is not static and neither should be anyone’s living trust. Adjustments have to
be made when compelling circumstances arise which necessitate alternative
approaches.  For that reason a well drafted
living trust should provide contingency planning alternatives.  Unforeseen circumstances could relate to the
settlors themselves, to the trust assets, or to the beneficiaries.  Let us consider some possible scenarios and
how a trust could be drafted to provide suitable alternative solutions.

the settlor(s)’ own circumstances could dramatically change.  A settlor might require admission into a
skilled nursing home and wish to apply for Medi-Cal assistance to help pay the
costs.  In that case, the settlor’s trust
might authorize gifting of assets to family in order to accelerate his or her eligibility
and/or to preserve the gifted assets against eventual estate recovery by
Medi-Cal of assets exempt for eligibility purposes only after then settlor

the assets that are available to distribute to the beneficiaries could be
significantly different than those the settlor owned when he or she drafted the
trust.  Some or all of the important
original trust assets that were specifically devised may have been given away,
sold, and new ones acquired.  Also, debts
owed by the decedent may wipe out a large portion of the estate leaving much
less to be distributed to any beneficiaries who receive a percentage of the
remaining trust estate.  For these reasons,
a trust may provide alternative distribution schemes consistent with the
decedent’s wishes should the estate be dramatically changed.

the beneficiaries own life situations at the time of distribution may be
significantly different.  That is, some beneficiaries
may have died, may be receiving needs based SSI or Medi-Cal benefits, may have
debt issues, may be involved in a divorce, may be incarcerated or otherwise
incapable of managing their own affairs.
Thus, the trust may authorize the trustee to pursue more appropriate
alternatives.  Specifically, in the case
of a deceased beneficiary, the trust may permit the trustee to distribute to
alternative beneficiaries if a primary beneficiary, who survived long enough to
inherit, has died prior to receiving the full inheritance – such alternative
beneficiaries could either be named in the deceased settlor’s trust instrument
or, if authorized, in the deceased beneficiary’s own will pursuant to a power
of appointment.  In regards to a
beneficiary receiving SSI/Medi-Cal, the trust could redirect the inheritance
into a special needs trust to assist such beneficiary.   In the case of beneficiaries who have
creditor or divorce issues, the trust could authorize the trustee to withhold
all or part of distribution for any period of time up to an including the
beneficiary’s entire lifetime and to utilize the withheld inheritance to assist
the beneficiary.  Lastly, regarding a
beneficiary who is incarcerated or otherwise incapable of managing an
inheritance, the trust may authorize that the trustee either retain and manage
the inheritance in further trust or use the inheritance to purchase a single
premium annuity for the beneficiary (to stretch out the payments over the
beneficiary’s lifetime or term of years).

more time passes since when the trust was drafted the more changes occur and
the more likely it becomes that the original plan as conceived will become
either partially or completely inappropriate given the new circumstances.  It is, therefore, only good planning to draft
flexibility into a trust to allow the trustee maneuvering room to respond to
unforeseen circumstances.  Needless to
say, the foregoing discussion underscores why one’s estate plan should be
reviewed by an attorney periodically – at least every five years – and
sometimes sooner if events necessitate in order to make necessary adjustments
to ensure its continued appropriateness.

“Serving Lake and Mendocino Counties for nineteen years, the Law Office of Dennis Fordham focuses on legacy and estate planning, trust and probate administration, and special needs planning. We are here for you. 870 South Main Street Lakeport, California 95453-4801. Phone: 707-263-3235.”