May 23, 2014

Creative Trust Distribution

There is basically no limitation as to how a person can draft the distribution language in their trust. The standard route is for the settlor to leave their entire estate to their surviving spouse, or if they are a widow or widower, to their children split equally. Occasionally there are peculiar distribution requirements. I can remember in law school reading about cases where the testator required that the son marry a person of a certain religious background. Shapira v. Union National Bank, 39 Ohio Misc. 28, 29-39 (1974). Or another case where the will  required that the person marry somebody of a specific ethnic background. In re Keffalas' Estate, 426 Pa. 432, 435 (1967)

While reading through recent probate cases, I came across a very creative distribution scheme. Frankly I had never read or heard about such a scheme until I read the unpublished appellate opinion. Mike Moore's will created a testamentary trust that pegged a distribution to the beneficiary's earnings. It read "at the end of each calendar year following my death, my children shall submit to my said trustee tax returns, certified by a certified public accountant, showing their gross income for said year. My Trustee shall, within thirty days of receipt of these certified tax returns, disburse from the trust to my daughter Daphne Gail Moore the sum of ONE DOLLAR ($1.00) for each dollar she has earned during the preceding calendar year and for my son Terry Lynn Moore, the sum of FIFTY CENTS ($0.50) for each dollar he has earned during the preceding calendar year."

The intent behind this distribution scheme is clear. Mr. Moore wanted to incentivize gainful employment for his two children. The more each child earned, the more they would receive from the trust. This is in stark contrast to the vast majority of wills and trusts that I have written, read and reviewed over the years. These simply require that the beneficiary outlive the testator and settlor. I am not exactly sure what compelled Mr. Moore to write his will that way, but it can be inferred that Mr. Moore insisted that his children "earn" their inheritance instead of having it handed to them. This sentiment is commendable given that large inheritances can foster perverse behavior or a "trust fund baby" mentality in more brusque terminology.  

Unfortunately though, Terry Moore encountered difficulty with the proof of income requirement. From the opinion, "Terry admittedly lacked any proof of his earnings. He had no receipts, no canceled checks and no documentation of his alleged earnings as a mechanic. Terry offered to supply the court with his customers' names and phone numbers. The trial court declined, stating "Judges don't call."

So a few morals can be gleaned from the case of Terry Moore, (1) keeping adequate income records is important and (2) a superior court judge will not call your customer base to verify that you have assisted them in the past.