures fulfillment of a grantor’s intentions and in the long run, helps a family.