CONTENTS · 2020. 1. 17. · administering trusts with an important emphasis on family values....
Transcript of CONTENTS · 2020. 1. 17. · administering trusts with an important emphasis on family values....
CONTENTSCoverAdditionalPraiseforFamilyTrustsTitlePageCopyrightDedicationAcknowledgmentsForewordPreface
WhatCanThisGuideDoforYou?FromPositiveStoriestoActionStepsNote
IntroductionPrinciplesNotes
PartOne:IntroducingtheTrustscapeChapter1:NavigationWorksBetterWhenYouHaveaDestinationinMind
BeyondtheThoughtExperimentQuestionsforReflectionNote
Chapter2:TheTrustscapeIntroducingYourTrustscapeADynamicTableauAClosingExerciseNote
Chapter3:SomeKeyTermsChapter4:KnowYourNarratives
DependsWhereYou'reSittingAThirstforEducationNote
PartTwo:ThePlayersChapter5:TheTrust
AShortDescriptionofaLongHistoryAClosingExerciseNotes
Chapter6:TheTrusteeTheTrusteeChoices
Chapter7:BeneficiariesandTrustCreatorsBeneficiariesTrustCreatorsNotes
Chapter8:TheTrustProtectorandtheTrustAdviserTrustAdvisersTrustProtectorsChoices
PartThree:BuildingGreatRelationshipsChapter9:ConsiderationsPriortoAcceptingAppointmentasTrustee
So—You'veBeenAskedtoServeasTrusteeNowforSomeHomeworkIfYouAreNewtotheTrustscapeUnderstandingtheTechnicalSideAlmostThereAFinalStepNote
Chapter10:CreatingPreamblesPreamblesandPurpose“ButMyTrustWasDrafted20YearsAgo!”ThemesandSchemesPreamblesCreatedbyTrusteesandBeneficiariesRevisitthePreambleAsYouBegintoCreateYourPreambleNote
Chapter11:ActionStepsPriortotheFirstTrustee-BeneficiaryMeetingIfYouAreaTrusteeIfYouAreaBeneficiary
NoteChapter12:PositiveEvents,SupportiveResponses
MatchingMind-settoTaskSupportiveResponsestoPositiveEvents3PlaytoYourStrengthsNotes
Chapter13:Trustee-BeneficiaryMeetingsPremeetingChecklistsIfThisIstheFirstMeetingASamplingofAgendaItemsAn“Appreciative”ExerciseNote
Chapter14:RequestsforDistribution“ThisWorkedbecauseIKnewSusan…”TheRequestProcessAnalysisofaRequestAboutEnhancementNote
Chapter15:WorkingwithAddictionsChapter16:TrustsandMarriage
PrenuptialsWithinMarriageSecondMarriagesandBeyondNotes
Chapter17:TransitionsSolomon'sRingThisTooShallPassChangingtheTrustChangingthePlayersComingtoanEndNote
PartFour:AComprehensiveModelforaHumaneTrustscapeChapter18:APromiseandaChallengeforTrustCreators
ATrustCreator'sChallenge
First,anExerciseforTrustCreatorsNote
Chapter19:TheHighestDutyoftheTrusteeandtheCorrespondingResponsibilityoftheBeneficiary
IWroteTheseGreatDocs,butMyClientsWon'tSign…TheHighestDutyoftheTrusteeandtheCorrespondingResponsibilityoftheBeneficiarySupportfortheTrusteeSupportfortheBeneficiary
Chapter20:TheDistributionCommitteeandtheOfficeoftheBeneficiaryDistributionCommitteeTheOfficeoftheBeneficiaryConclusion
Chapter21:TheTrusteeandtheTrustProtectorRevisitedWhichCap'sonTop?ADifferentApproachReconsideringtheInstitutionalTrusteeNote
AppendicesAppendix1:SampleLegacyLetterAppendix2:SampleLanguageRegardingAddictionAppendix3:TheDistributionCommittee
TheCoreConceptCommitteeMembersDraftingPoints
Appendix4:PrivateTrustCompaniesDefinitionsPTCsversusIndividualTrusteesGovernanceBestPractices
Appendix5:FamilyTrustReviewPurposeContentProcess
WhyCommissionaFamilyTrustReview?OpportunitiesforCommissioningaFamilyTrustReviewNote
Appendix6:ReflectionsontheOftenUnexpectedConsequencesoftheCreationofaPerpetualTrust
NotesAbouttheAuthorsIndexEndUserLicenseAgreement
ListofIllustrationsFigure7.1
Figure19.1
Figure19.2
Figure19.3
Figure20.1
Figure20.2
Figure20.3
Figure20.4
Figure21.1
Figure21.2
Figure21.3
ADDITIONALPRAISEFORFAMILYTRUSTS“InChap.1ofLoringandRounds:ATrustee'sHandbook,theauthorsreminditsreadersthattheAnglo-Americantrustisanancientprinciples-basedregimethatwillsurviveintothe21stcenturyonlysolongasitisadministeredbypersonsofprinciple.Asapracticalmatter,whatdoesthatmean?FamilyTrustsdoesanadmirablejobofansweringthatquestion,andinprosethatwillbereadilyunderstandablenotonlytothetrustprofessionalbutalsotothefamilymembernewtothe‘trustscape.’”
—CharlesE.Rounds,Jr.,ProfessorofLaw,SuffolkUniversityLawSchool“Atlonglast—aclearandconciseguidebookforthosewhodon'tunderstandthecomplexitiesoffamilytrusts!Thethreeauthorsofferpracticalstrategiesandsampledocumentsformanytrustchallenges—whytosetupatrust,howtoselectagoodtrustee,andhowtobeagoodtrusteeorbeneficiary.Startwiththechapterthatappliestoyourcase,andyouwillbecompelledtoreadtheotherrelatedchapters.Andgrantorsneedtoreaditall,beforetheysignorrevisetheirestateplans.”
—SaraHamilton,FounderandCEO,FamilyOfficeExchange“Atrustisapowerfultoolthattoooftenturnsbeneficiariesintotrust-fundbabies,createsresentmentsandriftsamongfamilymembers,andultimatelydeformsmanyafamily'slegacy.FamilyTrustshelpswealthyfamiliesandtheiradvisorsavoidthoseoutcomesbybuildingwhattheycalla‘comprehensivemodelforahumanetrustscape.’Nograntorshouldplantheirestate,nobeneficiaryshouldaccepttheirnextcheck,andnoadvisorshouldmeetwiththeirnextclientwithoutfirstreadingthisbook.”
—AngeloRobles,Founder&Chairman,FamilyOfficeAssociation“Theauthorstellusthat80%ofbeneficiariesviewtrustsasaburden,yetover90%ofprivatewealthistied-upinsomeformoftrustbythetimeofthethirdgeneration.Hencethesetrustsbecome‘arrangedmarriages’betweenthebeneficiariesandthetrustees.Thisinsightfulguidewalksonethroughhowtobestprepareforthat‘meteormoment’byfocusingonthecreatingthebestcultureforthesenewarrangementstonotonlysurvive,butflourish.”
—ThomasR.Livergood,Founder&CEO,TheFamilyWealthAlliance“Jayhasoutdonehimselfonceagain!FamilyTrustscombineshisandhisco-authors'manyyearsoftrustwisdomwithapracticalandtheoreticalguidetobothcreatingandadministeringtrustswithanimportantemphasisonfamilyvalues.Hartley,Jay,andKeith'seminentqualificationstoauthorsuchabookarepowerfullydisplayedthroughout.Thebookisamustreadforalltrustprofessionals!”
—AlKingIII,Co-CEO,SouthDakotaTrustCompanyLLC
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FamilyTrusts
AGuideforBeneficiaries,Trustees,TrustProtectors,andTrustCreators
HartleyGoldstone
JamesE.HughesJr.
KeithWhitaker
CoverImages:DetailfromTheCreationofAdam,1511©MichelangeloBuonarroti/GettyImages;Texturepaper©Malsveta/iStockphotoCoverDesign:Wiley
Copyright©2016byHartleyGoldstone,JamesE.HughesJr.,andKeithWhitaker.Allrightsreserved.
PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey.PublishedsimultaneouslyinCanada.
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ISBN9781119118268(Hardcover)ISBN9781119118299(ePDF)
ISBN9781119118282(ePub)
DEDICATION
ToLoyce,Ben,andJon
—HartleyGoldstone
ToPatriciaM.Angus,RichardBakal,andJoanieBronfman,myfellowjourneyersfornearly30yearsonthepathtochangebeneficiaries'viewsoftheirtrustsfromburdenstoblessings,andtoJacquelineMerrill,whoputherarmthroughmine.
—JamesE.HughesJr.,Esq.
Tomymother,whotrustedme,andtomyfather,whotaughtmetobetrustworthy.
—KeithWhitaker
ACKNOWLEDGMENTS
Asauthors,wewouldliketoacknowledgethecolleagues,clients,friends,andfamilymemberswithwhomwehavediscussedthechallengesandtheopportunitiesinherentinfamilytrusts.Thankyouall.Inparticular,wewouldliketothankthefollowingcolleagueswhotookthetimetoreadthisbookinmanuscriptandoffertheircomments:PatriciaAngus,TimBelber,TimBrown,PaulCameron,GregCurtis,MaryDuke,JohnDuncan,BryanDunn,RickFogg,GeorgeHarris,BarbaraHauser,StevenHoch,HollyIsdale,DennisJaffe,DonKozuscko,IsabelMiranda,MilesPadgett,EllenPerry,ScottPeppet,ChristianStewart,JohnA.Warnick,andScottWinget.BillMessingerearnedourgratitudeforhiscontributiontotheinterviewontrustsandaddictioninChapter15andthemodellanguageregardingaddictionfoundinAppendix2.SimilarthanksgotoRickFoggforthesamplelegacyletterfoundinAppendix1.WearegratefultoVanderbiltUniversity'sOwenGraduateSchoolofManagementforgivingustheopportunitytoshareearlyversionsofsomeofthecontentandexercisesfoundinthisbookwithatremendousgroupofstudentsinJune2015.OurdeepthanksandappreciationgototheHaynesFamilyFoundation,theHemeraFoundation,theFREDFund,andotherindividualdonorswhohavesupportedourresearchandwriting.Anyinsightsfoundhereinarethesharedbountyofourfriends;anyinfelicitiesareourown.
Ourwritinghasalsobenefitedfromourreadingofmanyfineworksrelatedtotrusts,familywealth,andpositivepsychology.Thosethatwequotefromorreferencedirectlyinthisbookarenotedattheendofeachchapter.Forreaderswhowouldliketodelvedeeperintothesetopics,ratherthanprovidingastaticbibliographyhereinFamilyTrusts,wehavecreatedaregularlyupdatedbibliographyonline.Toaccessthisbibliography,pleasevisitwww.wisecounselresearch.org.
FOREWORDJayHughes
Inthe1980sJoanieBronfman,RichardBakal,andIbeganajourneythatcontinuestothisday.Wesoughttotrytomaketherelationshipsamongthecreatorofatrust,itstrustee,anditsbeneficiarycomprehensibletoallandhumane.Wesetouttodetermineanddefinetherulesandresponsibilitiesofthesethreefunctions,whichtogethershapeeachtrust'scultureandstructure—thecombinationofwhichmyco-authorHartleyGoldstonelaterdefinedasthe“trustscape.”Theearlyresultsofoureffortsappearedin1997inmybookFamilyWealth:KeepingItintheFamily(Netwrx).Thoseresultshave,overtheyears,beenimproveduponbymany,andtheyaretakentoamuchdeeperlevelinthisbook.
Inthelate1980sPeterWhite,JoanieBronfman,AnneD'Andrea,andIconvenedwhatIbelievewasthefirstgatheringexclusivelyoftrustbeneficiaries.Wehadfoundtooursurpriseinourprofessionalpracticesthatmanybeneficiariesfelttheirtrustswereburdens,notblessings.Wewonderedwhyatrust,whichseemedonitsfacetobesuchabenefit,seemedsooftentoturnouttobetheopposite.Whenwedecidedtohostthisgathering,weinvited50ormorepeopleexpectingthat10mightaccept.Toouramazementallaccepted.Wethought,“Whathavewestarted?”Onthedayofthegatheringall50ormoreinviteesshowedup.Earlyinthemeetingwetookapollasking,“Doyoufeelthatthetrustortrustsofwhichyouareabeneficiaryaremoreaburdenorablessing?”Eightypercentofthegroupraisedtheirhandsfor“burden,”10percentfor“blessing,”andtheremaindercouldnotdecidebetweenthetwo.
PerhapsmanyofyoureadingthisbookwhoarebeneficiariesortrusteeswouldnotbesurprisedthatineverypollofbeneficiariesIhavetakensince—andIhavetakenmany—thesamepercentageshaveconsistentlyappeared:80percentorsofeeltheirtrustsareaburden,10percentablessing,andtheremainderareunsure.TheseresultshavegivenmeapurposeeversincetoseeifmycolleaguesandIcouldchangethesepercentages.Thisbookistheresult.
Thesepercentagesareaproblemnotonlyforbeneficiaries.Changingthesepercentagesisalsocriticaltofamilies'long-termflourishing.Amongprofessionalsitiswell-knownthatbythethirdgenerationofafamilyaround90percentofitsfinancialwealthwilllikelybeheldintrust.Trustsrepresent,foralmostalldynasticfamilies,anoverwhelminglyhighproportionofownershipoftheirassets.Necessarilythenthesefamilies'trustculturesandstructures,their“trustscapes,”andtheirbeneficiary/trusteerelationsoftendeterminewhethertheentropyofthe“shirtsleevestoshirtsleeves”proverbovertakesthem.Thoseofusinthefieldrefertothisrealityinthefamiliesweserveas“thetrustwave.”
So,80percentoftrustbeneficiariesdeclarethattheirtrustsareburdens.And90
percentofadynasticfamily'sfinancialwealthisinorwillbeintrustbythethirdgeneration.Thecombinationofthesefactsunderscoreshowimportantitwillbetoafamilies'flourishingthatitstrustsbeblessings.Italsounderscoreshowimportantitisforustolearnfromthesmallnumberofbeneficiarieswhofeelthattheirtrustisablessing.Thatiswhatwehavetriedtodointhisbook.
Beforeproceeding,Iwouldliketoobserveoneotherimportantdemographictrend.Theuseoftrustscontinuestoincrease,notjustfortransfertaxplanningbutalsoforassetprotection,reasonsofprobate,and,aboveall,control.Thisistrueeveninfamilieswithoutthewealthtypicallynecessitatingtheuseoftrustsfortransfertaxpurposes(currentlyatwellover$10million).Withinfamilieswithverysignificantorintergenerationalwealth,beneficiariesmayfindthemselvesfacedwithtrustdistributionsintheirearly20soryounger.Inmanyotherfamilies,aspeoplelivelongerandlongerlives,childrenorgrandchildrenmaynotbeginreceivingdistributionsuntiltheirmiddle-orlater-middle-age,whentheirparentsorgrandparentspassaway.However,thisdelayofthematurityofbeneficialinterestsdoesnotmeanthatthetrustsinquestiondonotexertapowerfulforceonthesefuturebeneficiaries'lives,especiallyifthetrustscontainsignificantwealth.Norisitimpossiblefortruststoenhance(ordetractfrom)thelivesofpeopleintheir40s,50s,or60s.Noneofusisbornanexcellentbeneficiary.Toachievethisconditionrequireseducationandwork,nomatterhowoldyouare.Indeed,insofarasitisgenerallyhardertoadapttochangesinlaterlife,thedelayofthematurityofbeneficialinterestsmayposeagrowingthreattothesuccessfuluseoftrusts.Itisathreatthatwehopethepracticesdescribedhereinalsohelptrusteesandbeneficiariesmeetandovercome.
