When a Trust Misses the Mark: Why Purpose and Funding Must Align

A trust is a legal arrangement that allows a designated person, known as a trustee, to manage assets on behalf of beneficiaries. These beneficiaries can be individuals, charities, or even pets. The person who creates the trust, often called the Grantor, selects the assets to include, defines the purpose of the trust, and sets the guidelines for when and why distributions should be made.

Trusts can serve a wide range of purposes. A trust might be created to fund a grandchild's college education, help support an adult child with a disability, or simply serve as a long-term financial safety net. A charitable trust might support a local food bank. A pet trust might cover vet bills, pet sitting services, and even the cost of a comfy bed for a beloved golden retriever named Max.

Regardless of the purpose, one constant remains: a trust is only as effective as the clarity of its terms and the adequacy of its funding.

When Expectations Don’t Match Reality

Consider a court hearing where a trust beneficiary, limited in income due to health challenges, believed the trust established for his benefit would cover the purchase of a modest car. The trustee, citing the trust's limited assets, denied the request. Instead, the trustee approved monthly distributions for public transportation and rideshare services, prioritizing long-term support.

The court supported the trustee’s decision, finding it consistent with their duty to preserve the trust. However, the beneficiary left disappointed, unclear whether the trust was ever intended to provide for such a purchase. The situation highlighted how vague instructions and insufficient funding can lead to unmet expectations.

Aligning Intent and Resources

These outcomes underscore the importance of ensuring a trust's purpose matches the resources allocated to it. For instance, a trust created to fund education should realistically reflect the current and future costs of tuition, fees, and living expenses. If the goal is to support a private university education, the funding should reflect those expectations. If not, it may be more appropriate to set a more limited purpose, such as covering books or community college tuition.

How to Set a Trust Up for Success

• Define a clear purpose: Avoid vague language. Clearly describe what the trust is intended to provide and under what circumstances.

• Be realistic about funding: Estimate future costs and adjust the trust's assets or goals accordingly. Inflation, rising education or housing costs, and medical needs should be factored in.

• Review with professionals: An estate planning attorney can help evaluate whether the trust's purpose is achievable with the available assets.

• Manage expectations: If appropriate, beneficiaries should be informed of the trust's intent and limitations. This can help avoid confusion or disputes.
  

When Trusts Fall Short

Sometimes a trust may be created with the best intentions but is funded too modestly to meet its goals. For example, a trust meant to provide housing for a sibling may only be able to offer rent assistance, not a full home purchase. Trustees may need to make difficult decisions, balancing the desire to meet a beneficiary's request with the obligation to preserve assets for the long term.

The courts generally defer to trustees who act within the terms of the trust and in good faith. When disputes arise, it is often because the Grantor’s intent was not clearly stated, or the funding did not align with the desired outcomes.

Final Thoughts

Trusts are powerful estate planning tools that offer flexibility and protection. But when a trust's purpose and its funding don't align, the result can be frustration and legal conflict. Ensuring that a trust is thoughtfully drafted and appropriately funded is key to honoring the Grantor’s intent and supporting beneficiaries in the way originally envisioned.

Have questions about establishing or reviewing a trust? The Soto Law Office is here to help. Call us at (321) 972-2279 or visit www.thesotolawoffice.com to schedule a consultation. Let us help you create a trust that meets your goals and stands the test of time.