Episode 72: What You Can and Can’t Do with the Trust You Inherited
Episode 72
Host: Jill Mastroianni
What You Can and Can’t Do with the Trust You Inherited
Can you stop your child from inheriting money, even if the trust says they should? In this estate planning episode, we walk through a real-life scenario where a mother is trying to protect her son from receiving a large inheritance at the wrong time. Along the way, we break down how estate planning tools like trusts actually work in real life, what trustees can and can’t do, and why you can’t simply “use up” a trust to avoid passing money on. We also introduce a powerful (and often overlooked) tool, a power of appointment, that might allow you to adjust what happens next, even when a trust is irrevocable. Because sometimes the plan is set… but not completely locked.
What You’ll Learn about Estate Planning
Why estate planning often includes trusts, even for families who don’t consider themselves wealthy
What a trustee does and what fiduciary duty really means
How the HEMS standard (health, education, maintenance, and support) shapes trust distributions in estate planning
Real-life examples of what trusts allow, and don’t allow, when it comes to distributions
Why you can’t “spend down” a trust to avoid passing assets in an estate plan
How estate planning balances the needs of current and future beneficiaries
What “irrevocable” means in estate planning, and where flexibility may still exist
What a power of appointment is and how it functions within an estate plan
The difference between a limited and general power of appointment in trusts
Why exercising a power of appointment requires proper legal execution
How estate planning can be adapted to better protect vulnerable beneficiaries
Resources & Links
Watch this episode on YouTube: https://youtu.be/YBOGjuhJkyA
Estate Plan Audit: Understand your existing estate planning documents and how they actually work in real life: https://deathreadiness.com/audit
Examples of powers of appointment:
Limited Power of Appointment. Upon the Child’s death, the Child shall have the power, exercisable only by specific reference in such Child's valid Last Will and Testament or Qualified Revocable Trust, to appoint the income and principal of the Child's trust as they exist upon my Child’s death, in whole or in part, to or for the benefit of one or more of the descendants of my father, John Smith, and one or more of the descendants of my spouse’s father, Robert Carpenter, in such amounts and proportions, and on such terms and conditions, either outright or in trust, as the Child may direct, provided, this power shall not be exercised in favor of the Child, the Child's creditors, the Child's estate, creditors of the Child's estate, or in any manner that would result in any economic benefit to the Child. To the extent the Child does not exercise this testamentary limited power of appointment, the remaining assets of the Child’s Trust shall be administered as provided, below, following the Child’s death.
General Power of Appointment. Upon the beneficiary’s death, the beneficiary shall have the power, only by specific reference to this power in the beneficiary’s valid Last Will and Testament, to appoint such portion or all of the assets otherwise distributable from such trust, to the beneficiary’s creditors, the creditors of the beneficiary’s estate, and the beneficiary’s estate. To the extent the beneficiary does not exercise this general power of appointment, the remaining assets of the trust shall be administered as provided, below, following the beneficiary’s death.
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Email: jill@deathreadiness.com
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Can you stop your child from inheriting money, even if the trust says they should? What if your child is in a place where receiving a lump sum could do more harm than good? Today’s episode breaks down a real-life scenario where a mother is trying to protect her son from the downside of an inheritance. We’ll talk about what trustees can and can’t do, why you can’t just “use up” all of your trust instead of passing it on, and the one provision that might give a concerned parent a say after all. Because sometimes the plan is set, but not completely locked.
Welcome to The Death Readiness Podcast. This is not your dad’s estate planning podcast. I’m Jill Mastroianni — estate planning attorney, death readiness guide, and your translator for wills, trusts, probate, and the conversations most families avoid. If you’ve been wondering things like, ‘Can a trust protect what I leave to my children?’ ‘What happens if I give someone power of attorney over me?’ and ‘How can I help my parents while respecting their independence?’ You’re in the right place.
I’m recording this episode a little early because my daughter, two of our four dogs, and I are heading to Nashville for her spring break, and for a few business meetings for me.
Nashville still feels like a second home. I went to law school at Vanderbilt and spent more than a decade there practicing trusts and estates before moving to Michigan. So this trip is part work and part catching up with people who knew me before “Death Readiness” was even a thing.
My daughter is 14, and she’s the ideal road trip companion. She builds the packing list based on the weather and our plans. She’s a planner and I’m guessing that doesn’t surprise you.
Today’s Tuesday Triage comes from a listener named Abby in Nashville, which feels especially fitting since this episode will be released while I’m there.
It’s a question I’ve talked through with clients more times than I can count.
Abby is the beneficiary of a trust her parents created before they passed away. The structure is pretty straightforward: Abby benefits from the trust during her lifetime, and when she dies, whatever is left gets divided equally among Abby’s three children.
But Abby’s question is this: Can she change what happens next?