Myco-authorsandIareeachcommittedtothequestionofhumanflourishing,especiallyinfamiliesofaffinityseekingtopracticesevengenerationthinking,thatis,thinkingthatconsiderscarefullytheconsequencesofpresent-dayactionsonthepeoplewhowilllivesevengenerationslater.Thesefamiliespreserveandgrowtheirfourqualitativecapitals—spiritual,human,intellectual,andsocial—supportedbytheirsinglequantitativecapital,thefinancial.Suchfamiliesoftenshareacommoncorevisionofwhattheirmemberscanbeindividually.Thesefamilies'membersdecide,intheirsystemsofjointdecisionmaking—theirgovernance—togiveupfreedomtohelpenhanceallotherfamilymembers'journeysofhappinesstowardeachmember'sowngreaterfreedom.Suchfamiliestendtopracticehasteningslowlyastheyknowtheyhavetomakejustafewmoreseriouslygooddecisionsthanbadoverthenext150yearstosucceed.Theyinvestforthelongterm,withtheintentionthatalatergenerationwillharvestthehardwonfruitsoftheirlabors.Incontrast,wealwaysworrywhenweseeafamilywhothinksthatitpossessesonlyfinancialcapital.Ourexperience,aswellashistory,advisesthatthisbeliefisquiteunlikelytoleadtoflourishing.
Whathavewelearnedabouttrustsandtheirfunctioningorfailurefromthefamiliesweadvise?Whyaresofewtrustsseenbytheirbeneficiariesasblessings?
First,wehavecometounderstandthatourfocusmuststartwiththebeneficiary,ratherthanwiththetrustcreatororthetrustee.Nearlyallthewritinginourfieldbeginswithplanningforthetrustcreator'sconcernsovertaxes,creditors,andcontrolandthenturnstothetrustee'sconcernsoveradministrationandinvestments.Thisfocusonthetrustcreatoreasilyfollowsfromthefactthatmostprofessionalshavethetrustcreator—andnotthebeneficiaries—astheirpayingclient.Itistherarestofbooksandarticlesthattreatthebeneficiarysideoftherelationshipandthedistributivefunction.Whentheydooftenitistodisparagethebeneficiarybydiscussingdependence,entitlement,badmarriages,addictions,orotherfaileddevelopmentalissuesapparentlycausedbybeingabeneficiary.Clearly,thisisaverydisappointingpointofviewifthequestionofbeneficiaries'flourishingisacriticalgoal.
Incontrast,wecametoseethatbeginningwiththebeneficiaryandhisorherresponsibilitiesandgoalsmightopennewpathwaystohisorherflourishing.WefirstdevelopedthislineofthinkinginabookthatKeithWhitaker,SusanMassenzio,andIwrotecalledTheCycleoftheGift(Bloomberg,2013).Inthatbookwedescribedagiftoratransferasameteorenteringtheatmosphereoftherecipienttowhichheorshehadtoadapt.Weasked,“Whatdidthedonorortransferorinspiritthemeteorwith?”Wasitinspiritedwithloveandadesirefortheenhancementofthelifeoftherecipient?Worryabouttherecipient'spossiblecreditors?Thetransferor'staxconcerns?Thelong-termcontrolofthefounder'sdream?WasthemeteoranOzymandianmonumentrequiringthattherecipientgenuflectforhisorherbeneficence?Onecanseeimmediatelyhowmuchthegrantor'sintentionforthebeneficiarymatters.
Nextwelookedatthequestionofthebeneficiary'sjourneytoindividuation,whichKeithandSusanandIdiscussedinourbookTheVoiceoftheRisingGeneration(Bloomberg,2014).AndwerereadHartleyGoldstoneandKathyWiseman'sbookTrustWorthy(TrustscapeLLC,2012)withitswonderfulstoriesofpositivebeneficiary/trusteerelationships.Werealizedthatatrustthathasadeeplydevelopeddistributivefunction(andthedistributivefunctionistrulythekey)—groundedinaidingthebeneficiary'sindividuation,resilience,adaptabilitytomeetlife'supsanddownsandcapacitytobringhisorherdreamstolife—istheantidoteagainstdependence,entitlement,cynicism,andaddiction—addictiontoalcoholordrugsaswellasaddictiontotrustdistributions.
Wesawthatonemustbeginwiththerecipientandworkbackthroughthesystemtowarddevelopingahighlyfunctioningdistributivemethodology.Fromthereonemustworkbacktothequalityofthetrustcreator'sgiftoflove,seekingtoenhancethelifeofthebeneficiaryandthuspositivelyinspiritingthatfunction.Ifonedoesso,thenthelikelihoodofthebeneficiary'sdeclaringthetrustablessingisfundamentallyimproved.Inturn,abeneficiarywhocountshisorhertrustablessingwilllikelywanttoassurethatallfamilymemberswithtrustsareinsimilarpositivesituationsnowandforfuturegenerations.Suchapersonwilllikelyaddtofamilygovernanceandflourishingasheorsheseekstogivebacktothefamilypositivestoriesandsharepositivepractices.
Fromthisvantagepointwewereabletomovetowardthequestionofthenatureofatrusteewhowouldbecommittedtomakingthetrustrelationshipwiththebeneficiaryonethatwasmentoring,purposeful(thankyou,JohnA.Warnick),generative,andfulfillingthehighcallingofregency(thankyou,PatriciaM.Angus).Werecognizedthatnearlyallbeneficiary/trusteerelationshipsarearrangedmarriages,eventhoseinwhichthebeneficiaryhasavoiceinselectingthetrustee.Thisisbecausethetrusteeisapartofalegalstructurethatrequireshimorhertoobeythedutyofimpartiality,thedutyofprudence,andtocarryoutmultiplefunctions,veryfewofwhicharedirectlyrelatedtothewell-beingofthebeneficiary,ratherthantotheprotectionofthetrustandthetrustcreator'swishes.Essentiallythetrusteeismarriedtothetrust.
Withthisawarenessitbecamecleartousthatalltoooftenthetrusteeismoreconcernedwiththetrustasastructurethanwiththeculturethatthetrustcreates.Aculturethatwillsucceedforthebeneficiarybeginswiththetrustcreator'squestion:amIintendingtomakeagiftofloveandagiftthatwillenhancethebeneficiaries'lives?OramIseekingtomakeatransferthatsolvesmytaxconcerns,thatkeepsthebeneficiaries'creditorsfromgettingmymoney,andperhapsevencreatesamemorialtomydream,nowembodiedinanenterprisethatIconsidermytruechildandoverwhichIseekthroughthistrusttoperpetuatemycontrol?Allthesepurposesarevalid;butwhichonesleadandwhichonesfollowwilldeterminewhetherthetrustisablessingoraburden.
Often,atrusteecannotaffirmforthebeneficiaryasetofpositivegoalsandgrowapositivetrustculture.Instead,thebeneficiarymustliveinastructureofrelationshipsconditionedbyafounder'sgoalsthatessentiallydisparageorignorethebeneficiary.Forthebeneficiarythisisanegativeculture,sincethebeneficiary'sconcernswilldisappearintheendlessdetailsofthemanagementofthestructure.MythankstoMatthewWesleyforthisinsight,containedinhisbrilliantarticle,“CultureEatsStructureforBreakfast”(WesleyGroup,2015).
Fromallthesesourcesandreflectionswelearnedthatagoodwaytodiagnosewhetherthetrustwasgrowingapositive,dynamiccultureorcaughtinthenegativeentropyofastatic,suffocatingstructurewastoaskthisquestion:isthetrust(guidedbythetrustee)makingdynamicdistributionsthatpromotethebeneficiary'sgrowthandindividuation,orisitmakingsterile,annuity-typepaymentsthatbreedbeneficiarydependence?Thedistributivefunctionshouldreallybethefocusofmindfultrusteesandtrustcreators.Yetinmosttrustsitisstillborn;itisassumedthatitwilleventuallybecomeanannuity.
Lookingatthegenerictrustscapetodayfromthevantagepointofthebeneficiarywerealizedthatmosttrustsaren'tsetuptogrowexcellentbeneficiaries.Theirculturesdoeverythingbut.
Incontrast,werequirenewculturesandstructuresandsystemsthatsupportthem,iftrustsaretobeblessingsandhelplong-termfamilyflourishing.Weneedtrustculturesthatseektogrowexcellentbeneficiariesandstructuresandsystemsthat
supportthathappening.Weneedexcellentbeneficiarieswhocaninturnassurethattheirrelationshipswiththeirtrusteesareexcellent.Weneedtrusteeswhogrowthecultureoftrustsasgiftsfromtrustcreatorsratherthantransfers.Weneedtrustcreatorswhoareseriouslycounseledaboutwhatatrustcandoanditsconsequencesforanotherhumanbeingforwhomitwillalwaysbeameteor.Ifthefundamentalresponsibilityofeachofus,whenwetouchanother,istodonoharm—anditis—thenhowtrulysaditisthat80percentoftrustbeneficiariescounttheirtrustsasburdensratherthanblessings,especiallywhen90percentofafamily'sfinancialcapitalwilllikelyendupintrust.Clearly,theriskofharmisgreat.
Abeneficiarywhotakesseriouslyhisorherresponsibilitieswillnaturallyfunctionmoreeffectivelywithintherelationshipsthetrustcreates,asheorshecomprehendsandmastershisorherroleintherelationshipratherthanfeelingburdenedbyit.Suchbeneficiariesaremostlikelytodeclaretheirtrustsblessings.Thosebeneficiariesarealsomorelikelytofeelgratitudetowardtheirtrustcreatorsandtosay,“NotonlywasInotharmed,Iwasloved,andyoublessedme.”Thosebeneficiariesaremorelikelytosaytotheirtrustees,“NotonlywasInotharmed,mylifewasdeeplyenhancedbymyrelationshipwithyou.”
MycolleaguesPeterWhite,JoanieBronfman,RichardBakal,AnneD'Andrea,SusanMassenzio,PatriciaM.Angus,JohnA.Warnick,TimothyBelber,PeterKaroff,MichaelJ.A.Smith,SaraHamilton,GailCohen,DennisJaffe,EllenPerry,DonKozusko,DavidsonGordon,JohnDuncan,ChristopherArmstrong,JosephA.Field,KathyWiseman,ChristianStewart,BarbaraHauser,CharlotteBeyer,GregoryCurtis,PaulCameron,RickFogg,KenPolk,UlrichBurkhard,GeorgeHarris,StephenHoch,TimBrown,RobKaufold,MilesPadgett,PeterEvans,RobertPritchard,ScottPeppet,RobKaufold,JuanMeyer,andmanyotherpioneersinthisworkarebeginningtounwrapthisfraughtquestionofthepositivetrustscapeandthedutiesandresponsibilitiesitengenders.Fortoolongthe“trustwave”hasbeenleadingfamiliesintoentropyandthefailedlivesofbeneficiariesthatfollow.
Myco-authors,KeithandHartley,andIarecommittedtobringinglightintothisareaofunnecessarysufferingsothatnonewbeneficiarywilleverhavetowonderhowheorshewouldanswerthepoll,andsothatcurrentbeneficiariesmaychangetheirvotes—allsothefamilysystemsofwhichtheyarememberswillflourishastheydo.
AsIhaveinmypreviousbooksInowaskeachofyoutopickupyourstaff,putonyourroundhats,drapeyourscallopshellsaroundyournecksandwalkwithKeithandHartleyandmethroughthechapterstocomeofthisguide.Then,ifitoffersawayforward,walkwithmeonthejourneytogrowingexcellentbeneficiariessoalltrustscapesmayflourish.
BonCamino!
Namaste
James(Jay)E.HughesJr.
PREFACEHartleyGoldstone
Somewherethisweek—andlikelyonTwitter—someversionofthisheadlinewillappear:“FalloutfromSettlementofGrandfather'sEstateSplintersFamily.”
Inmycase,it'salsoahauntingmemory,affixedtoalivelyimage:MygrandfatherNathanislookingdownfromthehereafter.Tearsareinhiseyes.Heslowlyshakeshiswearyheadindisbelief:“Ineverintendedforthistohappen.”
Theauthors'hope,embodiedinthisbook,isthatyourfamilywillavoidtheheartbreakofanestateplangonevery,verywrong.
WhatCanThisGuideDoforYou?UntilFamilyTrusts,nosinglebookhasofferedfamiliesandtheiradvisersfield-testedwaystocommunicateabouttrusts;clarifyintentions;developexcellentbeneficiaries;andfind,prepare,andtransitionexcellenttrustees.
Thisguideisforthefamilymemberwhoisservingorthinkingofservingastrustee.Likewise,itcanproveusefulifyou'reanemployeeofacommercialtrustcompany,privatetrustcompany,orfamilyoffice,orapartnerinaprofessionalfirmwhoisresponsibleforspeakingwithbeneficiariesaboutqualitativeratherthansolelyquantitativeissues.
Morebroadly,thisguideaimstohelpanyoneelseinvolvedwithfamilytrusts,including(mostimportantly)beneficiariesaswellastrustcreators,trustprotectors,trustcommitteemembers,andlegalcounsel.
Weassumethatyoualreadyhaveaccesstosomedegreeoftechnicalinformationalongwithexcellenttechnicaladvisers.Wewon'tbespendingmuchtimeontaxes,thelatestregulations,jurisdictionalissues,andthewholehostofotherspecializedtopicsthatchangefromyeartoyear.
Whatremainsisthefocusoftheguide:theenduringworkofboostingthequalityoftherelationshipsamongthoseconnectedbytrusts.
FromPositiveStoriestoActionStepsYearsago,Ileftthepracticeoflawtoacceptaseniortrustofficerposition.Itwasgreattobethrustintothemidstoffamilies,especiallytrustcreatorsandbeneficiaries,wrestlingwithakaleidoscopeofdilemmasandopportunities.Andwhatachange:suddenlyIwasadministeringtrustssimilartothosethatIhadformerlytakenpartincreating.
Imaginemysurprisetoseetherealityof“bulletproof”plansbeingundonebytheday-to-dayactualityoffamilymembersinteractingwithmeandwithoneanother.
Itwasadailyefforttosquarethelanguageoftrustinstrumentswiththelifesituationofbeneficiaries.Legalskillsobviouslycameinhandy.ButIwasalsogladforthetimespent—thiswasbeforelawschool—onthestaffofasocialservicesagency,whereIhadhelpedpeoplesortthroughchallenges,someofwhichwerefull-blowncrises.
MostofthecorrespondenceIreceivedwasfrombeneficiariesrequestingfunds.Thelivelyconversationsthatensuedoftenprovidedanopeningforustodeepenourrelationship.Thesedistribution-relatedconversationswerewhereopportunitiesformentoringandthoughtfulgive-and-takeaboutbroaderissuesarose.Imightasksomethingalongthelinesof:“Whatdoyouhopetoaccomplishbyyourrequest?”andthen“Whyisthatimportanttoyou?”IfitlookedlikeI'dhavetodeclinetherequest,we'dexaminethegoalandbrainstormalternatewaysofachievingagoodresultwithoutassistancefromthetrust.
Overtime,myenthusiasmfortrustadministrationfaded.Thischangewasnotsudden,andnooneevent,familydramaorinternalpolicyshiftcausedmetolosehope;itwasmoreacaseofconstantslippage.Duringadecadeofadministeringtrusts,andaseconddecadeadvisingclientsofamultifamilyoffice,Isawmyprofessiontransform.
Localtrustcompanieswereswallowedupbyever-largerfinancialinstitutions.Centralizedauthority,standardizedprocedures,andshort-termriskavoidance—importantconsiderations,ofcourse—chippedawayatthetraditionalpersonalapproach.
