"The creator of the trust is actually asking his trustee to have surrogate judgment in deciding to pay money out," Ragland says.
Sometimes, this surrogate authority will trump other provisions of the agreement. For instance, a will might say, "When my grandson reaches age 30, pay over the assets to him." But a more dominant clause in the will might say, "Notwithstanding the fact that my grandson reaches age 30, if he's going to blow it up his nose or lose it at the track, or if he's in a nasty divorce, then the trustee has the authority to withhold the distribution," Ragland says.
"We're seeing this more and more," he adds. It's become so common, a year or two ago his 600-attorney law firm began including this kind of language as a standard provision in trust documents, and it's up to the client to take it out. The provision would say something like, "If the trustee determines that the beneficiary of the trust is going to put the money to ill use, then the trustee has the power to delay the distribution of assets to the beneficiary."
With divorces so common, there is the concern that if money gets paid out of the trust and the beneficiary is in a divorce or is about to get one, then the spouse will end up with maybe half the assets, Ragland says. Alternatively, if the beneficiary of the trust winds up as a defendant in a lawsuit, there's a chance the money will be seized by the plaintiff.
Ragland says wills and trusts are very old, traditional areas of the practice of law, and this kind of clause is not one you would have seen 50 years ago. That's because people didn't think about lawsuits and alimony and divorces and drugs when they were drawing up their wills. Today, they do, he says.
"This is not a provision that was dreamed up by lawyers. It was requested, sometimes inarticulately, by creators of trusts who, realizing their own mortality, said, 'After I'm gone, I don't want someone sniffing their inheritance up their nose,' " Ragland says.
Of course, with such a provision, the client had better choose a trustee he trusts. That's the most important decision the creator of the trust will have to make, Ragland says.
"They have to consider, who do I trust to think like me, to have the same value system that I have, who would most likely make the decision that I would make if I was still around?" Ragland says. "Sometimes it's a family member. Sometimes it's a bank. Whoever it is, it's someone who has the strength to stand nose to nose with the requesting beneficiary and say, 'No, Joe. You can't have the money, and here's why.' "
But there are always clients who try to take the control thing too far, and attorneys say they sometimes have to step in and try to persuade their clients to rein it in. Tracy Craig, a partner in the trust and estates group at Mirick O'Connell in Worcester, Mass., says she's had clients who want to euthanize their pets when they die because they can't bear to have the animal missing them. Craig's suggested that they leave the pet to a humane organization, along with a little money. In one case, she told a client she would find someone to take care of the pets.
"I do try to talk people out of things I don't agree with," Craig says.
She also tries to discourage clients from tying their children's inheritance to their salaries, which is actually a fairly common practice. The parents want to encourage the children to earn a good living, so they make distributions to match the child's salary. But what if the child becomes disabled or can't work for some reason? Craig also points out that there are many very honorable professions, like teaching or social work, that aren't highly paid; by linking the child's asset distributions to their salary, they may be discouraging their children from entering those fields.