A trust is a legal and fiduciary arrangement where a creator (settlor) places named property in the care of a trustee, who holds and maintains it for the settlor’s named beneficiaries. It is a widely used asset management and estate/tax planning tool that allows the settlor to dictate specific terms and conditions to the trustee for property management and distribution, with legal consequences if they do not abide by those terms. But for those looking for more flexibility with asset distribution and freedom for trustees, the settlor can create a sprinkling or spray trust.
What is a Sprinkling/Spray Trust?
A sprinkling trust (also known as a spray trust) allows the trustee broad discretion in determining trust distribution, meaning that they can release trust property to the beneficiaries when it is necessary. This is usually done in several smaller distributions, “a little here or a little there” as the circumstances dictate, in effect sprinkling or spraying funds to the beneficiaries over time.
These types of trusts are created when the settlor has great faith in the person they have picked as trustee and are confident that they will make distributions as they would, or would approve of the decisions that they make regarding distribution.
What Responsibilities Does A Trustee Have Regarding a Sprinkling/Spray Trust?
When they are named and legally receive the trust property, the trustee assumes a fiduciary relationship with the named beneficiaries. This includes a number of duties, namely:
- Duty of Care. A trustee must carefully manage the trust property until distribution. They are required to exercise prudent judgment in any transactions or investments to maximize profit and avoid losses.
- Duty of Loyalty. The trustee must not put their own interest ahead of the beneficiaries when dealing with trust property. In the same vein, they are not allowed to engage in any self-dealing with trust property.
- Duty of Security. One of the prime reasons someone creates a trust is keep certain funds or property safe. The trustee has the duty to keep it that way.
- Duty of Segregation. The trustee must keep any and all trust property separate from their own. Any commingling may result in the trustee being removed from their position.
There are a few more duties that take on different emphasis in a sprinkling or spray trust, as well. Namely, the duties of accounting and investing. A trustee needs to keep track of all trust property, and should make attempts to invest it wisely for the beneficiaries’ gain.
But in a spray trust, the freedom and confidence that the settlor places in the trustee may mean that they are given more leeway than other trustees would get. For example, while the trustee must certainly keep track of any profits, losses, and investments they make with trust funds or property, they may not need to keep a record with the level of detail that another trust would require.
The main feature of these trusts is that the settlor has such a level of faith in the trustee, that their decision-making process is given wide latitude when it comes to the timing and amount of distributions. Most commonly, a spray trust is created for the benefit of minors. They are not old enough to make their own decisions with the property, but rely on it for any number of reasons and often over a long period of time. This kind of trust allows them to have access to smaller amounts of the trust assets as needed with the proper oversight.
What are Some Common Sprinkling/Spray Trust Disputes?
The freedom that spray trusts give can give rise to conflicts, as well. The most obvious ones have to do with the fiduciary relationship between the trustee and beneficiaries. Beneficiaries may challenge a trustee under the claim that they overstepped their scope of authority or failed to authorize a required distribution. In addition, a beneficiary may have a conflict with other beneficiaries, claiming unfair distribution or fraud.
Courts will first look to the language of the trust document to solve any issues, and may rewrite or add certain clauses if a section is unclear or the document cannot solve the legal question at hand. But always keep in mind that the powers granted to a trustee by such a trust may make certain challenges difficult.
Do I Need an Attorney for a Spray/Sprinkling Trust Problem?
Sprinkling/spray trusts are a very specific type of legal arrangement that may not be appropriate in all situations. If you find yourself in conflict over spray trust distributions or are looking to create one, you need to seek the assistance of an estates and probate lawyer.
They can advise you on trust formation or represent your interests in any litigation and negotiation situations. Also, every state has different laws on estate planning and management, so finding a local attorney with expertise in that field can make a huge difference.