Thiswayofadministeringtrustsfeltlessandlesseffectiveandlessandlesssatisfying.Ilefttheinstitutionaltrustworldtoestablishaconsultingpracticein2009.IfIeverdoubtedit,itwasnowemphaticallyclearthat,becausetheyarebasictofamilyflourishing,successfultrustrelationshipscan'tbehandledlikeconventional“assets.”Onehastozeroinonthequalitativeworkwithwholeheartedpurpose.Throughwriting,keynotes,workshops,andtakingonrelatedprojects,IbegantranslatingwhatIhadlearned(andcontinuetolearn)aboutflourishingtrustrelationships.
Overtheyears,Ihadplayedapartinmanylife-affirmingstorieswheretrustsmadealastingpositivedifference.Thesestories—counterpointstoallthenightmarishtales—stuckinmymind.In2010,IlaunchedtheBeneficiaryandTrusteePositiveStoryProject.AtJay'sexcellentsuggestion,KathyWisemanjoinedtheendeavor.Wewenttothesource—beneficiaries,trustees,andtheiradvisers—askingthemforpositivestoriesaboutmomentsintimewhenrelationshipsbetweentrusteesandbeneficiariesworkedwell.
Relationshipshavetheirupsanddowns.Butwhatinteresteduswerestoriesabouttheuptimes,evenwhentheybeganwithadowndevelopment—storiesthatshowed
strengthsandevolution,perhapsastoryaboutovercomingachallenge.
TheprojectledtotheOctober2012publicationofacollectionofthepositivestoriesinTrustWorthy—NewAnglesonTrustsfromBeneficiariesandTrustees.1
Peoplelovedthestories,becausestoriesallowreaderstogetafeelfor“howotherfamiliesarehandlingit.”Still,it'sonethingtopaintapictureofpositiveoutcomes;it'squiteanothertohelppeopleachievethattypeofoutcomeforthemselves.
OuraiminFamilyTrustsistohelpreadersamplifytheirusefulstoriesandreframeunhelpfulones.Themethodistobringideastolifethroughprovenexercisesforreaderstotry,questionscarefullydesignedtostimulatenewthinking,andillustrativestoriesthatcanhelpreadersadaptthismaterialtotheirownlivesandpractices.Togetherwewilltransformthatrelationship.
Everyoneworkingwithtrustsrecognizesthecorechallenge:thefearsharedbyparentsandgrandparents,Howcanwehelpourchildrenandgrandchildrenflourishratherthancreate“trustfundbabies”?Thisfearleadstodelayingcommunication,secrets,andmissedopportunities,andthereforefulfillsitself:poorlypreparedbeneficiariesperformpoorly.
Inthefaceofthisfear,agoodtrustee,anenlightenedadviser,oradeterminedbeneficiarycanmakeallthedifference.
We'veseenlivestransformedwhenbothtrusteeandbeneficiarystopviewingthetrustthatbindsthemtogetherasaburden—andbegintoviewthatverysametrustasaresourcetosupportthebeneficiary'slifepurpose.
I'mastoryteller.SothebestwayIknowtomakethispointisnottodescribeit,butto“showit”withafable,withwhichI'llclosethispreface:
AFableofFamilyTrusts
PartOneGrandmaandGrandpahaveaccumulatedfinancialwealth.Sotheymakeanappointmentwithalawyertocreateanestateplan.
Inthedaysleadinguptotheappointment,nightsaresleeplessforGrandmaandGrandpa.Theyareworriedthattheirwealthwillcreate“trustfundbabies.”
Thedayoftheappointmentarrives.
WhenGrandmaandGrandpaenterthelawyer'soffice,atransformationhappens.
GrandmaandGrandpaarenolonger“GrandmaandGrandpa.”Theyhavebeentransformedinto“clients.”
Theclientsleavethelawyer'sofficewithabulletproofestateplanthatprotectsagainsttaxes,creditors,spendthrifts,andbadmarriages.
Onthewayhome,theyreemergeasGrandmaandGrandpa.Theyarestillworriedaboutcreatingtrustfundbabies.
PartTwoGrandsonandGranddaughterlove,andinturnarelovedby,GrandmaandGrandpa.
GrandsonandGranddaughterareverysadwhenGrandmaandGrandpadie.
ThelawyermeetswithGrandsonandGranddaughtertoexplainhisclients'estateplan.
GrandsonandGranddaughterlearnthatGrandmaandGrandpacreatedtrustsforthem.
ButitbecomesclearratherquicklythatGrandsonandGranddaughter'strustsarereallybestunderstoodas“taxstrategies.”
Theincidentalbeneficiariesofthesetaxstrategiesareveryconfusedwhentheyleavethelawyer'soffice.
PartThreeGrandsonandGranddaughtermeetwiththeirtrustee.Thetrusteeiswise.
Thetrusteeexplains:“Thelawyercreatedanestateplanforyourgrandparentsthatisfirstandforemostalegalrelationship—onethatonlyhappenstoinvolvehumanbeings.”
Hecontinues:“Together,wewilltransformthatlegalrelationshipintoablossominghumanrelationship—arelationshipamongusthatonlyhappenstotakeplaceinalegalenvironment.”
PrequeltotheFableThetrusteewasnotalwayswise.Whenhestartedout,likemanytrustees,hethoughthisjobwastoadministeralegalrelationship.Hehadhiscompliancemanual,hisaudits,andhispoliciesandprocedures.
Hewonderedtohimselfwhythebeneficiariesheservedweresounhappy.Heknewthatthiswasnotwhattrustcreatorswouldhavewantedfortheirlovedones.
Onedayhedecidedthat“fromtodayforth,Iwilladministertrustsinawaythatwillenhancethelivesofbeneficiaries.Thetrustwillbearesourcetohelpthemreachtheirpotential,atwhateverleveltheirpotentialhappenstobe.…”
Theauthors,alongwithcolleagueswhoshareasimilaroutlook,haveseenversionsofthis“fable”cometolife,nowandthen,hereandthere.Italwayscomesdowntosomeonesaying,“Let'stakethislegalrelationshipthatonlyhappenstoinvolvehumanbeings,andturnitintoahumanrelationshipthathappenstotakeplaceinalegalenvironment.”We'reheretomakethecase—toyouandyours—forthepracticalwisdomofthisinsight.
There'smuchatstakeforourclientsandtheirfamilies—agooddealmorethanpreservationoffinancialassets.
HartleyGoldstone
Note
1.GoldstoneandWiseman,TrustWorthy—NewAnglesonTrustsfromBeneficiariesandTrustees.TrustscapeLLC(2012).
INTRODUCTIONKeithWhitaker
Manyyearsagoamemberofmyfamilyaskedmetoserveasatrusteeforapersonaltrustshehadestablished.Iagreedwithoutmuchthought.Itfeltlikeaproformasortofthing:adocumentneededsigning,andIwaswillingtosignit.
Ihadalottolearn.
Intheyearssince,Ihaveserved,paidandunpaid,asatrusteeofmanypersonalandcharitabletrustsaswellasadirectoroforadvisertofoundationboards,businessboards,andprivatetrustcompanies,formyfamilyandforothers.Ihaveseenthegreatgoodthattrustscando,andthegreatharm.Ihavehadthepleasureofworkingwithgenerousgrantorsandgratefulbeneficiaries.Ihavehadthedispleasureofdealingwithlawsuitsovertruststhathavetornapartfamiliesandfriendships.
AlongthewayIhavelearnedagreatdealfromothertrustees,beneficiaries,andnumerousadvisers.OnethingIlearnedisthatmyinitialexperiencewasnotunusual.Fewpeoplebeginserviceasatrusteewithmuchclarityaboutwhatitentails.MosttrusteesbeginasIdid,wishingtodoafavorforafamilymemberorfriend,unawareofthecomplexitiesandtheopportunitiesthattrusteeshipbringswithit.
Forsuchtrustees,thestandardhandbooksinthefield—Loring&RoundsorTheThirdRestatementofTrusts—areamazinglyrichbutoftentoospecialized.Coursework,suchasthatofferedthroughtheAmericanBankersAssociation,canhelp.Buttherehasbeennotrulypracticalresourceforthegreatmajorityofindividualtrustees.
Hartley,Jay,andIwrotethisbooktobenefitanymemberofthe“trustscape”(asexplainedinPartOne)whofindshim-orherselfinasituationsimilartominethosemanyyearsago.You,ourreaders,aretrustees,would-betrustees,beneficiaries,trustcreators,oradviserswhoareconscientiousandwanttodotherightthing.Youmayormaynothavelegalorinvestmentexpertise,butevenifyoudo,yourealizethatyourexpertisemaynotcompletelyprepareyouforlivingwithatrust.Mostimportantly,yourecognizethatyourgoalistodealwiththattrustnotonlycorrectly(thatis,incompliancewithlawandregulation)butaboveallwell,namely,forthetruegoodofallthepeopleaffectedbyit.
Inwritingthisintroductionandservingasatrustee,Ihavebeenguidedbythebeliefthattrusteeshipisfarmorethanamatterofadministration.Evenifunpaid,itisanobleprofession.Itissimilarinthiswaytothenobleprofessionsofmedicine,law,teaching,andtheclergy.Thismeansthatevenifatrusteeperformshisorherdutiesonlyafewhoursaweekormonth,still,inthosefewhours,heorsheisservinginatraditionthatstretchesbackcenturiesandthathasaninnerworthofitsown.
PrinciplesTherestofthisintroductionwillsayafewwordsabouttheprinciplesthatunderliethenobleprofessionoftrusteeship;itismeanttoinformtrustees,beneficiaries,andtrustcreators.Itwillalsoconnecttheseprinciplesandthoughtstothechaptersandsectionsofthebookthatfollows.Inthemainbodyofthebook,Hartley,Jay,andIwilloutlinepracticesandactivitiesbywhichmembersofthe“trustscape”canputtheseprinciplestowork.Ifyouwouldliketoskiprighttothepractices,pleasefeelfreetojumptoChapter1.Ifyouwouldliketohaveabetterunderstandingofourprinciples,thenreadon.
Thefiveprinciplesdiscussedheredonotreplacethetraditionaldutiesofthetrustee,suchasprudence,care,impartiality,andsoon.Instead,whatIhavesoughttodoistouncoversomeoftheaspectsofwhatwehaveelsewherecalledthe“fiduciarycharacter”thatmakesanyindividualtrusteethetypeofpersonwhowillfulfilltheseduties.1Whattrusteeshiplookslikewillvaryfromtimetotime,placetoplace,andsituationtosituation.Whatmakesupitscorepersistsovertime,place,andsituationtogiveshapetotheworkamidchangingcircumstances.
1.First,DoNoHarmThisisthefirstprincipleofeverynobleprofession.DoctorsswearitintheHippocraticOath.Lawyers,teachers,andtheclergyhavetheirownversions,spokenorunspoken.
Thisprincipleremindsusthattrustsandtrusteescandoharm.Trusteeshaveanintimaterelationshipwiththeotherpartiestoatrust.Weseeconfidentialfinancialstatements.Dependingonthecircumstances,wemaybeprivytoconfidentialpersonalinformationregardinghealth,druguse,orotherprivatebehavior.Nothonoringthis“trustbehindthetrust”smashestherelationshiptobits.
Sometimesdoingharmtakesonmoresubtleformsthanexposingconfidentialinformation.Manytrusteesfindthemselvesbesetwith“trustfundbabies,”thatis,beneficiarieswholivewithoutworkorpurpose,dependentontheirdistributions.Ismoneytheproblem,“therootofallevil”?Orisfamilydysfunctionthecause?Bothmayhaveaparttoplay.Butthemostcommonsortoftrusteeship—tight-lipped,communicatingonlythebarenecessities,winnowingdownourrelationshipwithbeneficiariestoanannualletteralongwiththedistributionchecks—mayalsobeacause.Theflipsideofpaternalismisinfantilization.Ifwetreatadultslikechildren,itshouldbenosurprisethatweproducechildishadults.
Notdoingharmrequiresconstantvigilance.Thatiswhythroughoutthisbook,especiallyinPartThree,weemphasizepracticalwaysthattrusteesandbeneficiariescandevelopstrongrelationshipsaimedatbeneficiaries'growth.
Afterall,trustsandtrusteescanalsodomuchgood.Thedecisivedifferenceliesin
intention.DoingnoharmisthefirstexpressionofwhattheBuddhacalled“rightunderstanding,”theunderstandingorviewthatseesthewhole,acceptsthewhole,andthenseekstoeasesuffering.
Partofthisrightunderstandingisrecognizingone'sownboundaries.Itistempting,whenonehasbeenentrustedwithperhapsmillionsofdollars,tobelievethatonecandoitall.AstheoldYiddishsayingquips,“Whenyouhavemoneyinyourpocket,you'resmart,you'rehandsome—andyousingwell,too.”Incontrast,wisetrusteesdonotfallpreytothattemptation.Theyspendtimeandmoneytogetthebestadvicethattheycan,whetheraroundinvestments,law,taxes,communication,orhumanrelations.
AsHartleyandJayhavesaid,mosttrustsareproposedasexpertsolutionstotheproblemofminimizinggift,estate,orincometaxes.Inotherwords,mosttrustsaimataquantitativegoal.Butifthetrustexistsforanyperiodoftime—andparticularlyifitdoessucceedatitsquantitativegoal—itwillhaveanimmensequalitativeeffectonthelivesofthegrantorandbeneficiaries.Thisqualitativesideofthetrustisalmostneverdiscussedatitsinceptionandoftenreceiveslittleattentionduringthetrust'slife.
Asaresult,itoftenfallstotheenlightenedtrusteeoradvisertobeawareofandtofosterthequalitativeaspectsinapositivedirection.Todothiswork,itcanhelptobeginbyrecognizingthatthetruecapitalplacedintrustincludesthehuman,social,andintellectual—aswellasfinancial—capitalsembeddedinthetrustrelationship.Thisrecognitionthenleadstoasking,“Willthisdistributionhelpthebeneficiaryaddtohisorhergrowthorexperienceinlife,hisorherhumancapital?Willithelpthebeneficiaryconnectwithothersinameaningfulway,therebyincreasinghisorhersocialcapital?Willitaddtothebeneficiary'sknowledgeorskills,hisorherintellectualcapital?”ThisorientationtohumancapitaliswhatwehopetoachieveinPartOneofthisbook.WethentakethatorientationsquarelyintothedistributivefunctionoftrustsinPartFour.
2.FidelityTrustworthinessismorethannotdoingharm.Itrestsonsolidityofcharacter,onstandingbyyourword,on“ringingtrue”whentested.Thatisfidelity,thecorevirtueofatrustee.
Althoughaservantmaybefaithful,fidelityisnotservitude.Anagentserves.Butatrusteeisaprincipal,notanagent.Ifyouhaveaskedsomeonetoserveastrusteemerelytodoyourbidding,thenyouarenotreallylookingforatrustee;youarelookingforanagent.Thesamegoesifyouareabeneficiarywhothinksthatyourwishshouldbethetrustee'scommand.
Trusteesowetheirfidelitynotonlytothetrustcreatorortothebeneficiaryortothemselvesbuttothetrust—thatis,thetrustrelationship.Thisisacrucialpoint.Sometimestrusteeswillsaythattheyowetheirfidelitytothetrustdocument:“Iwill
doonlywhat'spermittedwithinthefourcornersofthedocument.”Thedocumentisnodoubtofgreatimportance.Butitisofimportancebecauseithasanimpactonthelivesofpeople.
Fidelityisnotaneasypath.Often,themorecomfortablerouteistobecometheagentofthetrustcreatororabeneficiary.Fidelitymeansrecognizingandresistingthesetemptations.OnewaythatIthinkoffidelityisthatmyrole,astrustee,isnotjusttospeakforthetrustcreatororjusttolistentothebeneficiary(thoughbothofthoseactivitiesareveryimportant)but,aboveall,tokeepalivethespiritofthegift.Iowemyfidelitytothegiftandtherelationshipsitcreatesratherthanonlytothegiveroronlytotherecipient.
