When drafting a trust, one of the most critical — and often overlooked — elements is how distributions are structured. If you’re creating an irrevocable trust, distribution provisions need careful attention because they can be difficult to change once the trust has been executed. If you’re creating a revocable trust, distribution provisions can be updated during the grantor’s lifetime, but they become irrevocable upon the grantor’s passing — and the opportunities to make changes are never a given. Therefore, with either type of trust it’s important to think carefully about the distribution language right from the outset. The language you use to guide your trustee can significantly impact your beneficiaries’ lives, for better or worse. Whether you prefer strict oversight or broad discretion, the key is finding the right balance between control and flexibility.
There are two primary types of distributions in trusts. The first is nondiscretionary distributions, which are mandatory and required under the terms of the trust. The second is discretionary distributions, a standard that provides the trustee leeway for distributing income and principal, taking into account the type of request and the beneficiary’s overall situation. There are a few common approaches to each of these distribution standards.
Nondiscretionary distributions
Fixed amount or percentage of trust assets
This can include mandatory net income, a required percentage of the trust being distributed each year (such as 10% per year until exhaustion of the funds), or a mandatory fixed amount, such as $50,000 per year adjusted for inflation.
Age-based distributions
This approach releases funds to beneficiaries at certain ages (e.g., 30, 35, 40). It’s simple and predictable, but it assumes maturity aligns with age. If the age you select is too low, beneficiaries may misuse or squander the funds; if too high, they may miss out when they could use the funds most constructively. Additionally, large distributions can expose assets to creditors or create unnecessary tax burdens for your beneficiaries.
Discretionary distributions
Best interest distributions
This flexible standard allows your trustee to act in the beneficiary’s best interest, considering a range of factors that could include their financial situation, needs, and other resources. It empowers trustees to deny requests that may be harmful while supporting reasonable needs. This approach requires a highly competent trustee to avoid mismanagement or disputes.
Ascertainable standard — health, education, maintenance, and support (HEMS)
This standard gives the trustee full discretion and flexibility to make decisions on coverage and distribution of funds under any of these categories. It’s generally viewed as a reasonably broad standard and traditionally covers all education and medical-related expenses while providing ample flexibility to cover basic needs like a rent, mortgage, or living expenses for food, utilities, and other necessities. Depending on the situation, it can also support travel, car, or home purchases, as appropriate, and other desired but not absolutely necessary expenses.
Aspirational distributions
These provisions encourage personal development, such as funding education, professional training, or purchasing a home. They aim to motivate beneficiaries to pursue meaningful goals but require thoughtful drafting to avoid ambiguity and unintended consequences.
Crafting the right language
When drafting distribution provisions, it’s common to lay a foundation by stating the purpose of the trust, along with a general clause directing the trustee to provide support for the beneficiaries according to ascertainable criterion such as the HEMS standard described above. From there, the language is tailored to more specifically reflect your values and your beneficiaries’ unique needs.
When crafting distribution terms of your trust, consider the following recommendations:
- Use caution when considering large, unconditional payouts. These can be risky if beneficiaries aren’t financially mature at the time of the payout. Consider empowering your trustee to guide distributions based on readiness.
- Use rigid terms selectively. Rigid distribution terms are highly specific — such as paying for college only if the beneficiary attends a particular school or obtains a certain degree. While these terms ensure funds will be used as intended, they can become outdated or even overly restrictive if a beneficiary’s life path changes. In these cases, rigid terms could inadvertently prevent your trust from fulfilling its core purpose — to improve the beneficiary’s life. Rigid distribution terms are typically most appropriate in situations where beneficiaries have problems such as substance abuse or financial issues, but otherwise too much rigidity can thwart the overall purpose of your trust. In extreme circumstances, it could limit the trustee’s ability to respond in emergencies.
- Avoid being overly permissive. Broad language like “live comfortably and enjoy the finer aspects of life” can be difficult to administer and may lead to disputes. A better approach is to include some limits and standards to guide your trustee. Trust distribution language is a balance between providing flexibility but also having guardrails in place so the trustee can say no.
- Watch for boilerplate language. Standardized trust provisions may be convenient for the professional drafting your trust but may not reflect your intentions. Work with your attorney and trustee to ensure the language meets your unique goals.
- Plan for change. Life evolves. Review your trust every few years and be open to amending it as your family’s needs shift.
- Review your trust after major life events. Marriage, births, deaths, or relocations can affect how your trust will operate. Keep your documents current.
- Act before your trust becomes irrevocable. Once you pass away, the trust becomes permanent. If you plan to make changes, act while you still can.
Selecting the right trust professional
Trust distribution provisions carry significant weight — every word matters. That’s why it’s essential to work with experienced trust professionals who can help you interpret your trust documents and ensure they reflect your true intentions. Often, there’s a disconnect between what a grantor envisions and how the trust truly functions once it’s in effect. A knowledgeable trust professional can walk you through common scenarios, highlight potential pitfalls, and suggest alternative strategies that may better serve your goals. They can also help you structure your trust in a way that minimizes conflict among beneficiaries and reduces the risk of future legal disputes. The right guidance can make all the difference in creating a trust that’s both effective and enduring.
The value of a corporate trustee
Appointing a professional corporate trustee can bring clarity, consistency, and professionalism to trust administration, especially in complex family situations or large estates with unique or unusual assets. Unlike nonprofessional trustees, corporate trustees are bound by industry standards and regulations designed to ensure decisions are made in the best interests of all beneficiaries.
With specialized teams and deep experience in trust law, asset management, and tax coordination, corporate trustees can help you align your estate plan with your long-term goals. Their impartiality can also reduce family conflict, promote fairness, and provide peace of mind that your legacy will be managed with care and continuity across generations.
Finding the right balance
Trust distribution provisions play a pivotal role in shaping the success of your trust. Whether you’re reviewing an existing trust or establishing a new one, it’s essential to ask: Do the distribution terms reflect my intentions and beneficiaries’ needs? Over time, circumstances change — beneficiaries mature, financial landscapes shift, and what once seemed prudent may now be too restrictive or too lenient.
Take time to revisit your trust documents with your trust professional. Ensure the distribution provisions align with your goals, provide appropriate guardrails, and allow trustees the discretion when needed to adapt to changing circumstances. A well-crafted trust can offer peace of mind and foster a lasting legacy for generations to come.
