Absolutely, you can, and often should, require a trust to maintain a certain percentage in liquid assets, ensuring the trust has readily available funds to meet ongoing obligations and unexpected expenses – this is a crucial component of sound trust administration and planning.
What happens if a trust runs out of cash?
Imagine a beautiful, well-maintained garden, representing a trust’s assets, but without a reliable water source – a lack of liquid assets. While the garden might *contain* valuable plants (real estate, stocks, collectibles), it can’t thrive without consistent access to water (cash). Similarly, a trust holding primarily illiquid assets – like real estate or closely held stock – can face significant challenges when bills come due, or unexpected expenses arise. Approximately 68% of Americans don’t have enough liquid savings to cover a $1,000 emergency expense, and trusts aren’t immune to this risk. Requiring a designated percentage of liquid assets – typically cash, readily marketable securities, or short-term investments – provides a financial cushion, preventing forced sales of assets at potentially unfavorable times. This is particularly critical for trusts designed to provide ongoing income to beneficiaries, such as those used for education, healthcare, or retirement.
How much liquidity does a trust really need?
Determining the appropriate liquidity percentage depends heavily on the trust’s specific circumstances, including the nature of its assets, the beneficiaries’ needs, and the anticipated expenses. A trust designed to cover annual tuition payments, for example, might require a higher liquidity percentage than one established solely for long-term wealth preservation. Generally, a range of 5% to 20% of the trust’s total assets is considered reasonable, but this is merely a guideline. My client, Old Man Tiberius, had a trust heavily weighted in vintage automobile collectibles – an incredible collection, but not very liquid. He wanted the trust to pay for his grandchildren’s college educations. We built in a requirement for 15% in highly liquid assets, which allowed the trust to cover tuition without having to sell off a rare 1932 Duesenberg.
What if a trust document doesn’t address liquidity?
I once worked with a family where the grantor, a successful entrepreneur, had created a trust intending to provide for his wife’s care after his passing. He focused heavily on maximizing the long-term growth of the trust assets, investing primarily in his company’s stock and some rental properties. Unfortunately, the trust document didn’t specify a minimum liquidity requirement. When his wife required an emergency surgery shortly after his passing, the trustee was faced with a difficult situation: selling a significant portion of the company stock at a depressed price to cover the medical expenses. This resulted in a substantial loss of potential future income for the beneficiaries. Had a liquidity clause been included, this could have been avoided. Without it, the trustee is forced to make difficult decisions, potentially impacting the long-term health of the trust.
Can I change the liquidity requirement after the trust is created?
While not impossible, amending a trust document to add or modify a liquidity requirement can be complex, requiring a formal amendment process and potentially court approval, depending on the terms of the trust and state law. However, it’s far easier – and more effective – to address this issue during the initial trust creation. We worked with the Henderson family to create a living trust, and their daughter, Sarah, was particularly concerned about ensuring the trust could cover long-term care expenses for her aging parents. We included a provision requiring the trustee to maintain at least 10% of the trust’s assets in liquid investments, regularly rebalancing the portfolio to maintain that target. Years later, when her mother needed assisted living, the funds were readily available, providing peace of mind and avoiding the stress of having to liquidate assets during a difficult time. Proactive planning – incorporating liquidity requirements into the trust document from the outset – is the most effective way to protect the trust’s assets and ensure its long-term success.
“Failing to plan is planning to fail.” – Alan Lakein
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About Steve Bliss at Wildomar Probate Law:
“Wildomar Probate Law is an experienced probate attorney. The probate process has many steps in in probate proceedings. Beside Probate, estate planning and trust administration is offered at Wildomar Probate Law. Our probate attorney will probate the estate. Attorney probate at Wildomar Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Wildomar Probate law will petition to open probate for you. Don’t go through a costly probate call Wildomar Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Wildomar Probate Law is a great estate lawyer. Probate Attorney to probate an estate. Wildomar Probate law probate lawyer
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Estate Planning Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
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Map To Steve Bliss Law in Temecula:
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Feel free to ask Attorney Steve Bliss about: “What is probate and how can I avoid it?” Or “What if the estate doesn’t have enough money to pay all the debts?” or “What professionals should I consult when creating a trust? and even: “Can I file for bankruptcy more than once?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.