WhatImeanby“thespiritofthegift”isatopicthatgoesbeyondtheconfinesofthisintroduction.Myco-authorsandIdiscussitmuchmorefullyinourCycleoftheGift:FamilyWealthandWisdom(NewYork:Bloomberg,2013).Putsimply,everytruegiftcontainsmuchmorethanthematerial“stuff”thatistransferred.Itcontainsspirit.Sometimesthatspiritexpressesexpectationsaroundworkoreducation;sometimesithastodowithavisionofentrepreneurship;sometimesitconcernsfamilylifeandrelationships.Thespiritofthegiftmaybeexpressed,inwordsorinwritings,oritmaybeunspokenbutfelt.Inanycase,itholdsgreatpowerforthegiverandtherecipient.AstheRomanphilosopherSenecawrote2,000yearsago,“Asagiftisgiven,soshallitbereceived.”Ifthereisnospiritinagift,thenwecallita“transfer,”andinsuchcasesitisnotsurprisingiftherecipientfindsthegifttobealifelessorevenlife-drainingforce.Mostofthegiftsthatleadtothe“horrorstories”toldabout“trustfundbabies”arenotgiftswithspirit;theyaretransfers.
Atrustee'sfidelityexpressesitselfinitshighestforminidentifying,fostering,andkeepingalivethespiritofthegift.Therearevariouswaysofdoingso.Itmaymeanhelpingthetrustcreatorwritedownorrecordhisorherwishesforthetrust.Itmaymeantryingtopiecetogetherthosewishes,values,orphilosophyafterthegrantorhaspassedaway,intheformofa“preamble,”aswediscussinChapter10.Itmaymeanfindingwaysregularlytoremindthebeneficiariesofthosevaluesthroughindividualorfamilymeetings.Itmayalsomeanlisteningtothebeneficiariesandworkingwiththemtofigureouthowtointegratethespiritofthegiftmeaningfullyintotheirownlives.Itisallthemoreimportanttotakethesestepsifatrusteefindshim-orherselfentrustedwithspiritlesstrusts—thatis,truststhatembodytransfers,setupsolelywithaviewtowardtaxsavings.
Ideally,theworkoffidelitystartsbeforetheinkdriesonatrustagreement.Thepracticeofourco-authorJayHughesisacaseinpoint.Foradecadebeforeheretiredfromtheactivepracticeoflaw,Jaywouldalwaysinsistthatanyonewhoaskedhimtowriteatrustwouldincludeatthebeginningofthedocumentthesetwolines:“Thistrustisagiftoflove.Itexiststoenhancethelivesofthebeneficiaries.”Jay'sfidelitytohisclientsvalidatedthefidelityofthefuturetrusteesofthesetrusts.
3.RegencyAregentruleswhileayoungkingorqueenisstillcomingtomaturity.Itisapositionofgreathonorandtrust.Itsoundsquitegrandorevengrandiose.
Butinthecontextoftrusts,regencycomesdowntoalessgrandbutveryimportantpoint:thatthetrusteeshallmanagethetrustrelationshipinsuchawaythatwhenthebeneficiarycomestomaturitythetrusteecoulddissolvethetrustandhandovertheassetsinfullfaiththatthebeneficiarywouldusethemwell.
Regencyaimsataqualitativegoal:thebeneficiary'smaturityandindependence.Theregent'sgoalisnottogrowthetrustassetstobeaslargeaspossible.Itistohelpgrowthelivesofthebeneficiaries,sothattheybecomematurehumanbeings,abletointegratethetrustassetsintoaflourishinglife.
Ifthissoundslikeatallorder,itisbecauseitis.Muchoftherestofthisbook,particularlyPartsThreeandFour,isdevotedtodescribingpracticesthattrustees,beneficiaries,andtrustcreatorscanuseorestablishinordertoincreasetheprobabilitythatthefamilywillsucceedatthistask—foritispossibletosucceed.
Butitisalsoimportanttoacknowledgetheobstaclestosuccess.Asmyco-authorsandIdiscussinourbook,VoiceoftheRisingGeneration:FamilyWealthandWisdom(NewYork:Bloomberg,2014),significantwealthoftenactsasasortof“blackhole,”whichcancrushthedreamsandaspirationsofyoungermembersofafamily.Trustsareperhapsthemostcommonmeansbywhichtheblackholedoesitswork.Howeasyitcanbenottolearnaboutyourself,nottotakechances,nottodiscoverandpursueyourdreams,nottogrow,ifeverymonthasizabledistributionlandsinyourbankaccountwithnoguidanceandnospirit!
Faithfultrustees-regentswillseekwaystohelpbeneficiariesmatureandaboveallindividuate,thatis,discoverandpursuetheirowndreams,therebydevelopingtheirown,individualpersonhood.Thepoint,here,isintheintention.Theprincipleofregencycomesdowntotheintentiontogrowgreatbeneficiaries,peopletowhomyoucoulddistributealltheassets,withagoodconscience.
Regencycontainswithinitthevirtueofhumility.Itisanimmensetask—togrowagreathumanbeing.Asanyparentknows,itisadeeplyhumblingone.Mostofusfinditchallengingtoliveourownliveswell,muchlesshelpsomeoneelsedoso.
Thishumbleworkismadeonlymorechallengingwhenpursuedwithinthelegal,“unnatural”landscapeofatrust.Theregentmustlookforwaysto“deconstruct”thatunnaturalrelationshipandconnectwiththebeneficiariesonahumanlevel.AsonewisetrusteeIknewusedtoputit,“Ialwayslookforwaystogettoaroundthatdesk,overtothebeneficiary'sside.”Again,manyofthepracticesdescribedintherestofthisvolumearedesignedtohelptrusteesmakepreciselythistransition.
Pursuedthisway,regencyallowsthetrusteetoenactwhatthemedievalJewishphilosopherMaimonidesdescribedasthehighestrungonthe“ladder”ofgiving.
Maimonidesoffersthisdescriptioninthecontextofdiscussingcharity,buthiswordsapplyequallywelltogivingwithinfamiliesorservingastrustee.Maimonidesdescribesseveralrungsontheladder,startingneartothegroundwithgivingthatisforcedorgrudging,andmovingupwardtogivingthathas“stringsattached.”Onthehigherendoftheladderaregiftsmadeanonymously,sothattherecipientdoesnotknowwhobenefitedhimorher,andgiftsinwhichthegiverdoesnotknowwhoheorshebenefited.
Butthehighestrungontheladder,hesays,is“whenthegiverreachesoutahandand,face-to-face,formsapartnershipwiththerecipient.”Thereisnohiding,noshameorembarrassmentinthisexchange.Thetwopartiesareface-to-face,hand-in-hand,asequalhumanbeings.Thegiftisnotapieceofproperty;itisthecreationofapartnership.Thisisthemomentthatthetrustee-regentstrivesfor.
4.DiscernmentTheprincipleofdiscernmentiscloselyrelatedtosomeofthetraditionaldutiesofthetrustee.Atrusteeisexpectedtoexercisea“sounddiscretion”andmodelhim-orherselfonothersof“prudence,discretion,andintelligence.”2Also,moreandmoreoftentoday,attorneysarerecommendingthattrustcreatorssetuptruststhatgivethetrustee“absolutediscretion”tomakedistributions,therebythwartingcreditorsorbeneficiarieswhowanttogettheirhandsonthetrustprincipalorincome.
Discernmentisthebasisfordiscretion.Itisthehabitofsiftingtheevidence.Ifabeneficiaryrequestsadiscretionarydistribution,say,foranewcaroradownpaymentonahouse,thetrusteemustdiscernthereasonsforandagainstthedistribution.Heorshemustsifttheevidencethatthebeneficiarypresentsaswellasthepossibleconsequencesforthetrust,thebeneficiary,andotherbeneficiaries.(Formoreondiscretionarydistributions,seeChapter14.)Discretionistheproductofthehabitofdiscernment.3
Butdiscernmentgoesfarbeyonditsapplicationtodiscretionarydistributions.Itplaysapartintheveryprocessofacceptingatrusteeship.Discernmentrequiresaskingyourself:Doesthistrustexpressthespiritofagift?AmIabletoserveintheroleofkeepingthatspiritalive?DoIhavetheskillsandknowledgerequisitetotrulyhelpthepartiestothistrustrelationship?DoIhavethetimeandinteresttoapplythoseskills?AmIreadytogoonajourneywiththesegrantorsandthesebeneficiaries?Ifso,whatresourceswillIneedtoservefaithfully,asaregent,anddonoharm?Thesearejustsomeofthequestionsthatenterintheprocessofacceptance,aswediscussinChapter9.
Discernmentisalsosomethingthatthewisetrusteeseekstofosterintheotherpartiestothetrust.Evenbeforeatrustagreementissettled,awisetrustcreatorwillgothroughaprocessofdiscernmentinordertoclarifyandexpressthespiritofhisorhergift.Adiscerningtrusteewillencouragethisprocess.Also,thetrustee's
discernmentcanhaveapositiveeffectonbeneficiaries.Makingsurethatbeneficiariesunderstandtheprocessofdiscernmentthatyouuseinmanagingthetrustcanleadthemtointernalizethisprocessintheirrequestsforinformationordistributions.
Theworkofregencyrestsupondiscernment.Sometimesatrusteecanactinawaysimilartothe“spiritualdirector”thatSt.IgnatiusdescribesinhisclassicbookonthediscernmentofspiritsandofGod'swill.4AswedescribeinChapter14,wisetrusteesseektoserveasacounterbalancetobeneficiaries'positions,nottothwartbeneficiariesbutrathertogetthemtoreflectmoredeeplyonwhotheyareandwhattheywant.Forabeneficiarywhoisshyandreluctanttoaskquestions,thediscerningtrusteemaybemoreengaging,open,andwelcoming.Forabeneficiarywholookslikeheisgettingsuckedintothe“blackhole”ofmeasuringhisownworthbythetrust'sassets,thediscerningtrusteemaytrytohelphimfocusonhisowngoals,dreams,andopportunitiesforgrowth,apartfromthemoney.
Anotherwaythatatrusteeor,morelikely,atrustprotectorcanhaveapositiveeffectisonthetrust“system”asawhole.Ittakestime,humility,andgreatdelicacy,butadiscerningtrustprotectorcan,insomesituations,beexactlytherightpersontohandlethe“judicial”functionwithinafamily,thatis,thefunctionofresolvingconflictssuchasbetweenthetrusteeandbeneficiary.Thisworkentailshelpingbothpartiesundergoadiscernmentprocess.Suchdiscernmentistrulytheplacewherethetrustprotectorbecomesafamilyelder.InfamilyafterfamilythatIhaveseen,especiallyinfamiliesthatareintheirthirdgenerationorbeyondoflivingwithwealth,thereisperhapsnoonebuttheelder-protectorwhostandsinthepositionoftrustandauthorityrequisitetodosuchwork.WehavemuchmoretosayonthisexcitingandpowerfulroleinPartFour.
5.CourageCouragebearsadirectrelationtoeveryoneinvolvedinthetrustscape.Ittakescouragetocreateatrust.Ittakescouragetotakeonthetaskofintegratingatrusteffectivelyintoyourlifeasabeneficiary.Anditcertainlytakescouragetoserveasatrustee,trustprotector,ortrustadviser.
Alltheserolesrequiregoingonajourneywithafamilyovermanyyears.Itdemandsgettingtoknowthemashumanbeings,withallthefinequalitiesandnot-so-finequalitiesthatweallhave.Itrequiresacceptingthatthisjourneywillhaveitsupsanddownsand,asinanyjourney,acceptingtherolethatchancemayplay.
Courage,likediscernment,isalsoaprinciplethatmembersofthetrustscapecanextendtothesystemitself.Inthissense,itisencouragement.Acourageousadviserortrusteecanencourageatrustcreatortothinkthroughthespiritofhergiftandthencommunicateitclearlyandopenly.Thetrustee'sencouragementcanmakeevenmoreofadifferenceforbeneficiaries.Here,thecourageoustrusteecanencouragethemtoenvisiontheiraspirationsandmakethemreal.Heorshecanhelpthempursuetheir
education,makeconnections,andexploredifferentavenuesofwork.Thecourageoustrusteewillalsomakesurethatmoneydoesnotswampthosedreams.Suchatrusteemay,attimes,notmakedistributionsifthosedistributionswouldunderminethebeneficiaries'journey.Itiseasiertowriteacheckorgiveintoademand.Itisharderandtakescouragetosay,“No,but…”andthenshowawayforwardthatdoesnotdependonmoney.Myexperienceisthatevenfrustratedbeneficiariesappreciatesuchcourage,andthatithelpsthemfindthecouragewithinthemselvestocontinuetostruggleandtoriseontheirown.
Asalreadymentioned,thewisetrusteewillalwaystemperhisorherprinciples,includingcourage,withhumility.Oneofthemostcourageousthingsyoucandoistorecognizewhatiswithinyourpowerandwhatisnot,andwhentoletgo.SomeofthesesituationswedescribeinChapter17,ontransitions.
Familieschangeovertime,sometimesdriftingapartandlosingtouch.Butnofamilyhasanaturallifespan.Whenafamilydissolvesisitschoice.Itdoesnothavetobetodayortomorrowornextyearordecade.Trustscanbeanagentforfamilystabilityandgrowthratherthandissolution.Thisisonemessagethatwehopeallmembersofthetrustscapehearfromthisbook.Itisamessageofgreathopeandsolaceforfamilymemberswhoveryoftenfeelmisgivingaboutthelikelyeffectsofsignificantwealthintheirchildrenorgrandchildren'slives.Actingonthismessageofhopetakescourage.Butthiscouragecanreapqualitativedividendsforafamilyforyearstocome.
Thesefiveprinciples—donoharm,fidelity,regency,discernment,andcourage—arethefoundationofwisetrusteeshipandindeedofasoundtrustscape.Idonotofferthemasayardstickbywhichtojudgeyourself.Instead,Ihopethattheypromptyourreflectiononyourownplaceinthetrustscapeandyourownstrengthsandthewaysyoubestapplythosestrengthstohelpingyourselfandothers.Anobleprofessionisnotmadeupofruleshandeddownfromabove.Itconsistsofawayoflife.Itisyourprivilegetomakethatwayyourown.
Notes
1.SeeHartleyGoldstone,ScottyMcLennan,andKeithWhitaker,“TheMoralCoreofTrusteeship:HowtoDevelopFiduciaryCharacter.”Trusts&Estates(May2013),49–52.
2.Theseclassicstatementscomefromafoundationaldecisionintrustlaw,HarvardCollegev.Amory,9Pick.(26Mass.)446,461(Mass.1830).
3.Formuchmoreondiscernment,seemyWealthandtheWillofGod:DiscerningtheUseofRichesintheServiceofUltimatePurpose,withPaulSchervish(Bloomington:IndianaUniversityPress,2010).
4.St.Ignatius,SpiritualExercises,annotations13–15.
PARTONEINTRODUCINGTHETRUSTSCAPE
CHAPTER1NAVIGATIONWORKSBETTERWHENYOUHAVEADESTINATIONINMIND
Here'saquestionthatcanleadtoaworldofgood.Whetheryou'reatrustcreator,trustee,orbeneficiary,askyourself:“What'sthesinglemostimportantreasonfortheexistenceofmytrust?”Notthesolereason,andnotthefirstonethatlikelycomestomind,buttheonethat,uponreflection,takesprecedenceoveranyoftheothers—whatisthatreason?
Hereisasecondquestionthatismorefuturefocused:“What'sthemostimportantoutcomeI'dlikemytrusttoaccomplish?”Youranswersamounttoyourvisionofthe“destination.”Havingacleardestinationinmindwillinfluencejustabouteverytrust-relateddecision.
