What are the terms of a Typical Descendant’s Trust?

Descendant's Trusts with second generation planning (a/k/a "second generation trusts" and "GST trusts") are very flexible. The typical trust has the following terms:

  • Each named beneficiary (each child or other descendant) is the primary beneficiary of his/her own separate Descendant's Trust for his/her entire lifetime.
  • Usually, the children and other descendants of the primary beneficiary are named as secondary beneficiaries of the primary beneficiary's Descendant's Trust while the primary beneficiary is living. This means that distributions may be made to them from the beneficiary's Descendant's Trust, too.
  • Distributions of income and principal can be made to any of the trust beneficiaries to provide for their health, education, support, and maintenance, in their accustomed standard of living. In some cases, customized distribution provisions are permissible.
  • If the beneficiary of a Descendant's Trust is "too young" to have control over his/her trust, then someone else–a relative, a bank, a trust company, or any other qualified person or entity–is appointed as the initial trustee of the beneficiary's Descendant's Trust. However, it is customary to give the primary beneficiary the right to become a co-trustee of his/her trust at a certain age (such as 25 or 30) and the right to become the sole trustee of his/her trust at a later age (such as 30 or 35). Serving as a co-trustee for a certain number of years before becoming the sole trustee can be good training.
  • The beneficiary usually has a testamentary "power of appointment" (described below) over his/her trust.
  • There will be more income tax options with respect to trust income because there is more than one potential income taxpayer. Any beneficiary who receives a distribution of income from the trust will pay income taxes on the share of income he/she receives in his/her own income tax bracket. To the extent that trust income is distributed out of the trust, the trust will not pay income taxes on that distribution (it's an "either/or" situation and not a "double tax" situation).