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Course Details

Course Information
  • smart_display Format

    On-Demand

  • signal_cellular_alt Difficulty Level

    Intermediate

  • work Practice Area

    Estate Planning

Date & Time
  • event Date

    Tuesday, December 12, 2023

  • schedule Time

    1:00 p.m. ET./10:00 a.m. PT

  • timer Program Length

    90 minutes

Credit Information

  • This 90-minute webinar is eligible in most states for 1.5 CLE credits.

$297.00
CLE
ALL

This CLE course will provide trust planning counsel and fiduciary advisers with a thorough, practical guide to making discretionary distributions of principal or income from a discretionary trust. The panel will discuss liability risks involved for trustees making these distributions, review appropriate factors, considerations, and standards for evaluating discretionary distributions, and outline potential challenges from creditors or other beneficiaries to such distributions.

Faculty

James T. McNary
Attorney
McNary Law Office, PA

Mr. McNary has been practicing law for more than 30 years. Throughout most of his career he has limited his practice to the areas of estate planning, business succession planning, probate, and trust administration. That focus has allowed Mr. McNary to intensively study those areas of the law. He has taught many courses and written many papers for fellow lawyers and has published articles on estate planning, probate, and trust administration.

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Daniel R. Bernard
Partner
Bernard Law, PC

Mr. Bernard focuses his practice on estate planning, trust and estate administration, estate tax planning, business succession planning, and estate litigation, with an emphasis on estate planning for snowbirds.

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Description

Determining whether and when to make a discretionary distribution of trust assets presents significant challenges for trustees and estate planning counsel in drafting trusts. Trust counsel must fully understand the impact and risks to a fiduciary in exercising discretion to make distributions, particularly of the trust principal, when structuring distribution provisions in discretionary trusts.

A discretionary trust is a complex trust that allows a trustee discretion over income or assets distributed to defined beneficiaries. Generally, trust documents specify standards for discretionary distributions. The most common measure is the health, education, maintenance, and support (HEMS) standard, defined in Treas. Reg. 20.2041-1(c)(1) as an "ascertainable standard."

Trust drafters may include other "unascertainable" standards to guide fiduciaries. Absent careful drafting and thoughtful trustee selection, the use of an unascertainable standard may trigger a tax recognition event such as a general power of appointment.

While courts generally give wide latitude to a trustee's exercise of discretion to make distributions, beneficiary challenges to distributions have succeeded in cases where the court finds flaws in the discretionary provisions or the trustee's exercise of distribution powers. Counsel must be fully aware of permissible standards to deter beneficiary disputes and avoid adverse tax and accounting consequences.

Listen as our experienced panel provides a practical guide to structuring distribution provisions in discretionary trusts, outlines liability risks involved, discusses appropriate factors, considerations, and standards, and examines potential creditor or other beneficiary claims arising from a trustee's decision to grant or deny a discretionary distribution request.

Outline

  1. Discretionary trusts defined
  2. HEMS standard allowable provisions
    1. Health
    2. Education
    3. Maintenance
    4. Support
  3. Unascertainable standards
  4. Risks in structuring discretionary distribution provisions
  5. Areas of successful beneficiary challenges

Benefits

The panel will review these and other relevant topics:

  • Unascertainable standards that present liability or tax risks to fiduciaries
  • Types of discretionary distribution provisions that courts have ruled defective
  • Elements of HEMS standards, IRC 2014, and governing regulations
  • Risks in distributing assets from the principal or income of a discretionary trust