Nightingale, Liles, Dennard & Carmical

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Firm partners Thomas E. Dennard, Jr. and Lee A. Carmical continue the level of service and commitment to client care established by the firm's founders in 1940.

Distribution Provisions

Spray Provisions

A very common and valuable provision seen in most family trusts and invariably in dynasty trusts is the spray or sprinkle provision. Where there is more than one beneficiary, this provision allows the trustee to distribute (spray) the income and/or principal among the beneficiaries in varying proportions as the trustee feels appropriate, having in mind their individual needs and circumstances from time to time. In other words, the trustee need not make equal distributions among the beneficiaries, but instead can vary the distributions according to their particular needs, which undoubtedly is exactly what the grantors would do were they alive.

Staged Distributions

One of the considerable advantages of a trust over a will is the ability of the trustee to hold the beneficiary's share over an extended period of time, and during that time to provide for the changing needs of the beneficiary through trust distributions. But the question then arises, at what point does the beneficiary get his money? If parents die before their children reach a responsible age, it is a routine matter to allow for the trust to continue. But for how long? Unless a beneficiary is disabled and will never be capable of receiving a lump sum, or unless there is a dynasty trust that by its terms is designed to last for several generations, we need to think about the best way to make a distribution of the beneficiary's share to the beneficiary.

In the typical family trust, after the death of the surviving spouse, the trust will provide benefits for the children until they reach a certain age, at which time the trustee pays out the shares and terminates the trust. The certain age differs with most families, but even in the case of relatively small estates, since we are talking about the distribution of a couple hundred thousand or more per child, certain sensible safeguards must prevail.

In such cases, estate planners will almost always recommend spreading the distribution over a period of years. This will give the beneficiary the opportunity to learn how to handle the money, or if he spends it or manages it poorly the experience is likely to cause him to be that much more careful with the next distribution.

In the typical case, distributions are slated for one-third at, say, age 25 or 30, another third at 30 or 35, and the balance at 35 or 40. Remember, that while the child is waiting for these distributions, he remains a beneficiary of his share and can receive periodic distributions of income and principal according to his needs until the final distribution of his share is made. For instance, if a child gets married, or needs help in buying a home or starting a business, the trustee could make lump-sum distributions to the child, even though he has not yet reached the age specified in the trust. Many trusts contain language making it clear that the trustee can make such distributions. Further, if a child dies before his share is distributed, the trust may provide that the remainder of the share will pass to or be held for his (the child's) children, to be distributed to them at a certain age, or to the child's siblings, etc. This way, the remainder of the child's share avoids probate in the child's estate. Although it is typically subject to taxes in the child's estate, given the current laws there are unlikely to be any taxes due to the child's estate tax exemption of $650,000 or more, depending on the calendar year of death.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.

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