She’s especially concerned about one of her children, who we’ll call David. In Abby’s words, David tends to be overly generous, especially in relationships in which the other person might not have his best interests in mind. And she’s worried that if he receives a large sum of money after her death, that generosity could turn into vulnerability.
And Abby is trying to think ahead to that moment because she wants to protect David when he may not be able to protect himself.
Before we talk about what Abby might be able to do, I want to pause for a moment because this is the part where a lot of people might check out.
If you’re thinking, “This doesn’t apply to me.I don’t have a trust, I’m not a trust fund kid,” stay with me.
Because trusts show up in more places than you think.
There’s no minimum amount of money required to create one. Yes, it costs money to hire an attorney to draft a trust, but there’s no rule that says you need to fund it with a certain amount of money, or even really fund it at all.
I could create a trust today and put $10 into it. That’s allowed.
And here’s why that matters: you, or your parents, may have signed estate planning documents that include a trust without fully realizing it.
Most people assume that what they said in that initial meeting with the estate planning attorney is exactly what made it into the documents. And sometimes that’s true. But often, there’s more in there than people remember or fully understand.
So don’t count yourself out of this conversation just because you don’t come from a long line of trust funds. Trusts aren’t just for the wealthy. They’re a very common estate planning tool.
Let’s start with the basics.
A trust is an agreement where one person, the trustee, holds and manages assets for someone else, the beneficiary.
In Abby’s case, her parents created the trust. We don’t know who the trustee is, so let’s call her Tina. And for our purposes today, we’ll assume that Tina is a professional trustee, meaning this is what she does for a living. She manages trusts and gets paid to do it.
Her job is to follow the instructions in the trust agreement and make distributions according to those terms.
Now, not all trustees are professional trustees. I could name my best friend to serve as trustee of a trust I create. That might not be the best idea, but it’s perfectly legal.
During Abby’s lifetime, Abby is the beneficiary. Tina is in charge of managing the assets and making distributions for Abby’s benefit.
So how does Tina know what she’s allowed to distribute to Abby?
It comes back to the trust agreement.
And just as a quick note, I don’t review documents as part of answering Tuesday Triage questions. These episodes are meant to give general guidance, not advice specific to your situation. That’s why I don’t know exactly what Abby’s trust says.
If you do want that higher level of detail, that’s exactly what my Estate Plan Audit is for. We go through your documents together, talk about how they actually work in real life, and identify anything that might need attention. By the end, you’ll understand what you have, what it means and what you might want to change.
You can find more information at deathreadiness.com/audit. That’s deathreadiness.com/audit. I’ll link to it in the show notes.
Okay, back to Abby, and what Tina the trustee can actually distribute.
A very common distribution standard in trusts is what’s known as the HEMS standard. H-E-M-S. That stands for health, education, maintenance, and support.
In plain English, it means the trustee can make distributions based on what the beneficiary reasonably needs.
It gives the trustee a lane to operate in, wide enough to take care of someone, but narrow enough to prevent abuse or reckless spending.
Now, today’s episode isn’t really about how HEMS distributions, distributions for health, education, maintenance and support, work in detail. I just want you to have enough context to understand what’s happening during Abby’s lifetime.
So during Abby’s life, Tina can make distributions for Abby within that HEMS standard.
But what happens when Abby dies?
According to the trust, whatever is left, whether it’s $1 or $1 million, gets divided equally among Abby’s three children.
So let’s say there’s $900,000 left in the trust at Abby’s death. Tina wraps things up, takes her fee, files the final trust income tax return, and then distributes $300,000 to each of Abby’s children.
It’s simple.
Except that’s exactly what Abby does NOT want to happen, at least not for David.
She’s worried that giving David a large sum of money all at once could negatively impact his financial vulnerability in relationships.
So it might sound like we have an obvious option here:
Just make sure there’s nothing left in the trust at Abby’s death.
If the trust is empty at Abby’s death, there’s nothing to distribute.
But here’s the problem with that.
Tina, as a professional trustee, is a fiduciary. Actually, any trustee is a fiduciary, whether that person is a professional trustee or not.
A fiduciary is someone who is legally required to act in someone else’s best interest.
Tina, as a fiduciary, has two core duties:
#1 - a duty of care, the duty to make thoughtful and informed decisions,
and #2, a duty of loyalty, the duty to put the beneficiaries’ interests ahead of her own. And, she can’t play favorites.
With regards to Abby’s trust, Tina is required to act in the best interests of the beneficiaries, which includes Abby AND Abby’s children.
Tina doesn’t have unlimited discretion.
If the trust says she can only make distributions for Abby’s health, education, maintenance, and support, then she has to stay within those boundaries.
So, yes, if Abby needs surgery that isn’t fully covered by insurance, physical therapy, prescriptions, or mental health support, Tina can absolutely pay for those things.
But if Abby wants Tina to cover a $40,000 wellness retreat in Switzerland, or even ongoing spa treatments for “stress relief,” Tina is probably going to say no.
