I am the trustee of two California trusts: the first has 5 beneficiaries and the second has 8 beneficiaries.
Both trusts grant me the power to withhold distributions to beneficiaries prior to their reaching specific age milestones.
The estate attorney I've retained strongly suggested that I divide the trust assets of both trusts into separate sub-trusts for each beneficiary and that each sub-trust have its own federal tax ID number.
I objected to this idea primarily for the following three reasons:
That would be 13 tax IDs and 26 tax returns per year (13 federal and 13 state) and I don't want to use trust funds to pay for all the additional CPA fees this would incur.
To continue investing trust funds in the manner they had been invested prior to the death of the trustors, I would be purchasing certain financial instruments that have a minimum buy in that would be too large for any single beneficiary to own (i.e. it would limit the diversification of investments for each beneficiary and force me to provide different beneficiaries with different investments -- a real problem if one investment does well while another does not).
The trusts own interests in small, private partnerships that would not be willing, nor obligated under the terms of the partnership agreements, to further sub-divide these trust interests into smaller interests for each beneficiary.
The attorney asked how I would track all of this if I didn't split everything up into separate sub-trusts for each beneficiary. I responded that I would keep a running percent-ownership of each asset based on the distributions made to each beneficiary. The attorney suggested that that would be very challenging, but gave no legal reason why I couldn't do that.
So my question is, can a trust be written that grants powers to a trustee that are sufficiently broad to allow the trustee to make distributions of principal and interest to beneficiaries on an as-needed basis? Of course, that would require that exquisitely detailed records be kept to track the percent ownership of various assets, but is there anything in estate law (or IRS rules) that precludes this?
It seems this would be a good way to preserve the corpus of the estate rather than making a distribution to beneficiary X just because I made an equal distribution to beneficiary Y (and where X doesn't even need the distribution).