Estate PlanninG

The Importance of Including a Statement of Intent or Purpose in Your Estate Planning Documents

Did you know that your intents and purposes for creating a trust carry significant legal ramifications?

That’s why it’s important that you, as a trustmaker, express in writing your purpose for creating the trust. There are essentially two different ways of documenting your intent, and each has a slightly different use. Let’s look at each.

Statement of Intent or Purpose Within the Trust Document

Section 801 of the Uniform Trust Code (UTC) requires that a trustee administer a trust according to its terms and purposes. The official comment for this section begins with the following:

“This section confirms that a primary duty of a trustee is to follow the terms and purposes of the trust and to do so in good faith. Only if the terms of a trust are silent or for some reason invalid on a particular issue does this Code govern the trustee’s duties.”

But strangely, most trust documents are silent when it comes to expressing the trustmaker’s purpose for establishing the trust. This could result in a trustee not being able to understand the trustmaker’s purpose for creating the trust they now are responsible for administering. What’s the solution? Including a statement of intent or purpose as a separate provision in the trust document.

In addition, a trust’s purpose will not only guide the trustee, but can also determine whether a trust can be modified or terminated by a court. According to the UTC, a trust may be modified (with consent from all the beneficiaries) if a court concludes that the modification is consistent with a material purpose of the trust. Under the UTC, a trust may be terminated with all the beneficiaries’ consents if a court finds that “continuance of the trust is not necessary to achieve any material purpose of the trust.”

Some possible examples of a trust’s material purposes are:

  • to eliminate or reduce estate taxes;

  • to protect the trust’s accounts and property from beneficiaries’ creditors or divorcing spouses;

  • to educate trust beneficiaries in financial management;

  • to provide for a disabled beneficiary; and

  • to preserve the family home, regardless of the cost, so that your family can enjoy it for many generations to come.

The material purpose of a trust may vary widely, but the importance of documenting the trustmaker’s material purpose remains constant.

Here’s another reason to include language of intent or purpose in your trust document: it may reduce any hard feelings among your beneficiaries, especially if money and property are to be divided unequally, or one beneficiary receives something unique or special that the others don’t. A statement such as “I leave Great-grandma Johnson’s wedding band to my eldest daughter in keeping with the Johnson family tradition of passing it from eldest daughter to eldest daughter” might soothe your youngest daughter’s potential hurt feelings.

Letters of Intent Apart From the Trust Document

It’s not always wise to include every detail in your trust document about how you want your estate planning wishes to be carried out. Sometimes it’s a good idea to leave some discretion in the hands of your trustee to provide some flexibility in a trust that may last for many generations. As an example, few people would disagree that in general, Baby Boomers have different points of view about the world than Millenials or Gen Z. We often expect trustees to answer various questions with no guidance or direction about what the trustmaker meant.

On the other hand, your estate planning attorney may hesitate to include too much detail in your trust document for fear of tying the trustee’s hands when circumstances and expectations inevitably change over time. This situation is where a letter of intent can be essential.

A letter of intent is (generally) a nonbinding letter from the trustmaker to the trustee guiding them in exercising their discretionary powers. This letter shouldn’t be a law firm’s form letter that simply repeats legal jargon and stiff phrases that are regularly used in trust documents. A well-drafted letter of intent will express in plain English the trustmaker’s goals or purposes that might be confusing if they were in the trust document itself.

A letter of intent can provide additional guidance to a trustee who is exercising discretion in interpreting concepts such as “health, education, maintenance, and support.” If, for example, a trustmaker’s true concern is to ensure that the cruise vacations the family took together continue after the trustmaker’s death, they might include in a letter of intent a statement like the following:

“Cruises have been a huge part of helping our family stay connected and building family relationships. Funding a cruise for all members of my family is something I would do if I were living; please make generous distributions for these opportunities, because they have tremendous benefits in terms of family connectedness.”

Guidance like this can ease your trustee’s concerns about how to use the money while leaving space and understanding for changing circumstances.

Letters of intent can also guide a trustee when a trustmaker has concerns about a particular beneficiary but doesn’t necessarily want to lay it out so clearly in the trust for everyone to see. For example, if you’re concerned about your son’s gambling addiction, you could say in the letter, “Don’t give money outright to my son because I worry he will simply gamble it away. I prefer you make distributions directly to the payee.”

The Importance of Updating Your Purpose

Changes in your circumstances may occur over time, so you should review your estate plan often. You should also regularly review any statements of intent within your trust document or letters of intent apart from your trust document to ensure they, too, accurately communicate your wishes.

If you’re interested in learning more, or if you’re needing to create or update your trust, contact us today. Call Santaella Legal Group, serving San Ramon, Danville, Dublin, Pleasanton & the Tri-Valley area, at (925) 831-4840.

Read more about trusts:

10 Types of Trusts

Who Should I Choose As My Trustee?

5 Reasons to Create a Standalone Retirement Trust

What’s the Difference Between a Prenup and a Will or Trust? How Do I Know Which One I Need?

You Can Parent Beyond the Grave: Common Trusts and How to Use Them