Withnearlyallourclientfamilies,wesuggestthisthoughtasthemostimportantreasonforcreatingatrust:Tomakeagiftthatpromotesgrowthandtherebylaysthegroundworkforthebeneficiary'struefreedom.Thisisincontrasttoameretransferofassets,whichtendstosiphonoffenergyandleadtoentitlement.1
Thesinglemostimportantreasonforcreatingatrustistomakeagiftthatpromotesthebeneficiary'struefreedom.
Ifyouuse“freedom”asastandard,theongoingtestbecomeswhethertheexistenceofthetrust—andtherelationshipscreatedbythetrust—enhancesratherthandiminishesthelivesofthebeneficiaries.Enhancehasvariousmeanings,butallofthemarepositive.Specifically,wemeanthetypeofenhancementthathelpsbeneficiariesmatureandcometoknowandpursuetheirownaspirations.
Willtheexistenceofthistrust,andtherelationshipscreatedoralteredbythistrust,enhancethelivesofthebeneficiaries?
Wefurthersuggestthatadvancingthegoaloflifeenhancementrequiresmovingtowardaseriesof“right”relationshipsbetweenandamongthosetouchedbythetrust.Inourview,gettingtheserelationshipsrightoftenmeansaskingdifferentquestionsfromtheusual.
Whattypesofinquiryworkbest?Whengettingtoknowabrandnewbeneficiary,aseasonedtrusteemighthavethoughtslikethesetooffertothatbeneficiary:
Thistypeofrelationshipisaltogethernewtoyou.AlthoughI'vebeenatrusteefor
manyotherbeneficiaries,ourrelationshipisnewanduniquetome,aswell.Sowhatdoyouthinkaresomesolidstepsforustotaketowardbecomingcolleaguesinareciprocalrelationship?IfIamtomentoryou,howwouldyouliketobementored?
Howcanourrelationshipgeneratepositiveenergyforeachofus,ratherthantakeenergyawayormakeeitherorbothofusfeellikewe're“miredinquicksand”?
Howcanourrelationshiphelptobringyouraspirationstolife?Aspirationsforyourfamilyorcommunity,andespeciallyforyourindividualgrowth?
Or,supposeabeneficiaryisdissatisfiedwithhisorherrelationshipwiththetrustee.Thisinquiryismoreself-directed:
WhathaveI(thebeneficiary)contributedtoourfallingout?
What'sastep—nomatterhowsmall—Imighttaketowardgettingusbackinto“right”relationship?
WhodoIknowwhomighthelpmethinkthissituationthrough?
Decadesofexperiencingbothrightrelationshipsandthosethatareofftrackhaveledtheauthorstoconcludethatthehighestdutyofbothtrusteeandbeneficiaryistotacklethisquestion:Ifthetrustshouldendandtheassetsbedistributedtothebeneficiarytomorrow,wouldthebeneficiaryhavetheknowledge,thematurity,andthecompetencytoreceiveandstewardthefundswell?
Itfollowsthatthetrustee'shighestdutyistopreparethebeneficiarytotakethateventinstride.Andthecorollary:thebeneficiary'shighestdutyistopreparehim-orherself.
Ifthetrustshouldendandtheassetsbedistributedtothebeneficiarytomorrow,wouldthebeneficiaryhavetheknowledge,thematurity,andthecompetencytoreceiveandstewardthefundswell?
Whilethetaskofpreparingsomeoneelseorpreparingoneselftoreceiveassetsisveryreal,thedistributionenvisionedishypothetical.Itexistsasathoughtexperiment.Wewantbeneficiariestodeveloptheskillsandmaturitytointegratethedistributionwell,notbecausethedistributionwilllikelytakeplace(itprobablywon't),butbecausethoseskillsandmaturityarealsorequisitetolivingwellitself.
BeyondtheThoughtExperimentForsomefamilies,terminationanddistributionaremorethanathoughtexperiment.Thesefamiliesarewrestlingwithhowtoapproachimpendingdistributionsoflargesums—someofwhichhavebeenheldintrustforgenerations.
Letusexplain.As2012cametoaclose,businesswasboomingfortaxlawyers.Therewasarushtocreatenewtrusts,drivenbyfear:Wouldtheamountonecouldpassfromonegenerationtothenext,anddosotaxfree,bedramaticallyreduced?Notwishingtotakethatchance,manytrustswerecobbledtogetherastheclocktickedtowardmidnightonDecember31.
Althoughthetiminghadanelementofdrama,themotivationwasnotnew.
Trusts,likewines,have“vintage”years.Duringavintageyear,thecreationofalargenumberoftrustsistriggeredbyfiscalevents(taxlawchanges)ornontaxlegalevents(e.g.,theeliminationoftheRuleAgainstPerpetuities).Dynasticfamiliesalsohavetheirownvintageyearsdrivenbyfamilycircumstances.
Thesignificanceisthatsomefamilieswillhavebatchesoftrusts“maturing”(eitherterminatingorbeingtransformed)atroughlythesametime.
Somevintageyearsinclude:
1931:Manytrustswerecreatedinanticipationof1932,whenthetopestatetaxratejumpedfrom20percentto45percentandtheestatetaxexemptiondroppedfrom$100,000to$50,000.
1933:Trustscreatedinanticipationof1934,whenthemaximumestatetaxrateincreasedto60percent.
1934:Anothervintageyearinanticipationofthemaximumestatetaxrateincreasingto70percentandestatetaxexemptiondecreasingto$40,000.
Trustscreatedduringthe1930sarematuringnow—allthesedecadeslater—duetodeathsofthetrusts'measuringlives(peoplenowintheir80s),whichmeansthatmanyfamilieshavetopreparebeneficiariestoreceivetrustassets.Inthesefamilies—forthefirsttimeingenerations—beneficiarieswillreceivesubstantialdistributionsastruststerminate.
Thisiswhythedutytohelppreparebeneficiariestointegratedistributionswellismoreurgentthanjustathoughtexperiment.
Ofcourse,wearewritingthisbooknotonlyforfamiliesfacingtheterminationof“vintage”trustsfromthe1930s.Therearemanyotherreasonsthatafamilymayfaceatrusttermination.(Apartfrommorecommonreasons,itisalwayspossiblethatCongresscouldraisetheincometaxontrustssignificantlyorpassotherlegislationunfriendlytotrusts.Inthatevent,familieswouldbetemptedtolookintounwindingexistingtrusts.)Andevenifyouarenotfacingaterminationnow,thequestionof,“Whatwouldwedoifwehadtoterminatethistrust?”canhelpfocusattentiononthewaythatyourfamilyishandlingcurrentdistributions.Aswewillsee,thedistributivefunctionisreallytheheartoftrusts,andthedeterminingfactorastowhethertrustssucceedorfailingrowingthefamily'shumancapital.
QuestionsforReflectionWhatdoyouthinkaresomevalidreasons—thepurposeand,tosomeextent,thedestination—thatshoulddrivecreationofatrust?
Whatdoyouthinkshouldbethehighestdutiesofthetrusteeandbeneficiary?
Whatotherdutieswouldyouseeaseithercomplementaryorevensuperiortotheseinyourparticularcase?
Note
1.Formoreonthedifferencebetween“gifts”and“transfers,”seeJamesE.HughesJr.,SusanE.Massenzio,andKeithWhitaker,TheCycleoftheGift:FamilyWealth&Wisdom(NewYork:Bloomberg,2013).
CHAPTER2THETRUSTSCAPE
Nowthatyouhavehadachancetothinkaboutwhereyouareheading,we'dlikeyoutoconsidertakingpartinanunusualexercise,anexercisedesignedtobegintopaintthepictureoftheenvironmentwithinwhichyourjourneyistakingplace.
Ourpurposeinthisexerciseistoshiftthefocusinestateplanningfromlegalisticstructuresliketrustsandpartnershipstoadifferentcenterofattention—therelationshipsthatarecreatedamongthepeoplewhoaretouchedbythestructures.
Asthefirststep,removeahandfulofcoinsfromyourpocket,oryourpurse.Holdthosecoinsinyourhandandexaminethem.
Noticethedifferentsizesofthecoins,thedifferentcolors.Canyoualsosensethedifferingweights?Lookthoughtfullyattheimages.Someofthecoinsarenewandshiny,somemucholder.Onemightevenbe“dingedup.”
IfyouhappentobelookingatanAmericanpenny,onthe“head”sideyou'llnoticeaportraitofAbrahamLincoln.Onthe“tail”appearsthemotto:“EPluribusUnum,”whichisLatinfor“OutofMany,One.”Notabadmottoforthoserelatedthroughtrusts,forthatmatter.
PortraitsonAmericancoinspicturepeoplewhoarenolongerliving.NotsoforBritishcoins.Hereyou'llseecoinsdepictingthequeen.Asfortheeuro,therearenoportraitstobefound.Everyeurocoincarriesacommonimageononesideandadifferentmotifselectedbyeachmemberstateontheother.
ThecoinsofChina—whichinventedpapermoneyintheninthcentury—picturebeautifulirisesandlotusesalongwiththeinscriptionzhongguorenminyinhang.InEnglish,that's“People'sBankofChina.”
Nomatteryourlocalcurrency,placethecoinsontopofapieceofwhitepaperonatableorothersurfaceinfrontofyou.Chooseoneofthemandimaginethatthecoinisyou.Didyoupickalargecoin?Asmallone?
Nowthinkofeachoftheothercoinsthatarespreadoutonthepaperasadifferentmemberofyourfamily.Ifyouaremarried,whichcoinisyourspouse?Whichcoinsareparentsandgrandparents,childrenandgrandchildren,brothers,sisters,nieces,nephews,andcousins?
Next,movethecoinsaround.Letthemcometorestinwaysthatilluminatehowfamilymembersareemotionallyconnectedwithoneanother.Whichcoinsaregroupedcloselytogether?Whicharefartherapart?Aresomecoinsontopofothers?Arethereanythatyoumovetothefarreachesofthetable?
Asyouarrangeandrearrangethecoins,allowyourselftofeelpositiveassociationswithsomecoinsandnegativeemotionstowardothers.
Doyounoticehowthesecoins,whichmomentsagowerenothingmorethanunremarkablebitsofmetal,arenowinfusedwithfeelings?
IntroducingYourTrustscapeNow,addsomecoinstoyourtableau.Goaheadandassignthemtobeyourfamily'strusts,thetrustees,and,ifapplicable,thetrustprotectorandrelatedadvisers.Onceagainrearrangeyourcoinstobringtheseaddedrelationshipsintothepicture.
Focusonthecoins(people)thatarelinkedbyyourtrusts.Thesearethepeople,thetrustdocuments,andtherelationshipsthatmakeupyourtrustscape.Likeyoudidafewmomentsago,takesometimetonoticetheemotionalconnections.Thistime,focusonconnectionsamongyouandthoselinkedbyyourtrusts.Takeoutapencilandcirclethecoinsanddrawlinestorepresenttheconnections.
(Bytheway,werecognizethatmanyfamiliesliveamidmultipletrusts.Somefamilieswehaveworkedwithnavigatedozensorevenhundreds—andinafewcases,thousands—oftrusts,nottomentionfamilyfoundationsorfamilylimitedpartnerships.Forsimplicity'ssake,intherestofthisbookweoftenspeakabouta“trust,”a“trustee,”ora“beneficiary”inthesingular.Butwealwayshaveinmindthatinrealitymanyofourreadersaredealingwithsystemsofmultipletrusts,trustees,andbeneficiaries.Thatisonereasonthattheconceptofthetrustscapeissohelpful.)
Whenyouarefinishedcirclingyourcoinsanddrawingyourlines,stepbackandtakealookatyourtabletoptableau.It'sallhere:family,money,trusts—inbothphysicalandemotionalform,withasenseoftheproportionsaswell,you'llhavethecomplexitythatdefinestheinterrelationships.Thisisyourtrustscape.
Thepaperandinkofyourtrustdocuments—muchlikethecoins—haveafull-blownchargeofemotionsattachedtothem.
Mosttrustscaperswouldsaythatoptimizingtheirtrust-relatedrelationshipsisbestachievedthroughadeliberateprocess,ratherthanarandomone.Yetthemajoritylacka“tabletoptableau”tosharpenfocusandclarifydirection.
Feelfreetosnapapictureofyourtableauwithyourcameraorsmartphoneandreferbacktoitoftenasyouworkyourwaythroughthisguide.Butkeepinmind,likeanylivingsystem,yourtrustscapewillalwaysbechanging.
QuestionsforReflectionWhatmostsurprisedyouasyouwentthroughthecoinexercise?
Whatnewinsightsdidyougain?
Doesvisualizingyourfamily'sestateplanasatabletoptableauofrelationships
sharpenyourfocus?
Wheredoestheestateplangettherelationshipsright?
Wheredoestheestateplangetintheway?
Wheredoyouseeresourcesandopportunitiestobuildupon?
ADynamicTableauYouwerejustencouragedtomovecoinsaroundatabletoptovisualizeyourtrustscape.Wheneverthecoinscametorest,asnapshotwasinorder:“Here'swhatmytrustscapelookslike—asofthismoment.”
Butintherealworldnoonepersoncancontrolhowthe“coins”move.Sowehadbestadddepthandrandomnesstoourvisualdisplaybyintroducingasecondmetaphor.Becauseofitsdynamicandhighlyfluidnature,thetrustscapeinfactfunctionsasaseascape.
Atrustscape,likeaseascape,hascurrentsandcross-currentsonthesurfaceaswellasbelow.Somedaysaresunnywithclearsailing.Onotherdaysfogmayrollinandsquallsunexpectedlyarise.Navigatingeither“scape”mayattimesfeelenchantingandatothertimeshazardous.
Ingoodweather,aninexperiencedsailormaybeabletonavigateaplacidlakewithoutgettingintotoomuchtrouble.Whencontemplatingventuringouttosea,however,thatsamesailorwouldbewelladvisedtofirstgaineducationandexperience,orplantobringalonganablesailor.
Similarly,“trustscapers”mustacquirethetoolsandknow-howofskillfulnavigation.
Nowimaginethatyouhadthepowertochangeyourtrustscapeinwaysthatwouldstrengthenrelationshipsandimprovepeople'slives.Movethecoinsaccordingly.Addorsubtractcoinsasnecessary.Draworredrawtherelationshiplines.And,whenyou'redone,snapapictureofthis,youraspirationaltrustscape.Youcan'tcontrolthewindortheweather,butatleastthispictureofyourdesiredtrustscapegivesyouasenseofwhereyou'dliketosail.
QuestionforReflectionWhoareyour“ablesailors”(mentors)tohelpyoudirectyourkeeldeeperintotheocean?Chancesare,you'lladdtoyourlistasthisguideunfolds.
AClosingExerciseImagineyou'vefinishedyourreadingfortodayandhaveputthisbookdown.Yougetonwithdoingtheusualthingsyoudo,untilit'stimetogotobed.Youareverytired,thehouseholdisquiet,andyoufallintoadeepandpeacefulsleep.
Youawakenand—loandbehold—youareabletoseeintothefuture.Nomatterhowfantasticalitalwaysseemed,allyourtrust-relatedhopesanddreamsaresuddenlyreal.Youthinktoyourself:“Thistrustreallyworkedout!”
Whatcluesdoyounoticethattellyouofthissuccess?Whatarepeoplesaying?Whataretheydoing?Whataretheyfeeling?1
BetterYet…Imaginehowpowerfultheexercisewouldbeifyouweretodoitagain—thistimeasagroupeffortalongwithothermembersofyourtrustscape.
Ifyouandtheothersareupforit,considersettingasidetimetotrytheexercisetogether.Seeifyoucanhashoutacollaborativevisionofasuccessfultrustscape.Wheredoyouagree?Wheredoyoulackconsensus?Howwillthishelpbringyourtruststolife?
Note
1.This“miracle”questionisadaptedfromStevedeShazerandYvonneDolan,MorethanMiracles:TheStateoftheArtofSolution-FocusedBriefTherapy(Binghamton,NY:HaworthPress,2007).Themiraclequestionisusefultohelpvisualizeapreferredfuture.
