Specific Gifts to Certain Beneficiaries
This distribution model enables you to specify who gets what property exactly. However, as discussed under the section on Wills, specific gifts always create a number of unanticipated problems. In trust administration, these problems can become particularly troublesome.
For example, let's assume your Trust gives your coin collection to your favorite nephew, and divides the rest of your Trust property in equal one-half shares among your two daughters. Assume the Trust property consists of your house. Two years after your death, your city council decides to construct a three lane street over the single lane street in front of your house. This house was to be in Trust and distributed to your daughters when they turned 21. They are now 7 and 9 years old. Naturally, the street depreciates the value of your house from say $120,000 to $40,000. However, your coin collection has three coins that cause the value of the collection to rise from $10,000 to $200,000. Assuming no further changes in value, on distribution, the daughters divide $40,000 and the nephew receives $200,000. Is this the result you intended? Probably not.
Specific gifts can cause other problems for the Trustee, who in our above example, if he/she had the luxury of distributing the coin collection to your daughters might otherwise have felt better about selling the only other asset in the Trust, the house, sooner and might not have sustained the loss in value due to the new street.
Often, specific gifts can make a Trustee somewhat confused over your priorities. In our example, if you had given the Trustee a bit more latitude in the Trust document to sell the coin collection, and just provided for the coin collection to be distributed to your nephew if it was present in the Trust Estate when the nephew became 21, the Trustee could have sold the collection and provided for the daughters.
As an aside, these matters can become complicated, since under our above example, the nephew might still be able to sue the Trustee, claiming that he/she did not properly protect his interest in the coin collection. In plain and simple language, this little gift completely circumvented the wishes of the Trustor, left the daughters without many assets, and opened the Trustee up to a major lawsuit and potential liability. This is absolutely an amazing result, and what is important to realize is that the Trustor probably never thought about any of these results when he "just wanted to give a little gift to his nephew."