Using Motivational Distribution Provisions

     One of the reasons for having a trust is the significant control the trust provides the grantor over distribution of their assets. Some clients use this control to include distribution provisions designed to motivate the beneficiaries to either take or abstain from certain actions. We believe in explaining the consequence of any given action to our clients and then allowing them to decide whether those consequences are worth the benefit of their actions. This philosophy frequently comes into play when clients want to use distribution provisions as a carrot or stick for their beneficiaries.

     One common form of motivational distribution is a payment to the beneficiary upon their graduation from college. Without careful drafting, such provisions can create situations where it is more advantageous for the beneficiary to remain a student supported by the trust or opt for a lengthy education resulting in many degrees and an equal number of distributions. With provisions requiring very particular educational achievements, for example graduation from a Big Ten university, a beneficiary may never receiving gifts intended for their benefit if such a degree is beyond their capabilities.

     Another form of motivational distribution reflects the grantor’s desire to influence their beneficiary’s marital decisions. A danger in this type of distribution, in addition to the chance of creating substantial resentment between the parties, is a poorly worded distribution provision can result in the beneficiary engaging in a spree of weddings and divorces in order to take advantage of overly broad provisions. As with education-based distributions, it is possible for relationship-based distributions to fail entirely because a beneficiary is completely unwilling or unable to engage in the required behavior.

     It is part of our responsibility as counselors to our clients it to create documents that achieve their goals and avoid these types of situations. Frequently we do this by suggesting alternatives that achieve the grantor’s overall goals, while limiting potential future problems in the administration of the trust. This means that clients who want education-based distributions are encouraged to include trade schools and other forms of post-secondary education as benchmarks for the distribution. For clients concerned about their beneficiary's spouses, distributions made over time may offset some concerns that a spouse will end up with assets in divorce or provisions for distributions to grandchildren in the event that a parent fails to receive a distribution will keep assets available to assist loved ones even if beneficiaries fail to conform to the grantors preference.

     Ultimately, the choice of distribution provisions is up to the client. If the desire to achieve certain outcomes despite the potential challenges results in complex distribution provisions it is important to remember that in a living trust such provisions are always amendable during the life of the grantor. Hopefully in time, clients will realize that their beneficiaries have grown into the productive members of society they hoped for and adjust their documents accordingly.