CHAPTER3SOMEKEYTERMS
Inabookofthistype,ithelpstodefinesomekeyterms.Thereisadangerindoingso,andoftryingtobetoospecific,ifauthorandreaderalikegetstuckinasingleunderstandingofterminology.Withtheseinitialdefinitionsinmind,asyougothroughtheguide,developyourown,many-layeredunderstandingoftheseandotherterms.
Trustscape.Asyouexperiencedinthepriortwochapters,thetrustscapeisasubsystemofthelargerfamilysystem.Thetrustscapeispopulatedbyallthosetouchedbytrusts—thetrustcreator,thebeneficiaries,thetrustee,perhapsatrustprotectorandatrustcommittee,andeachoftheircadresoflegal,financial,accounting,andotheradvisers.Thedenizensofatrustscapecancollectivelybereferredtoastrustscapers.
Trust.TrustsoriginatedintheMiddleAges.Noblemenwhowentofftowaroronlongjourneysknewthattheymightnotsurvivetoreturnhome.Sotheyaskedsomeonetheytrusted—oftenitwouldbethelocalbishop—tolookaftertheirproperty.Theownersinstructedtheirtrusteesonhowtomanagethepropertyandwhattodowiththepropertyshouldwordgetbackthattheyhaddied.
Thenatureoftrusts—atrustcreatortransferspropertytoatrusteetomanageonbehalfofabeneficiary—hasn'tchangedmuchovertheyears.
Thedocumentthatcreatesatrustmaybeawilloratrustagreement,butatrustismorethanapieceofpaper;itistherelationshipamongthecreator,thetrustee,andthebeneficiary.PleaseseeChapter5formoreonwhattrustsare.
Trustcreator.Thepersonwhocreatesatrustoftengoesbynamessuchasgrantor,settlor,orevendonor.We'llusethetermtrustcreator.WeexplainwhyinChapter7.
Trustee.Thetrustee—oneentrusted—islegalownerofpropertyheldbyatrust.Thetrusteehasafiduciarydutytoignorehisorherowninterestsandadministerthepropertyforthebenefitofthebeneficiary.Asaresult,althoughthelegalownerofthetrustproperty,thetrusteedoesnotusuallyenjoytheuseofthatproperty.WehavemoretosayabouttrusteesinChapter6.
Beneficiary.Ratherthanbeingthelegalowner,thebeneficiaryhasan“equitable”interestinthepropertyownedbyatrust.Inthisway,thebeneficiaryobtainsuseofthepropertywithoutbeingitslegalowner.Ifyouareabeneficiary,thetrust'smoneyisnot“your”money.
A“current”beneficiaryhastherighttoreceivedistributionsfromthetrustrightnow.A“contingent”beneficiarymayhavetherighttoreceivedistributionsatsome
pointintime,butonlyifsomespecifiedeventoccursfirst.Forexample,thecontingentbeneficiarymaybeentitledtodistributionsfollowingsomeoneelse'sdeath.A“remainder”beneficiary(sometimescalledaremainderman)receiveswhateverpropertyisleftinthetrust(the“remainder”)whenthetrustcomestoanend.
YoucanreadmuchmoreaboutbeneficiariesinChapter7.
Trustprotector.Atrustprotectormaybegivendiscretiontoremoveandreplacetrustees.Alessobviousrole,butonethat'sveryimportant,istohelpcreate,maintain,andregeneratethespiritofthegiftintrust,especiallywhenthetrusteefailstodoso.(Formoreonthe“spiritofthegift”seetheIntroduction.)WediscusstrustprotectorsandothertrustadvisersinChapter8.
Trustdistributions.“Mandatory”distributionsmusttakeplace,basedonthelanguageofthetrustagreement.“Discretionary”distributionstakeplaceatthediscretionorchoiceofthetrustee.Thetrustdocumentmayprovidethatsomemandatorydistributionstothebeneficiaryareautomatic(e.g.,perhapsdistributionofincome).Othermandatorydistributionsmaybescheduled(e.g.,whenabeneficiaryreachesacertainage).Thetrusteeisoftengivenflexibilitytomake“discretionary”distributionsforthingssuchassupport,health,andeducation.TrustdistributionsandthedistributionprocessarethefocusofChapter14andPartFour.Inmanycases,atrust'sdistributivefunctionisignoreduntilabeneficiarymakesarequest;oneofourmaingoalsinthisbookistopromptseriousandproactivethinkingaboutthepurposeandgooduseofthedistributivefunction.
Principalandincome.Principalreferstopropertyownedbythetrust.Thetrustpropertyorprincipalmayincludestocks,bonds,cash,mutualfunds,aswellasrealestate,intellectualproperty,ortangiblepropertysuchasjewelryorcars.Thetrust'sproperty(onehopes)generatesincome,suchasinterest,dividends,orrent.
DistributionCommittee.TheDistributionCommitteeisintroducedforthefirsttimeinthisguide.Insometrustscapes,thiscommitteeisavailabletocounselthetrusteeregardingabeneficiary'srequestsfordistributionsoffunds.YoucanlearnmuchmoreaboutthedistributioncommitteeinChapter20andinAppendix3.
OfficeoftheBeneficiary.LiketheDistributionCommittee,theOfficeoftheBeneficiaryiscurrentlybeingdevelopedandfield-testedbyasmallnumberoffamiliesandisintroducedhereforthefirsttime.TheOfficeoftheBeneficiaryismadeupofadvisersselectedandpaidforbythebeneficiary.ThepurposeoftheOfficeoftheBeneficiaryistomentorthebeneficiaryintheareasoftrustadministration,trustinvesting,andtrustdistributions.Aswiththedistributioncommittee,wedescribetheofficeofthebeneficiaryatmuchmorelengthinChapter20,aswellasintherestofPartFour.
CHAPTER4KNOWYOURNARRATIVES
Thepriorthreechaptershaveintroducedyoutothetrustscapeandtothequestionofwhereyoumaybetryingtogettowithinthatenvironment.Itistemptingtomovefromthispointquicklytothepracticalitiesofbuildingthetrustee-beneficiaryrelationshiportotheevenmorefundamental,informationalbusinessofwhoarethevariousplayersinthetrustscape.
Butbeforedoingso,wewanttospendonemoremomentonabasicmatterofrelationships:theorientationthatwebringtothesestructuresandroles.
Considerthisscenario:Abeneficiarywhohasnevermethertrusteebeforewalksintothetrustee'sofficefortheirfirstmeeting.What'stheagenda?Inthebeneficiary'smind,perhapsbeyondoneortwomechanicalquestions,heragendaislikelytogetthroughthemeeting.Acertainamountof“jitters”isnatural,andthespecificgoals,iftheyexist,areinthemindoftheotherperson.
Butthatdoesn'tmeanthetrusteeisinthemostreceptivestate,either.Thismightbehis150thexperiencegettingacquaintedwithabrandnew“B.”Withsucharichdatabase,anyprofessionalhascodingmechanisms,someofwhicharesubliminal.
Let'sassumethebeneficiaryusesaphrase,orsimplygivesalook,thatvaguelyremindsthetrusteeabouthisorherall-timemostvexingtrustsituation.Inthatcase,twosetsof“jitters”areatwork.Tensionautomaticallytakesoveronthepartofthetrustee,whowouldotherwisebedoinghisbesttobringconsciousprofessionalismtotheearlystagesofthistrustscapeconnection.
Thepointisthatthequalitiesthat,inthemoment,weattachtoanindividualorasituationaresubjective.Ourpersonalexperience,stories(orsnippetsofstories)fromfriendsabouttheirparticulartrustscapes,orperhapsevenafleetingmemoryoranoverheardoffhandcommentareaccessed—evenwhennotconsciouslylookedfor.
Theresultisour“narrative”aboutthepersonorsituation.Sometimeswegetsocaughtupinouruniquelypersonalnarrativesthattheyseemlikedependabletruths.Andournarratives,whethertheyhappentobepositiveornegative,mayserveuswell—ormaybenotsowell.Itisparticularlycommonforustoreturntohabitualnarrativeswhenwefacemomentsofstress.
Soit'snosurprisethatsomebeneficiariesbelievethattheproblemsintheirlivesareareflectionofcertain“truths”abouttheirtrustsandtrustees.Theymayassignlabels:Mytrustis“restrictive”or“unjust.”Mytrusteesare“controlling”or“uninterested.”
Trustees,inturn,maythinkofbeneficiariesas“dysfunctional”or“entitled,”whichjustaboutguaranteesuneasinessatthenextmeeting.
Giventhepowerofthesenarratives,regardlessofyourageandstatus,wecannotoveremphasizetheimportanceofcomingtogripswithyourownnarrativesaboutyourdistinctivetrustscape.
Tohelpyougetstarted,here'sanexercisewesometimesdoineducationalprogramsaboutfamilytrusts.
DependsWhereYou'reSittingImaginealargeroundtable.Seatedaroundthetablearefamilymembersofdifferentgenerations,familyadvisers,trustees,andotherswhoaretouchedinonewayoranotherbythefamily'strusts.
Nowimaginethatatthecenterofthetableisanoversizedbeachballmadeupofdifferent-coloredpanels.Ifaskedtodescribeball'scolor,onemightsay“redandwhiteandyellow,”or“blueandgreenandorange,”orsomeothercombination,dependingonwhereeachobserverisseated.
Everyoneatthetableisdescribingtheballaccuratelyfromhisorhervantagepoint—yetnotwodescriptionsmatch.Andthebeachballalwaysremainstheverysamebeachball.
Nowimaginethatthebeachballisreplacedbyatrustinstrument.Thesamepeopleareatthetable.Eachdescribesthetrustfromhisorhervantagepoint.Differentdescriptions,sametrust.
Thecreatorofthetrustmightsaysomethingthatbeginswith:“Icreatedthistrustbecause…”
Theattorney:“Idraftedthislegaldocumenttoprotectagainsttaxes,creditors,and…”
Atrustee:“Mymostimportantdutyastrusteeis…”
Onebeneficiary:“Thistrustcreatesmanyproblemsformebecause…”
Anotherbeneficiary:“Thistrustisablessingbecause…”
Andsoon.
Nowit'syourturntospeak.Imaginethatthetrustagreementsittinginthemiddleofthetableisatrustthataffectsyourlife.Howwouldyoudescribeit?Whatwouldyousay?What'syournarrativeabouttrusts?Evenifyou'reabrandnewtrusteeorbeneficiary,youhaveone.
Pickandchoosefromamongthesequestionstohelpyougetstarted.
Thinkofpositiveassumptionsaboutthetrustand,forthatmatter,abouttheotherssittingaroundthetable—whatarethesepositiveassumptions?Wheredidtheycomefrom?Howdotheyserveyou?Thoughtforthought,howdotheystand
up?Supposeyouhadmorepositiveassumptions—whatdifferencewouldthatmake?Whereandhowcouldyou“tryout”afewofthose?
Negativeassumptions—whatarethey?Wheredidtheycomefrom?Dotheyserveyou?Ifso,how?Howcrediblearethey?Nameatimeortwowhenanegativepremiseorscenariodidn'tproveout.Whatwashappeningthatmighthave“flipped”thatmeetingorconversation?
AThirstforEducationSometimesnarrativesaboutothersmaygetuscaughtupinadestructivewayofthinking.Here'sasituationrelatedbyatrustofficer:
Jameswaspartofaverywealthyfamilythathadafamilyoffice.Theheadofthefamilyofficewastheindividualtrustee,withatrustcompanyasco-trustee.TheheadofthefamilyofficehadaverylonghistorywithJamesthatwasquitenegative.HedidnottrustJames,hedidn'tlikehim,andJamesknewit.
Jamescalledme,thetrustofficerforthetrustcompany,oneday.Hewasinhislate30satthispoint,livingmostofthetimeinParis.Hesaid,“Iwanttogobacktoschool.IwanttogetapostgraduatedegreeattheSorbonne.ThereisaprogramthatIlikeverymuch,anditwilltakemeabouttwoyearstocomplete.Thiswillenablemetohaveabetterlife,andmaybeIwillbecomeateacher.Idon'tknowwhatIwanttodospecifically,butthisprogramwillprovidemewithcareerchoicesIwon'totherwisehave.ThisissomethingIreallywanttodo.”
AfterIgotoffthephonewithJames,Ithencalledtheindividualtrusteeandhesaid,“Absolutelynot—Idon'ttrustJames.Howdoweknowheisreallygoingtousethemoneyforthatpurpose?”
Theproblemtheco-trusteehadwasthathecouldn'tconceivethatJameshadchanged.
IhadadifferenttakeonJamesthantheothertrusteedid.Ireallythoughtthathewasseriousinthisendeavor.Ididnotknowhimaslongastheothertrustee,sotherewasn'tanegativehistorywithme.1
Jamesandhistrusteesworkedoutanarrangementthatincludedchecksandbalances.Jameswasindeedserious,completedhiseducation,andmovedontothenextstageofhislife.
Thepointisthat,ifaparticularnarrative(positiveornegative)servesuswell,wecanexpanduponit.Ifnot,wemaybeabletobreaklooseofit.That'seasytosay,butdoingsorequiresdeliberateeffort.Ournaturaltendencyistoresistchange,especiallyofnarrativesthatarelongstanding.
OurfriendStephanieWestAllen,askilledmediatorknowledgeableaboutneuroscience,suggeststhatwe'remorelikelytoembraceanewnarrativeifwe:
Areawareofourpresentnarrative.
Haveanimportantreasontoreplaceit.
Makeadecisiontochangeit,and
Areresolvedtokeepgoinginthefaceofresistance.
Theseadditionalquestionsshouldhelpyouclarifyyournarratives.
Ifyouare(orwillbe)atrustee:
WhatpositiveassumptionsdoIhaveaboutmyselfastrustee?Wheredotheycomefrom?Howdothesepositiveassumptionshelpme?
AndwhileI'matit,whataresomeofmystrengthsandvirtues?
HowcanIbringmystrengthsandvirtuesintoplayinmyroleastrustee?Whatdifferencewillthatmaketome?Tothebeneficiary?
Andifyouareatrusteewhohasbeen—andstillmaybe—abeneficiaryyourself:
CanIrecallatrusteewhomadeadifference—atrusteewhomademefeelcaredforandrespected?Maybesomeonewhoearnedmytrustovertime?Whattoldmethatcaring,respect,andtrustwaspresent?Whatbenefitwasitforme?Formytrustee?
HowcanIbringmoreofthegoodthingsthatImyselfhaveexperiencedasabeneficiaryintomyroleastrustee?
Ifyouare(orwillbe)abeneficiary:
WhatamIsaying,thinking,andfeelingaboutbeingabeneficiary?Aboutmytrust?Aboutmytrustee?Wheredothesenarrativescomefrom?
Dosomeofthesenarratives(positiveornegative)serveme?Ifso,howdotheyserveme?Whatdifferencedoesthatmake?
Wouldchanginganarrativeortwoservemebetter?Ifso,how?IfIdochangeaparticularnarrative,whatdifferencemightthatmake?What'sastepIcantakenow,nomatterhowsmall,tobegintomakethatchange?
Wehavenoworientedourselvestothetrustscape—theenvironmentofpeople,structures,roles,andresponsibilitiesthatgrowupquitenaturallyaroundafamilytrust.Wehavethehelpofsomekeyterms,andwehavehadachancetoreflectonwherewearetryingtogoandwhatassumptionswebringwithusaswestartoutonthejourney.Inthenextpartofthisbook,welookmorecloselyatsomeofthedenizensofthetrustscapewithaviewparticularlytotheirrolesandresponsibilities.Wewillthenmoveontothepracticalworkofbuildingstrongerrelationshipsacrossthetrustscape.
