The Importance Of A Statement Of Intent In A Trust

Gabriel Katzner - June 28, 2022 - Trust Administration
Couple going through their assets and will their with an attorney

Your reason or intent for creating a trust can have significant legal ramifications. And like all intents, to maintain clarity, it is best to put it in writing as a statement. This statement helps ensure your trustee understands why you have chosen to establish a Trust and provides guidelines on managing it.

The statement of intent can be included within the trust document or separate from the trust document. Each of these two methods has slightly different purposes. This article summarizes both methods.

Putting the Statement of Intent within the Trust Document

The official comment for section 801 of the Uniform Trust Code (UTC) states:

“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.”

The trustee is required to administer a trust in accordance with both its terms and purposes. However, many trust documents do not state the purpose of a trust, which means that many trustees may not understand or know the purpose of the trust that they are tasked with administering.

Including a statement of intent or purpose can not only guide the trustee as they administer the trust, but also determine whether a trust can be changed or terminated by the courts.

The trust can be modified, according to the UTC,  if it is “not consistent with the material purpose of the trust” as long as the beneficiaries consent.

Likewise, with the beneficiary’s consent, a trust can be terminated if “continuance of the trust is not necessary to achieve any material purpose of the trust.”

Examples of a trust’s material purposes may be:

  1. To eliminate or reduce estate taxes
  2. To protect the trust property and accounts from the beneficiaries’ creditors or divorcing spouses
  3. To educate trust beneficiaries in financial management
  4. To provide for a beneficiary with a disability
  5. To preserve the family home so multiple generations can enjoy it
  6. To reduce conflict or hurt feelings if the distribution of assets does not seem fair

Putting the Statement of Intent Apart from the Trust Document

Not every circumstance can be foreseen or even predicted. For this reason, many grantors give trustees some flexibility in how they will manage the trust.

A trust may last for many generations, and some flexibility may be an asset, especially as trust management passes from generation to generation.

It is important to provide enough detail, so the trustee understands the trust’s intent, but not so much detail that their hands are tied as circumstances and expectations change over time.

A letter of intent can provide the necessary information without being too restrictive.

A letter of intent from the person who creates a trust (grantor) to the person who manages a trust (trustee) is not a legally binding document, but it provides guidance and establishes your intent for the trust.

A letter of intent is a well-drafted letter written in plain language that expresses the grantor’s goals or purposes for the trust.

This letter may feel misplaced or puzzling if it were placed in the trust document itself. For example, a letter of intent can explain the grantor’s understanding of “health, education, maintenance, and support.”

For example, a cruise may be considered a way a family maintains connections and is important to their overall health. Knowing this would ease a trustee’s concerns about dispersing funds to pay for a family cruise.

Placing the letter of intent outside of the trust document can also give a trustee personal information they may need to manage the trust effectively, without putting it in the trust document, where it might cause embarrassment for one of the beneficiaries.

It’s important to update your purpose statement periodically to ensure it stays current with changes in your priorities and reflects your wishes.

Contact The Katzner Law Group to learn more about how and why you might include these statements or letters in your estate plan.

You can schedule a call with us or reach us directly at 855.946.7323 to learn more about how best to plan today to protect those most important to you.

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