A Guide to Ongoing Trusts

Setting up a trust protects your assets, but creating an ongoing trust protects your inheritance wishes. Here’s a quick guide to ongoing trusts.

What is an Ongoing Trust?

An “ongoing trust” isn’t really a separate kind of trust, it is merely a term used to describe a trust that operates for an extended period of time. An ongoing trust will usually provide detailed instructions for how trust assets should be used after you have passed away.

Below we list a few examples of trusts that are notable for being ongoing, allowing you to control your trust long after you’re gone:

Charitable Trust

Your charitable trust is ongoing because it continues to dispense assets to your designated charitable organization for the set term of your trust. Your set term is the period of time your trust is actively dispensing assets to your beneficiaries. For charitable trusts, this is typically until your trust is spent.

Your trust documents designate how much of your trust is contributed each period, and the frequency at which your trust distributes assets to the organization. You are able to control the frequency and amount of the trust’s contributions, as well as set specified terms for the trustee to abide by in your absence.

For example, if you intend to contribute to a particular charitable organization for a set period of time, but you wish to cease donating after that term in order to donate to another charitable organization, you may state this desire in your trust documents.

If you wish to donate to named beneficiaries and a charitable organization, you can establish a charitable remainder trust. This is another type of ongoing charitable trust, however, this trust distributes to your named beneficiaries for a set term, and once the term is over, the remainder of the trust is contributed to the charitable organization(s) of your choice.

As with a charitable trust, you are still in control of how much the trust distributes for the term, as well as the frequency of distribution. The difference is that you are distributing to beneficiaries outside of charitable organizations.

Charitable trusts are ongoing because you control how they function for the entire term of distribution.

Education Trust

Establishing an education trust for your children or grandchildren is an ongoing trust that shouldn’t be confused with a Virginia529 College Saving Plan. An education trust allows your beneficiaries to access the trust assets in order to pay for their education.

However, this trust is also controlled by the restrictions of your trust documents. For example, when you establish an education trust, you are able to limit your beneficiary’s use of the trust assets. Your restrictions can outline how much can be used per period, as well as which expenses can and cannot be compensated using trust assets.

The ongoing terms of an education trust allow you to ensure that your beneficiary is managing your assets wisely.

Child’s Trust/Minor Property Trust

A child’s trust is an ongoing trust that operates differently from other ongoing trusts. By its nature, a child’s trust is ongoing because minor children are unable to hold property until they surpass the age of 18 in Virginia. Therefore, if you are leaving property to a minor child, an ongoing trust such as a child’s trust is required.

Your trust documents contain how your trust operates up until the time your beneficiary reaches adulthood. Your trustee manages the trust until the beneficiary is able to inherit it.

You are able to instruct the trustee on how the trust should be managed, such as designating the age at which the child is able to inherit the trust. If you feel that your beneficiary will not be prepared to manage their trust assets, you can extend the inheritance age through your trust documents.

Ultimately, a child’s trust is ongoing because the trust must be managed by the trustee following your instructions, and it cannot be immediately inherited by your beneficiary.

Disability Trust

One of the most pertinent ongoing trusts, a disability trust, allows you to plan for the daily medical and physical needs of a beneficiary that is disabled. Your disability trust’s documents establish your trustee, and how your trust is managed for the lifetime of your beneficiary.

A disability trust is ongoing for the life of your beneficiary, so it is important that you establish a plan that considers how your trust will remain funded. You must also consider who will manage the trust, and if the beneficiary is your child or dependent, you will need to name a lifetime guardian. The individuals you name should be aware of your wishes in advance, and willing to accept the responsibility of their position.

Disability trusts are ongoing because you must establish a plan of care, funding, and management that is long-term. An ongoing trust that is established in order to care for another should be carefully planned with the help of an attorney.

Qualified Terminable Interest Property (QTIP) Trust

Establishing a QTIP trust allows you to provide ongoing income to your surviving spouse. The interest and principal accrued by your trust assets are paid in increments to your spouse until their death, or until the trust principal is depleted.

This trust operates differently, however, as it still allows you to name beneficiaries and designate the distribution of trust property. While your beneficiaries receive their inheritance upon your death, the trust remains ongoing while making payments to your surviving spouse.

Pet Trust

A pet trust is established in order to manage the ongoing care and maintenance of your pet. Your pet trust names a trustee and a guardian just as any other trust requiring guardianship. However, the trustee and guardian are required to fulfill the trust by caring for your pet in your absence.

Your pet trust continues for the life of your pet, or until the last pet covered by the trust perishes. The trust assumes all maintenance, veterinary, and post-mortem expenses of your pet. Therefore, you must establish a plan that considers future expenses that your pet may accrue during the remainder of its lifetime.

Generation-skipping Transfer (GST) Trust

A generation-skipping trust by nature is an ongoing trust because it distributes assets to your beneficiaries that are two or more generations removed. In other words, you are able to bequeath the trust property to your grand- or great-grandchildren, but not your immediate children.

The trust is managed by an appointed trustee, and access to the trust’s assets is provided to your beneficiaries upon your death. If your beneficiaries are too young to inherit the property, it is managed by a minor property guardian until the time that they are able to accept their inheritance.

Your beneficiaries do not have to be family in order to inherit. However, they must be two or more generations removed from your own generation in order to qualify. A GST trust is considered an ongoing trust because your assets are not always immediately inherited. Additional consideration and provisions for the trust’s ongoing management is generally required.

Additional Considerations

“Spendthrift” Trust Provision

The inclusion of a “spendthrift” provision in your trust documents allows you to manage how your trust is spent by your beneficiaries.

The spendthrift restricts your beneficiaries from transferring property out of the trust in order to protect those assets. You decide which property your beneficiary is able to receive, how that property is to be used and managed, as well as whether or not they are able to receive profit on the property’s use.

Ultimately, a spendthrift provision places restrictions on the inheritance of beneficiaries that would otherwise manage it irresponsibly. These provisions are ongoing based on your trust terms, and must be followed in order for your beneficiary to inherit.

Provisions & Restrictions

As many of the ongoing trusts provide, you are able to establish provisions and restrictions. You direct how your trust is managed and how your beneficiaries inherit assets.

Any provisions and restrictions that you feel would benefit your trust’s management are encouraged. However, your provisions must not impede on the lives of your beneficiaries.

For example, you are not able to deny access to a beneficiary on a personal premise. You cannot provide them with the ultimatum to divorce their spouse, or risk being disinherited if they refuse. Your restrictions should reflect the best interest of your trust, your beneficiaries, and provide for long-term funding and management.

Ongoing Trustee Compensation

Remember, an ongoing trust has an ongoing trustee to manage the trust. Therefore, you will need to account for your trustee’s compensation in your trust documents. Your trustee is entitled to a fair compensation that considers their trust responsibilities.

The compensation of your trustee is assumed by the trust. Therefore, you must ensure that you have included assets that can properly compensate your trustee. Otherwise, assets may be taken from the trust in order to compensate your trustee.

Your trustee is paid in increments over the course of their management. Therefore, trustee compensation is an ongoing provision of your trust. Carefully consider the frequency and amount your trustee is compensated to ensure your trust assets are not unexpectedly depleted.

Conclusion

Planning an ongoing trust requires time and extensive consideration to long-term factors. You should consult with an attorney to review your trust documents.

Schedule a consultation with our estate planning attorney to setup or review your ongoing trust.

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