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Dear Trustee: A Letter of Wishes

In late 2012, the government threatened to make steep cuts in the levels of exemption for gift and estate taxes. At the time, the gift tax exemption was set to drop from $5.1 million to $1 million, and the top tax rate was to rise from 35% to 55%. As a result, many families hurried to create trusts that would protect their assets from the cuts and did so very hastily. This is because assets placed in certain types of trusts are not affected by gift and estate taxes. However, Congress prevented these cuts, but by that time many trusts had been created with cook cutter documents in order to be executed quickly. Now, many creators of these trusts are going back and trying to provide more detail to the trustees about how they want the trusts to benefit their heirs.

Letter of Wishes

The trust creators are using “letters of wishes” which have long been around in the world of trusts and estates. These letters are not binding, but they typically reflect the intention of the trust creators in more detail than what was written when the trust was first formed. These intentions are usually in regard to priorities for doling out distributions, for example like getting for education or a new home.

The Growing Importance of Letters

Since the scramble at the end of 2012, these letters of wishes are growing in importance for the world of trusts and estates. Trusts created at the end of that year look very similar to one another. Because of the cookie cutter format, most trusts are broadly worded and give the trustees incredibly wide latitude in their roles. Normally when trusts are set up there is time to finely tune and tailor documents that specifically detail the trust creator’s wishes. Additionally, broad parameters can be instituted for the trustees in order to guide them about the trust’s intent. Paying for specific expenses or distributing funds to a certain level are common details that were left out of the rushed trusts at the end of 2012.

Now, families that created the simple, broad trusts have had the time to consider in detail how they want the trusts to be run. For example, one family placed a vacation home in a trust without further comment. Using a letter of wishes, the creators can now explain that they want the trustee to maintain the home for future generations to enjoy, and not to sell the house in order to make distributions to heirs.

These letters of wishes are now being given more consideration since the rush of trusts in 2012. When a trust is created with generically worded documents, a letter of wishes is given greater weight and can potentially affect how the trustee distributes funds. Trustees are supplementing the original trust documents with the letters for guidance in order to have a better idea about the wishes of the trust creators and to ensure that their wishes are being followed. If you or someone that you know created a trust at the end of 2012, consider reviewing the trust documents and writing up a letter of wishes. That way your intentions can also be followed the way that you had wanted.

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