¶ 4601
Overview
Scope of the chapter. This chapter turns the preceding forty-five chapters into a drafting sequence. It follows the order in which a modern dynasty or directed trust instrument is usually assembled, article by article, and for each article it states the design choices the drafter must make, the statutes that govern those choices and the chapter of this treatise where the choices are examined at length. The chapter does not restate the model provisions that appear at the end of earlier chapters. It identifies them by chapter and paragraph, explains how they fit together in a single instrument and supplies new model language only for the articles that no earlier chapter drafts: the opening declarations, the governing-law and situs article, the clause that ranks the powers of the several officeholders, the general definitions and the execution and acceptance formalities. Each part closes with a checklist table, and the final part collects the drafting errors that recur in practice, with Examples.
The instrument as a system. A modern trust instrument allocates authority among several offices: the trustee, one or more trust directors or advisers, a protector, a distribution committee, a designated representative and, in some designs, an enforcer or a family council. It also allocates benefit among a class of beneficiaries that may run for a century or longer. It carries tax provisions whose effect depends on who holds each power. A change in one article changes the effect of others. A power to remove the trustee that is drafted in the trustee article can make the holder the owner of the trust for income tax purposes if the replacement may be a related or subordinate party. It can draw the trust into the holder's estate if the holder is a beneficiary. A decanting power drafted in the flexibility article is limited by the distribution standard drafted in the beneficial article. A silent-trust provision drafted in the information article is effective only if the designated representative drafted in the representation article is in office. For these reasons the drafter should read the instrument as one system and should test each article against the others before signing. The checklists in this chapter are organized to make that cross-testing routine.
How to use the chapter. The parts follow the usual order of a long-form instrument. Paragraph 4610 sets out the plan of the instrument and an index of the model provisions in the treatise. Paragraph 4620 covers the opening articles, governing law and situs. Paragraph 4630 covers the fiduciary articles: trustees, directors, advisers and protectors, and the clause that coordinates them. Paragraph 4640 covers the beneficial articles: the beneficiary class, distribution standards, spendthrift terms and the treatment of spouses. Paragraph 4650 covers the tax articles. Paragraph 4660 covers modification, decanting, settlement agreements, combination and division, and migration. Paragraph 4670 covers information, representation, governance institutions and the special-asset articles. Paragraph 4680 covers duration, dispute resolution, definitions and execution. Paragraph 4690 collects the common drafting errors and closes with a final checklist. A drafter working on a single article can go directly to the part that covers it, read the cross-referenced chapter and return to the checklist for that article.
Assumptions. The guide assumes an irrevocable trust created during the settlor's life by a United States settlor, governed by the law of a state with a modern trust code and a directed-trust statute, administered by a corporate or private trust company, and intended to last for the longest period the governing law allows. Most of the guidance applies equally to a testamentary trust or to a trust created by a settlor who is not a United States person, with the changes noted in the cross-referenced chapters. Trusts for a settlor's own benefit are covered by Chapter 37 and by the cross-references in ¶ 4640. Trusts governed by the law of the Cook Islands, Nevis or Belize are covered by Chapter 15.
What the chapter does not cover. The chapter is a guide to the structure and content of the instrument. It does not repeat the analysis of the statutes and cases on which each design choice rests, which is the work of the earlier chapters. It does not supply a complete form. A complete form would have to choose among the alternatives that this treatise presents as alternatives: a directed trust or a delegated one, a fiduciary protector or a nonfiduciary one, a silent period or full information, a grantor trust or a nongrantor trust. Those choices depend on the family, the assets and the jurisdiction. They are left to the drafter.