Although often misunderstood, trusts are widely used to plan an estate. with the federal estate tax exemption exceeding $5 million, the primary advantage of a trust for most clients is no longer minimizing estate taxes, but rather the avoidance of probate. however, trusts often provide only limited parameters for how the assets are to be used for the beneficiaries. a trust may for example, provide that the trustee has absolute discretion to distribute the assets for the “health, education, maintenance, and support” of the beneficiaries. Such language does not provide much guidance to the trustee in exercising such broad discretion.
To provide additional guidance, some families are providing additional information
regarding how they would like their assets to be used. These written instructions, often referred to as a “letter of wishes”, which are non-binding, provide important priorities that the parents or grandparents want the trustee to consider when distributing the trust assets. a letter of wishes can help address a variety of situations that the trustee might otherwise be uncertain of what the settlor would prefer. For example, a letter of wishes might address:
1. The settlor’s preference that a family cottage be maintained so future generations can enjoy it.
2. The settlor’s strong belief in the value of a rigorous college education with no tolerance for mediocre grades.
3. The settlor’s special concern for a grandchild whose parents divorced.
4. The settlor’s preference that those who live beyond their means should not be rewarded.
5. The settlor’s desire that his son who has struggled with substance abuse have as little funds as possible under his control.
These a just a few examples of guidance that a letter of wishes can address. To provide a trustee with the best chance to administer a trust as the settlor would prefer, a letter of wishes is strongly encouraged. To create your own letter of wishes, be sure to consult with an experienced elder law attorney.