In many ways, managing a family pot trust is a bit like heading home for the holidays. A Google search for “holidays with family” results in over 646 million hits, with nine of the top 10 articles offering tips on managing conflict. Now imagine those same family dynamics but instead of everyone sharing Thanksgiving dinner, they are sharing a pool of money.

Pot trusts, which allow a trustee to sprinkle distributions among a class of beneficiaries, are often touted for their flexibility regarding distributions, potential to shift income from higher to lower tax brackets, broader investment opportunities, and reduced administrative costs compared with multiple smaller trusts. However, administering a pot trust is rarely straightforward. The trustee often must manage tricky family dynamics and competing interests. Long-simmering family dynamics can boil over when the beneficiaries have disparate expectations and objectives. Clear guidance in the trust instrument is critical.

Managing the Pot Trust