Backup planning for a trust or estate plan can sometimes cause a lot of stress. After all, the process means thinking through dooms day. Sometimes, addressing a contingency plan is confusing. Really though, there isn’t a one size fits all. A backup plan is going to be personal and specific to each individual or trust grantor. As a result, here are a few things people often mean when reviewing their trust backup plan.
First, a backup plan is going to be different for each estate planning tool. In terms of a trust, a backup plan starts by determining what will happen when or if a trustee declines the opportunity to serve as a fiduciary. Other times, we are talking about the scenario when a trustee dies. Selecting an alternate trustee is the first issue to many unrelated matters that need addressing during the planning process.
Unfortunately, a well drafted trust agreement also means selecting an alternate and secondary trustees in the event they can no longer serve. If the trust document fails to mention what will happen, a beneficiary might be forced to seek a trust modification under Minn. Stat. 501C.0410. In other words, getting help from a court.
Seeking court approval to modify a trust due to a failed backup plan is hardly an ideal situation. This is true because for many families, the point of creating a trust in the first place was to put in place a probate avoidance plan.
Another popular reason for forming a trust is privacy. In other words, we do not want our assets and distribution choices shared in an open forum, like probate court. Because public proceedings breach privacy, modifying a trust in a public forum due to poor planning can feel disastrous.
Second, a trust agreement or declaration should always close the circle on backup trustees. In other words, identifying three or more people who can serve as a trustee isn’t good enough. Instead, offering a final strategy like a corporate trustee can really reduce the need for trust administration by way of the judicial process. For families who do not like like the idea of engaging a corporate trustee, sometimes selecting the eldest heir can also put the grantor of a trust at ease.
Again though, backup planning for a trust is more than thinking through dooms day or the resignation of a trustee. Backup planning also means addressing changes to our tax code, accounting for inflation, disabilities encountered by beneficiaries, and marital conflicts just to name a few.
Therefore, working through the backup planning process to a trust is very much as critical as the primary plan.