Note
1.Excerptfrom“JamesHasaThirstforEducation,”inTrustWorthy.©TrustscapeLLC.Reprintedwithpermission.
PARTTWOTHEPLAYERS
CHAPTER5THETRUST
Ifyouweretoask100trustscaperstodescribeatrust(andwehave),about60mightsayitissomesortofvesseltoreceiveandholdassets;another30wouldprobablysayitisalegaldocumentorataxstrategy;andtherestwouldn'tbesure.Aswehaveseen,those90percentwouldbe,forthemostpart,mistaken.Atrustisproperlyviewedasarelationshipamongtrustcreators,trustees,andbeneficiaries.
Inthischapter,wetakeaverybriefoverviewofthelegalnatureofthisrelationship.We'llhavealotmoretosayabouttheattendantemotionalrelationshipsthroughoutthisguide.
AShortDescriptionofaLongHistoryForcenturies,thelegalprinciplesdefiningtrustrelationshipsarosefromdecisionsmadebycourts,ratherthanfromstatutespassedbylegislatures.Trustlawhashistoricallybeenjudge-madelaw.
Accordingtothislegaltradition,atrustrelationshiprequiresseveralelementstoexist:(a)theintenttocreateatrust,(b)alawfulpurpose,(c)propertythatistitledtothetrustee,and(d)anascertainablebeneficiary.
Atrustcreatormustintendtocreateatrustrelationship.1That'smostoftenaccomplishedwiththeassistanceofanattorneywhodraftsawrittentrustinstrument.Thelanguagethatcreatesthetrustmaybefoundwithinawillorinaseparatetrustagreement.
Atrustcreatormaybemotivatedtocreateatrustforalmostanylawfulpurpose.Commonpurposes“rangefromtheavoidanceofprobate,toprovidingpropertymanagementforthosewhocannot,oughtnot,orwishnottomanageforthemselves,toprovidingforlimitedandsuccessiveenjoymentofpropertyoverseveralgenerations,andincludingaswellsuchobjectivesasthesavingoftaxesandtheinsulationoftrustpropertyfromtheclaimsofbeneficiaries'creditors.”2
Thetrustcreatortransferslegaltitleofpropertytothetrustee.Thetypesofpropertythatmaybereceivedbythetrusteeareseeminglylimitless:
Personalresidencesincludingvacationhomes.
Personalpropertysuchasart,vehicles,jewelry,furniture,andgenerally,possessionsotherthanrealestate.
Stocksandbonds(andmorecomplexsecuritieslikederivativesandinterestsinprivatepartnershipssuchashedgefunds).
Investmentrealestate.
Closelyheldbusinesses.
Insurancepolicies.
Thetrusteemanagesthepropertyonbehalfofthebeneficiary.Therelationshipbetweentrusteeandbeneficiaryisafiduciaryrelationship.Thinkofthefiduciaryrelationshipasonethatimposesonthetrusteedutiesofundividedloyaltyandprudence.
Beforeproceeding,takeamomenttonoticewhatdoesnotappearamongthesefourlegallyrequiredelementsofatrust.Thereisnomentionofavesselorreceptacle.Thereisnomentionevenofadocument:atrustcansometimescomeintobeingwithoutwrittenterms.(Obviously,itismuchwisertowritethosetermsdown.)Andthereisnomentionofatrustee.Yes,atrusteeiscrucial.Butatrustcanexistwithoutone.Sometimesatrusteeresignswithoutappointinganewtrusteeinitsplace.Insuchcasesthecurrentbeneficiariesmayhavetotakeactiontoelectanewtrustee.Thetrustdoesn'tdisappearifthereisnotrustee.
Nowtakeamomenttonoticewhatdoesappearamongthesefourelements.Thetrustcreatorispresentbutonlyintheshadows,asthesourceofpurpose,intent,and(probably),property.Theonlypersonwhoappearsinthefourlegallyrequiredelementsofatrustis…thebeneficiary.Thebeneficiary—notthetrustcreator(whomaybelonggone)orthetrustee—isthesinglemostimportantpersontotheexistenceofatrust.Nobeneficiary,notrust.Andyet,toooften,whentrustsarecreatedorbeingadministered,thebeneficiariesaretreatedasafterthoughtsorannoyances.
RecentTrendsinTrustLawIntheUnitedStates,trustrelationshipsaregovernedbystatelaw.Dependingonhowastate'scourtshaveruledonthecasesthathavecomebeforethem,youcanfindsharplydifferentinterpretationsoftrustlawinonestateversusanother.Itfurtherfollowsthatsomestateshaveamorerichlydevelopedcaselawthanothers,dependingonthevolumeandvarietyofcasesheardbytheircourts.
Whilecompetingwitheachotherfortrustbusiness,recentdecadeshaveseenstatesalsoattempttomaketrustlawmoreconsistentfromstatetostate.Foundedin1892,theNationalConferenceofCommissionersonUniformStateLaws(NCCUSL)isagroupofwell-respectedprivatelawyers,governmentlawyers,legislators,judges,andlawprofessors.MembersoftheNCCUSLareappointedbytheirrespectivestategovernments.Theirmissionisto“research,draftandpromoteenactmentofuniformstatelawsinareasofstatelawwhereuniformityisdesirableandpractical.”3
OnceNCCUSLhasdrafteda“uniformact,”—andsuchanactcancoverareasoflawwellbeyondestatesandtrusts—it'suptoeachstate'slegislaturetodecidewhether
toadopttheact.Stateshaveflexibilitytoadoptauniformactinitsentirety,adoptportionsoftheact,adoptarevisedversionoftheact,ornotadopttheactatall.
In2000,NCCUSLproposedtheUniformTrustCode(UTC).TheUTCprovidesamodelforcodifyingcertainaspectsofthelawoftrustrelationships.Todate,slightlymorethanhalfthestateshaveadoptedsomeversionoftheUTC.TheUTCisbutoneofmanystatutespassedbystatelegislaturesthataffecttrustrelationships.
DespitethepromotionandadoptionoftheUTC,asstatutesaffectingtrustshaveproliferated,there'sbeenlittlecoordinationbetweenandamongjurisdictions.Today,codificationoflawsgoverningtrustrelationshipsvariesfromstatetostateinsignificantways.
Forexample,statesaresortingoutinto“trust-creatorintent”jurisdictionsand“beneficiaryprotective”jurisdictions.Traditionally,greatdeferenceisgiventotheintentofthetrustcreator.Insomejurisdictions,thisorientationtowardenforcingthetrustcreator'sintentisshiftingtowarda“sole-benefit-of-the-beneficiaries”principle.Inthesejurisdictions,it'seasierforbeneficiariestomodifyatrustortousethestarkeralternativeof“decanting.”AswediscussmorefullyinChapter17,todecantmeanstoterminateatrustandmovetheassetstoanewtrustthathasmorefavorableprovisions.
Asamplingofotherdifferencesamongjurisdictionsinclude
Thedegreetowhichtrustpropertyisprotectedfromcreditors.
Theeaseofsuingatrustee.
Thelengthoftimeatrustcanlast.
Theabilitytodividefiduciarydutiesamongco-trustees.Forexample,oneco-trusteemaybethedesignatedfiduciaryforinvestments.Otherco-trusteesneednotbeconcernedaboutinvestments,andwouldnotbeheldliableifthingsgowrong.
Thepointofallthisisthatit'sveryimportantfortrustcreatorstohaveconversationswiththeirattorneytofleshoutthetrustcreator'sintentindetail(especiallyasitrelatestothebeneficiaries'welfare),andthat“location,location,location”canmakeadifference.
AClosingExerciseSomuchfortrustsingeneral.Ifwhatyoujustreadsoundedoverlytheoretical,here'salivelyexercisetoprepareyouforoneormoreconversationswithyourfellowtrustscapersand/orlegalcounsel.(Wepurposelydon'ttouchonthetaxconsequencesofthelanguageofyourtrust.Pleasereservesuchquestionsforthesessionwithyourlegalcounsel.)
Whatwehaveinmindisatreasurehunt,usingyourtrustagreementasthefieldforyourhunting.(Ifmanytrustsimpactyourlife,thenchooseonethatplaysorwillplayanespeciallylargerole.)Whenwesay“lively”exercise,wearen'tbeingsarcastic.True,muchofyourtrustdocumentwilllikelybeboilerplate,thatis,standardlanguagetosavetaxes,administerthetrust,andsoon.Boilerplatetendstobelegaleseandboring.Still,don'tskipoverit.
Sowhatisthetreasure?Weofferquestionsbelowtoguideyourhunting.Thesequestionsarenotall-inclusive,buttheydocoveralotofground.Theanswersareyour“treasures”—afewofwhichwillindeedbehiddenamongtheboilerplate.
Becausetherulesforthis“hunt”areanythingbutrigid,feelfreetoaddquestionsasyougo.Happyhunting!
BasicQuestionstoAnswerWhocreatedthetrust?
Whatisitsdiscerniblepurpose?
Whendoesthetrusttakeeffect?
Whoisthetrustee(s)?
Whatpropertyisgovernedbythetrust?(Seethemostrecentstatementpreparedbythetrusteeforthecurrentlistoftrustassets.)
Whoisentitledtoreceivedistributionsfromthetrustnow?Aretherebeneficiarieswhowillreceivedistributionslater?
QuestionsRegardingtheTrusteeIfIhavemorethanonetrustee,arethedutiesdividedamongthem?
Ifthecurrenttrusteeresignsorisremoved,whoisthesuccessor?
Canthebeneficiaryremoveandreplacethetrustee?
Sometimes,ratherthannamingasuccessortrusteedirectly,aprocessisdescribedfordoingso.Ifso,whatisthatprocess?
QuestionRegardingtheTrustPropertyAretherespecialinstructionsformanaginganyofthetrustproperty?
QuestionsRegardingTrustDistributionsAresomedistributionsautomatic(e.g.,distributionofincome)?Aresomedistributionsscheduled(e.g.,whenabeneficiaryreachesacertainage)?
Thetrusteeisoftengivendiscretiontomakedistributions.Ifso,forwhatpurposesmaythetrusteemakediscretionarydistributions?
QuestionsontheTrustProtectorandTrustCommitteesIsatrustprotectorappointed?
Ifso,whatpowersaregrantedtothetrustprotector?Atrustprotectoroftenhasthejobofseeingthatthetrust'spurposesarefulfilled.
Areoneormoretrustcommitteescreated?
Ifso,whataretheirpurposes?
QuestionsonWhentheTrustTerminatesWhendoesmytrustcometoanend?Whenthebeneficiaryreachesacertainage?Atsomeone'sdeath?
Whathappenstothetrustassetswhenthetrustterminates?Doesthepropertygotosomeoneoutright?Doesitgetmovedtosomeothertrust?
Doessomeonehavearighttodeterminewhoreceivesthetrustproperty?Ifso,howisthatrightexercised?
Onceyouhavecollectedyourtreasuresfromthishunt,ask:
Whatsurprisedyou?
Whatdelightedyou?
Whatconfusedyou?
NextStepsWhatadditionalquestionsdoyouhave?
Whoisthebestpersontoansweryourquestions?
Congratulations—ifyoucompletedthehuntandansweredmostorevenallofthequestionsweposedhere,thenyouhavebecomefarmorefamiliarwithyourtrustthanmanytrustscaperseverdo.Asoneofourcolleaguessaidtous,“IfIcouldgiveonepieceofadvicetotrusteesandbeneficiaries,itis,‘Readthetrust.’”Wewouldaddonly,“Re-readittoo.”
Notes
1.Insucceedingchapters,theauthorsrefertothetrustcreator's“intent.”Whenwedo,wearenotreferringtothetrustcreator'sexpressintenttocreateatrust.Rather,weuseintentinterchangeablywiththetrustcreator's“motivation”or“purpose”forcreatingthetrust.
2.RestatementThirdTrusts§27,CommentonSubsection2.TheRestatementoftheLawThird,Trusts,ispublishedbytheAmericanLawInstitute.TheRestatementis
compiledbyareporter,severalassociatereporters,anddozensofadvisersandconsultantswhoareleadingattorneys,professors,andjudges.TheRestatement“drawsbothoncourtdecisionsandstatutes,seekingaseamlessstatementofthebestprinciplesofAmericantrustlaw…”(fromtheForeword).
3.www.uniformlawcommission.com/Narrative.aspx?title=About%20the%20ULC.
CHAPTER6THETRUSTEE
InPartOneofthisbook,weintroducedyoutothe“trustscape”ratherthanjustthetrust.AsyouthensawinChapter5,a“trust”colloquiallyreferstoadocumentthatdefinescertainrights,duties,andrelationships.The“trustscape”isthesystemthatincludesnotonlytheserights,duties,andlegalrelationships,butalsotheinterpersonalrelationshipsamongthehumanbeingsandinstitutionsthatpossesstheserights,duties,andrelationships.Formanyfamilies,theirtrustscapeincludesmultipletrustsamidotherlegalentities.
InthischapterandChapters7and8,wewanttotakeacloserlookatsomeofthesetreesintheforestofthetrustscape.Wewanttodwellontherolesthatpeopleorinstitutionsoccupywithinit.Asyoureadthesethreechapters,trytolocateyourselfwithintheserolesandwithinthislandscape.Itmaybethatyoufindyourselfinmultiplepositions.Thatisnotatallunusual.Thetrustscapeisaworldinwhichyoucanbeinmorethanoneplaceatthesametime.
TheTrusteeThetrusteeistheonewhoisliterally“entrusted”withthepropertyheldintrust.Touseatermfromoneofourpriorbooks,thetrusteekeepsalivethe“cycleofthegift”initiatedbythetrustcreator.
Withinthisoverarchingpurpose,thetrusteehasseveralresponsibilitiesandalsoseveralduties.
Themainresponsibilitiesofthetrusteearethreefold:administrationofthetrust,investmentofthetrust'sassets,andthedistributionofbenefitstothebeneficiary.
Administrationencompassesaccountingforthetrust'sassets—thatis,keepingtrackofthem—ifnecessarydistinguishingthetrust'sincomefromtheprincipalthatgeneratesthatincome,andfilingthetrust'staxreturnsandanyotherrequireddisclosuresorreports.Administrationdoesnotsoundexciting—andindeeditisnotexciting…untilsomeonereallyneedsadocumentoranaccountingyearsdowntheroad.Toooftenfamilymembersortheiradvisersnolongerhavecopies.Itthenfallsupontheshouldersofthewell-preparedtrusteetoproveitsadministrativemettle.
Formosttrusteeswhoarenotprofessionalinvestors,theinvestmentresponsibilityinvolvesselectinganinvestmentadviserwhounderstandstheparticularrequirementsforinvestingtrustassets;establishingaprocesstoidentifyandkeepupdatedthetrust'sinvestmentpolicy;trackingandbenchmarkingthetrust'sinvestmentresults;and(unlessdirectedotherwisebythetrustdocumentitself)makingsurethatthe
trust'sassetsareheldinawell-diversifiedportfoliothatcomportswithmodernportfoliotheory,thatis,whichbalancesexpectedreturnsagainstexpectedriskandvolatility,usinganinvestmentpolicystatementasaguide.
Thedistributiveresponsibilityis,inourview,themostimportantandoftenthemostoverlookedofthetrustee'sthreemainresponsibilities.Sometimesthatresponsibilityextendsonlytodistributingoutthetrust'sincomeandleavingtheprincipaluntouched.Sometimesthetrustdocumentwilldirectthetrusttomakedistributionsofprincipalatspecificagesofthebeneficiary.Veryoften,however,thetrusteewillbegranted“discretion”todistributeincomeandevenprincipalforcertaintypesofneeds(e.g.,“health,education,maintenance,andsupport”)oronlyasthetrusteeseesfit.(Thelattertypeofdiscretionisknownas“absolutediscretion.”)Inthecasesofdiscretionarydistributions,thetrusteemayestablishaprocesstounderstandthetrueneedsofthebeneficiary,includingthebeneficiary'scurrentfinancialsituation,educationalorworkplans,andotherpersonaldetails.
