Distribution Options

Distribution Options

The universe of trust distribution provisions can be divided into two large subsets: Objective and subjective provisions.

Objective provisions – These leave no room for a trustee to be over indulgent.  They may be income-based or incentive-based.  For example, one may distribute a fixed amount for the beneficiary to start a business or professional practice, or it may deny distributions if the beneficiary fails a drug test.

Traditional “income-only” provisions are useless in most settings because they bear no relation to any goals that the grantor might have:

  • They cannot adapt to the needs of a particular individual
  • They do not allow for changing circumstances

Subjective provisions – These require the trustee to exercise discretion in making value judgments:

  • The grantor’s intention should be set forth in sufficient detail to tell the trustee the trust’s deeper purpose.
  • The more discretion given to the trustee, the greater the likelihood that the trustee will exercise power in a manner the grantor would not have agreed with.
  • Discretion guarantees only flexibility, not success.
  • Trustee exculpation should be added, including provisions that set forth how the costs of litigation are to be paid.