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

property interest nor an enforceable right. And a court may review a
trustee’s distribution discretion only if the trustee acts dishonestly, acts with
an improper motive, or fails, if under a duty to do so, to act. Even if
applicable state law is well-defined, the trust instrument must clearly express
the client’s desire that the exercise of discretion by the trustee will not be
subject to challenge by any beneficiary. Appropriate exculpatory language
should be included and the trust corpus should be available for
indemnification of the trustee for any actions made or taken in good faith.
The estate planner should also visit with the client about the use of an in
terrorem provision even though this type of a provision could be
unenforceable under applicable state law. An alternative trust provision
would be to require that all trust expenses incurred in defending any litigation
be charged to the share of the beneficiary who initiates the claim or brings
the litigation.
F. Pure Incentive Trusts. Most incentive trusts are established so
that beneficiaries will receive distributions if and only if they are able to
achieve certain specific criteria that contain very objective standards. If the
objective is abstinence from the use of drugs or alcohol, gainful employment,
fiscal responsibility or academic achievement, it is important to provide a
very objective standard that is clearly understood and easily administerable
by the trustee. Properly drafted incentive trusts will discourage beneficiaries
from activities that would be intended to provoke distributions by a trustee
based to a greater extent on sympathy or the threat of undesirable behavior.
A beneficiary should find it difficult to use trust provisions to extract
discretionary distributions from the trustee. Unlike a fully discretionary trust,
an incentive trust requires the beneficiary to meet or adhere to clear
guidelines established by the client.
VI.
Other Considerations.
A. COLA. In those cases where dynasty or generation-skipping
trusts contain incentive provisions, the client should include a requirement
that any fixed amount be regularly adjusted for changes in the cost of living.
B. Beneficiary information. Beneficiaries must be encouraged to
comply with reasonable requests from the trustee for information that is
relevant to any determinations that the trustee is required to make. This
may include access to medical records, employment records, financial
records and tax returns, school records, and other confidential information.
C. Family Advisor. The estate planner should consider the use of a
family advisor or an advisory committee that would be responsible for
providing the trustee with pertinent information about each trust beneficiary.
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