Probate & Trust Law Section Conference Manual ... - Minnesota CLE

These simplified examples do not address a host of potential complications.
a. First, as noted above, it may not be clear what “gifts” are to be taken
into account. “Gifts” should be a defined term. It could be defined to
include taxable gifts reported on a gift tax return, or gifts reflected in
the records of the testator or the testator’s accountant. For maximum
certainty, the document could refer to a written exhibit and define
gifts as including only amounts listed on the exhibit. Note – such an
exhibit attached to a will would not be valid as to amounts written on
the list after the will is signed, unless the list is signed with the
formalities of a will.
b. The language used in the examples also fails to address what to do
with shares for beneficiaries who predecease the testator, and how to
handle gifts made to the spouse, descendants or ancestors of a
beneficiary.
c. The language also does not resolve the issue of what to do if an
adjustment would reduce a beneficiary’s share below zero. It is
unlikely the beneficiary could be found to owe the estate money in
that situation. If, however, the beneficiary is the recipient of
distributions under other provisions of the document, other
beneficiaries may claim the charge should be made against those
distributions.
Here is an example of charge back language at the back end of a “pot trust” for multiple
children that attempts to address these issues:
Sample Language
Any payment of principal made under the preceding provisions
to or for the benefit of any child of mine who is under the age
of 25 at the time of such payment shall be charged against the
trust as a whole and not against the share or prospective share
of such child or his or her issue, either at or after the time such
payment is made. Any other such payment to any person shall
be taken into account upon the subsequent division of the
FAMILY TRUST as hereinafter provided.
Upon the earliest date upon which no child of mine under the
age of 25 is living, the remaining principal and any accrued or
undistributed income of the trust shall be allocated and
distributed as follows:
There shall be added, for computation purposes only, the total
amount of any principal distributions made to or for the benefit
of any issue of mine under the preceding provisions of this
Article which are to be taken into account upon division of the
FAMILY TRUST, except no addition shall be made for any
such distribution made to or for the benefit of any issue of mine
who is deceased and who (a) has no issue then living, (b) has
no ancestor (who is among my issue) then living and (c) has no
deceased ancestor (who is among my issue) who has issue then
living.
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Comments
Distributions of income are not charged
back.
Distributions for children under the age
of 25 are not charged back.
You could also indicate that distributions
for certain purposes will or will not be
subject to a charge back. For example,
educational and medical expenses vs.
distributions to establish a business or by
a car.
In this example the age that triggers
splitting of the pot trust happens to be
the same age used to determine whether
principal distributions are charged back.
A different age could be used.
This eliminates additions that cannot be
charged back because the beneficiary
who would be charged is not living.