And even if the trust were more flexible—maybe it allows for larger distributions, like helping Abby buy a home—Tina still has to be careful.
Because her duty isn’t just to Abby.
It’s also to Abby’s children, the future beneficiaries of the trust.
So if Tina drains the trust in a way that isn’t supported by the trust agreement, Abby’s children could come back later and say, “That shouldn’t have happened,” and sue Tina for breaching her fiduciary duty.
So, draining the trust during Abby’s lifetime isn’t really a viable strategy.
Which leads to option #2:
Can Abby just change the trust?
Abby’s parents created the trust. And when they died, it became irrevocable, basically meaning that it can’t be changed.
So are we stuck? Maybe not.
Because there’s one possibility that sometimes gets built into trusts, and that’s something called a power of appointment.
I’m going to say that again, because this is where things start to get interesting:
A power of appointment. It’s the power to decide where the trust’s assets go next.
I actually hesitated to answer Abby’s question on a Tuesday Triage episode because it means we have to talk about powers of appointment.
And for whatever reason, this is one of those concepts that feels more difficult for me to explain than it should.
But I’m going to do it anyway so stay with me.
Like I said, a power of appointment is the ability to decide where the trust’s assets go next. That’s it.
It means the person who created the trust—here, Abby’s parents—gave someone else, usually a beneficiary like Abby, the power to redirect what happens to the trust’s remaining assets, typically at Abby’s death.
A power of appointment builds flexibility into a plan. It’s as if the person who created the trust is saying: “I don’t know what the world, or this family, will look like years from now. So I’m going to give you the ability to adjust.”
If Abby’s parents included a power of appointment in the trust, then Abby may have the ability to change what happens to those assets when she dies.
So how would she know?
Sometimes it’s obvious. When I draft a trust agreement, I include a section titled “Limited Power of Appointment” or “General Power of Appointment.”
But not always.
I was reviewing a trust earlier today where the power of appointment was buried in a section called “Distribution of Trust Upon Death of Primary Beneficiary,” which, technically makes sense, but it’s not easy to spot.
If the power of appointment is limited, Abby can redirect the assets within a defined group, often her descendants or the descendants of her parents.
If the power of appointment is general, she may have much broader authority, sometimes even the ability to direct the assets to her own estate.
In my experience, most parents give a limited power of appointment, usually restricted to descendants or trusts for their benefit.
I’ll include examples in the show notes so you can see what this power of appointment language actually looks like in a real trust agreement.
So let’s say Abby does have a limited power of appointment.
What happens next?
This is where people sometimes think, “Okay, I’ll just write something down.”
Like: “I exercise my power of appointment. I want David’s share to stay in trust.”
That’s not enough. Powers of appointment come with rules, very specific rules, about how they have to be exercised.
The trust might say something like:
“This power can only be exercised by specific reference in Abby’s Last Will and Testament.”
If that’s the case, Abby would need to either update her will or create one, and properly include that language to exercise her power of appointment.
This is not a DIY moment.
And in Abby’s situation, she’s not just redirecting assets—she’s changing how David receives them.
Instead of getting his share outright, she wants it held in trust for him, likely with guardrails limiting distributions to health, education, maintenance, and support.
That means she’s effectively creating a new trust for David.
And that’s something that needs to be drafted correctly.
So here’s what I want you to take away from today.
Just because a plan was created by your parents doesn’t mean it’s the final word on what happens next.
But it also doesn’t mean you can do whatever you want.
You’re operating inside a trust structure. There are rules, and there are people, like trustees, who are legally required to follow those rules.
But sometimes, built into that structure, there’s flexibility.
A power of appointment is one of those opportunities for flexibility.
It’s the part of the plan where someone said, “I trust you to adjust this if life doesn’t go the way we expected.”
And that’s what Abby is trying to do. She wants to take what her parents created and make it work for the reality she sees now.
And if you’re reading your trust agreement and it feels like a foreign language, I get it.
I feel the same way when my daughter hands me a new board game and asks me to read the instructions.
If you want help understanding what your documents actually say and how they work, my Estate Plan Audit is a great place to start.
We go through your documents together, talk about what they mean in real life, and identify anything that might need attention. By the end, you’ll know what you have, and what it actually does.
You can learn more at deathreadiness.com/audit. That’s deathreadiness.com/audit.
Thanks for listening today.
This is Death Readiness, real, messy and yours to own. I’m Jill Mastroianni and I’m here to help you sort through it, especially when you don’t know where to start.
Hi, I'm April, Jill's daughter. Thanks for listening to The Death Readiness Podcast. While my mom is an attorney, she’s not your attorney. The Death Readiness Podcast is for educational and entertainment purposes only. It does not provide legal advice. For legal guidance tailored to your unique situation, consult with a licensed attorney in your state. To learn more about the services my mom offers, visit DeathReadiness.com.