Governingallthreeoftheseresponsibilitiesarecertainduties.Thesedutiesarenota“wishlist”of“nicetohaves.”Shapedbycenturiesofjudicialdecisionsandlegislation,theyare“musthaves”or“mustdo's”thatcanbeenforcedatlaw.Whenfullyexplained,thedutiesofatrusteecanencompassmanythickbooks.Herewewillofferjustathumbnailsketchofthreeofthemostimportantduties:
Thedutytoaccount:Itseemsrelativelysimple—ifyouareentrustedwithsomething,youmustbeabletotellwhereyouleftit—but,ofcourse,withfinancialinstrumentsorevenrealproperty,thisrequirementcanbetricky.Also,inmanyjurisdictions,thisdutycarrieswithittherequirementtosendanannualaccountingofthetrust'sperformancetoadultbeneficiaries.Thisrequirementcanbetoughtoswallowforparentsandtrusteesofbeneficiarieswhoarelegallyadultsbutwhomaybeharmedbyknowingthattheyarebeneficiariesofatrust.
Thedutyofcare:Atrustisnotasafeandatrusteeisnotaguard,watchingoverthetrustpropertywithnopurpose.Thetrustexiststobenefitsomebeneficiary,andthetrusteemusttakecaretounderstandthebeneficiary'strueneedsandactaccordingly.
Thedutyofimpartiality:Eventhoughmanytrustsareestablishedwithaparticularprimarybeneficiaryinmind,almostalltrustshavemultiplebeneficiariesorevenclassesofbeneficiaries.Forexample,atrustmaybenefitfirstonechildandthenthatchild'sownchildren.Oratrustmaybenefitaspouseandthen,whenthatspouseisdead,acharity.Thetrusteehasadutytoservetheinterestsofallthebeneficiaries,impartially,notjusttheoneswhoarealive,mostvocal,ormostlikeable.
Thesepurposes,responsibilities,anddutieshelpshapethetrustee'sfunction.Asfarasthetrustee'sform,itcantakeanumberofshapes.
Anindividual(“natural”)personcanserveastrustee.Thatpersonmaybea
professionaloralayman.Themostcommonprofessionalstoserveastrusteesarelawyers,accountants,orfinancialadvisers.Sometimestheattorneywhodraftedthetrustdocumentwillbenamedastrustee.Sometimesatrustcreatorwillwantthechieffinancialofficerofhiscompanyoralongtimecorporateattorneytoserveasanindividualtrustee.
Laymentrusteesmayincludethespouseofthetrustcreator,orhisorhersiblings,children,cousins,partners,orbestfriend.Again,asthetitleimplies,themaincriterionforatrusteeisnotnecessarilyanyexpertisebutratheramoralone:itissomeonethatthetrustcreatordeeplytruststoupholdhisorherwisheswithregardtothetrust.
Butindividualpeoplearenottheonlytrustees.Somecorporationsorcompaniesmakeittheirbusinesstoserveastrustees.Insuchcases,thetrusteeisreferredtoasaninstitutionaltrustee.Aninstitutionaltrusteeemploystrustofficersandotherstoserveitstrustclients.Italmostalwayshasatrustreviewcommitteetoacceptclienttrustsandadistributioncommitteetodecideondiscretionarydistributionrequests.Eventhoughhumanbeingsstaffthesecommittees,thecompanyitselfisthetrustee.Itwillmakesuretokeepitsclients'trustassetsseparatefromitsown.Thatway,evenifthebusinessfails,trustclientsshouldbeabletoretrievetheirassetswithoutloss.
ChoicesJustaspaintershavechoicesincomposingalandscape,trustcreatorsandsometimesbeneficiariesalsohavechoicesinassemblingthetrustscape.Themostsignificantislikelythechoiceoftrustee.Thisisformanypeopleaverydifficultchoice,asitinvolvesmanyfactorsandoftenrequiresmakingguessesatwhatwillberequiredtoservethegoodofbeneficiarieswhoarestillyoungchildrenormaybenotevenborn.
Inthinkingthroughthechoiceofindividualversusinstitutionaltrustees,manypeoplefindithelpfultocomparetheprosandconsofeach.Thetablebelowisahigh-levelsummaryofsomepossibleprosandcons.Somemayapplytosometrusteesandnotothers.Weencourageyoutoaddyourownthoughtstothislist:
Thedistinctionsofferedinthistableare,ofcourse,generalandmaynotcapturewellthepracticesofspecificindividualorinstitutionaltrustees.Forexample,thereisagrowingmovementamongsomeinstitutionaltrusteestoincorporateintotheirpracticesincreasedpersonalattentiontotheindividualbeneficiariesofthefamiliestheyserve,therebycombiningsomeofthebestqualitiesofanindividualtrusteewiththestrengthsofaninstitutionaltrustee.Also,wehavenotattemptedtoaddressheretheprosandconsofprivatetrustcompanies(PTCs),whicharebecomingmorepopularamongultra-high-net-worthfamilies.FormoreonPTCs,pleaseseeAppendix4.
Themostdesirablechoiceisalwaystohaveone'scakeandeatit,too.Somefamiliesmakethischoicebysplittinguptheresponsibilitiesofthetrusteeamongseveraldifferenttypesoftrustees.Forexample,theymayaskaninstitutionaltrusteetoserveastrusteesolelyfortheadministrativefunctionorforboththeadministrativeandinvestmentfunction,whileanindividualtrustee—someonewhoknowsthefamilyandthebeneficiaries—servesastrusteesolelyfordistributivedecisions.WeofferaninnovativemodelarrangementoftrusteedutiesinPartFourofthisbook.
IndividualTrustees InstitutionalTrusteesCategory Pros Cons Pros Cons
Connection Personal:ahumanbeingwhoisaccessibletoyou.
Perhapstooclose:havingafamilymemberorfriendserveastrusteemaychangeyourrelationship.
Professionalrepresentativesusuallycalledtrustofficersorrelationshipmanagers.
Atrustofficerwhoyouhavegottentoknowmayleaveorbereplaced.Youwillhavetostartanewwithsomeoneelse.
Itmaybehardtoconnectwithadecision-maker.
Knowledge Probablyknowswhoyouareandhowyourfamilyworks.
Dependingonhisorherbackground,mayhavelittleornoexpertiseinlaw,investing,orothertopicsimportanttotrustadministration.
Trustofficerstypicallyhavelotsofexpertiseinthelegal,financial,andadministrativeaspectsoftrusts.
Atrustofficermayservemanyclientsandmaynotknowmuchaboutyouoryourfamily.
Process Youknowwhomakesthedecisionsandcanaskhimorhertoexplainthosedecisions.
Professionalindividualtrusteesusuallyareformalintheirprocesses.Laymentrustees,suchasfamilymembers,maynotbesoformal,whichcanleadtoconfusion.
Institutionaltrusteestendtobeveryformalintheirprocesses.
Decisionsareoftenstronglyinfluencedby“riskmanagement”considerations.
Theirprocessescansometimesfeellaborious,anditcanbehardtoidentifywho,ifanyone,isthedecision-makerinagivensituation.
Liability Individualtrustees
Ifyouhaveaproblem,areyou
Institutionaltrusteescarry
Institutionaltrusteesarevery
takeonpersonalliability.Ifyouhaveaproblem,youknowwheretheylive.
goingtosueyouruncleoryoursister?Suingawell-preparedlawyeroraccountantisalsonotanattractiveprospect.
plentyofinsuranceandusuallyhavetheassetstomakewholeabeneficiaryharmedbypoortrustadministration.
abletodefendthemselvesincasesallegingmismanagement.
Cost Anindividualtrusteemaycostlittleornothing,especiallyifit'safriendorfamilymember.
Youmaygetwhatyoupayfor.
Institutionaltrusteesoftenhaveclearfeeschedulesfortheirworkastrustees.
Atrusteefeecanaddaquarterorhalfapercenttoalreadyexistinginvestmentmanagementfees.Thesefeesaddupquickly.
This“delegation”offunctions(orevenmorestrongly,the“direction”ofatrusteetohandoversomeofitsfunctionsto,say,aspecificinvestmentadviser)isnotpossibleineveryjurisdictionorforeverytrust.Youwillhavetoconsultwithyourlegalcounseltoseewhatwouldworkforyou.Delegationanddirectionhavethedownsideofaddingcomplexitytoanalreadycomplicatedtopic.Complexitymayinturnbringwithitconfusion,conflict,andcosts.Nevertheless,thegainsofidentifyingspecializedtrusteesandotheradviserstoservethesedifferentfunctionscanbegreat.
Onemorepointisimportanttoconsiderregardingthechoiceoftrusteeorco-trustees.Conflictsofinterestarerifeintrustscapes.Forexample,sometimestheattorneywhodraftsthetrustdocumentalsoincludeshim-orherselfastrustee:isitlikelythatthisfamilyadviserwillsuehim-orherselfforinadequatedraftingorpoortrustmanagement?Similarly,aninstitutionaltrusteemayoffergreatadministrativeservicesbutlacklusterinvestmentmanagement,andyetnotwanttogiveupthelatteractivitybecauseitiswhereitcanchargethegreatestfees.
Thereisnomagicalsolutiontotheseconflicts.Thekeyistoacknowledgetheconflictsthatexist,documentthem,makesureallparties(thetrustcreator,thetrustees,thetrustprotector,andtheadultbeneficiaries)areawareofthem,andifnecessary,developprocessesformanagingtheconflicts.
Thisawarenessofconflictsofinterestpointstotheimportanceofthecharacterofthepeopleinvolvedinthetrusteefunction.Wehavesharedheresomethingstoconsiderregardingthetypeoftrustee.Clearly,thechoiceofwhotoserveastrustee—whetherthat“who”isanindividualtrusteeortherepresentativeofaninstitutionaltrustee—isjustasimportantorevenmoreimportant.Whenweighingthischoice,thinkbackto
theIntroduction,tothediscussionoftheprinciplesunderlyingtrusteeship.Askyourself:doestheproposedtrusteeortrustofficerseethisworkasanobleprofession,whichstartswithdoingnoharm?Doesheorsheunderstandfidelityandregency?Hasheorsheshowndiscretion?Hasheorshedemonstratedcourageandtheabilitytoencourageothers?Thesequalitiesareintangiblebutalsoofincalculableimportance.
Forotherqualitiestolookfororquestionstoaskwhenselectinganindividualtrustee(orevaluatingatrustofficerofaninstitutionaltrustee),pleaseseeourdiscussionofwhattoconsiderifsomeoneasksyoutoserveastrustee,inChapter9.
Werecognizethatfindingatrusteewhohasallofthesequalitiesmaybeimpossible.Andifyouarefortunatetofindsuchaperson,heorshemaydeclinetoserveastrustee.InPartFour,wedescribehowatrustscapemayneverthelessbedesignedtoincludeallofthesequalitiesbycreativelyandthoughtfullyallocatingfunctionsamongothertrustscapersinadditiontothetrustee.
CHAPTER7BENEFICIARIESANDTRUSTCREATORS
Severalyearsago,twoofus(JayHughesandKeithWhitaker,alongwithourpartner,Dr.SusanMassenzio)wroteTheCycleoftheGift,abookfocusedonhowparentsandgrandparentscangivewiselytotheirchildrenandgrandchildren.Aswewerewritingthatbook,wecametoarealization:whilethereweremanybookswrittentoparentsabouttheimpactofmonetarygiftstotheirchildren,therewereveryfewifanybookswrittentoadultchildren—therecipientsofthesegifts—andevenfewerwrittenfromtheperspectiveoftheserecipients.Thisgapinpublishing,wesaw,reflectedanevendeeperproblem:thepointofviewoftherecipient,andtheexperienceofreceiving,ispersistentlyignored.Everyonelovesagiver.Butfewpeople,ifany,appeartowanttothinkaboutmuchlesstalkaboutrecipients.
Slightingrecipientswouldremainanabstractproblem,perhapsevenanonproblem,ifitwerenotforonebasicfact:giverswhothinkonlyaboutthemselvesandnotatallabouttheirrecipientstendtomakeverybadgifts.Wedonotmean“bad”inamoralsense,thoughoverlookingtherecipient'sexperienceofreceivingcanleadtoterribleresults,suchasdependencyandentitlement.Wemeanevenmorebasically,“ineffective”or“unproductive.”
AstheRomanphilosopherSenecasaid,“Themannerinwhichagiftisgivendeterminesthemannerinwhichitisreceived.”Agiftgivenoutofadesireforcontrolwilllikelyleadtoeitherpassivityorresistance.Agiftgivenoutofabsentmindednesswillinspireasimilarlackofcare.Agiftthatwasreallynotintendedtobegivenbutmerelytosavetaxeswilllikelynotbeseenasagiftbutratherasaluckystrike,anundeservedboon.Agiftgivengrudginglywillhardlybereceivedthankfully.
InourmanyyearsofpracticeandintheyearssincewewroteCycleoftheGift,wehaveseenallthesedifferentvariationsongivingandreceivingandmanymore.Theseobservationscausedustodistinguishbetween“transfers”and“giftswithspirit.”Transfersarethemeremovementofmoneyfromoneperson'sbalancesheettoanother's.Transfersmaybegrudgingorabsentmindedorpoorlythoughtoutorevenhighlysophisticatedandcontrolling,withallsortsof“stringsattached.”Whattheyarenotaretruegiftswithspirit.Giftswithspirit,incontrast,aremadefreelyandreceivedfreely.Theyhaveclearpurposeandintention.Theyaremadebasedonanunderstandingofwhotherecipientisandhowtohelpthatpersonintegratethegiftintohisorherlife.Becausetheyaremadewell,theyaremorelikelytobereceivedwell.
InCycleoftheGift,weusedanimagetocapturethepowerandcomplexityofgifts,theimageofa“meteor”thatspeedsfromthegivertotherecipient(seeFigure7.1).Giftscanbelikemeteorsinthattheyoftenappearoutofnowhereandsuddenly
crashintotherecipient's“atmosphere,”evenknockingtherecipientoffhisorherlife'spath.Also,everygiftcontainswithinitsomesortofspiritormessage.Aswehavementioned,thatmessagemaybeoneofcontrolorevencontempt.Itmaybeaspiritoffreedom,encouragement,andlove.Fortrustcreatorsweask,“Whatisinyourmeteor?”Forbeneficiaries,weask,“Whathasyourmeteorbroughtintoyourworld?”
Figure7.1What'sinYourMeteor?
Becausegivingandreceivingaresocloselytiedtogether,wedecidedheretopresentinonechapterthoughtsontherolesoftrustcreatorandbeneficiary.Again,mostofthetimetheserolesaretreatedinisolation(iftheyaretreatedatall).Incontrast,webelievethattobeagreattrustcreatoryoumustpayattentiontoandunderstandwhatittakestobeagreatbeneficiary.And,likewise,webelievethattobeagreatbeneficiaryyoumustattendtoandunderstandwhatittakestobeagreattrustcreator.Becausetheyaresooftengivenshortshrift,wewillbeginherewithbeneficiaries.
BeneficiariesManyreadersmayfinditoddeventospeakabout“greatbeneficiaries.”Whatisgreataboutreceivingmoneyyoudidnotearn?Atbest,doingsoisusuallyseenassomethinglucky.Moreoften,itisseenassomethingslightlyshameful.Itishardtoimagineanyoneannouncingtoothersthatheorsheisa“greatbeneficiary.”
Thesejudgmentsreflectacommonprejudice:thatearningmoneyisgoodandreceivingitisbad.Butthisbeliefoverlooksthatreceivingmoneywellisnotapassive,easyactivity.Sure,ittakesnoefforttohaveyourtrusteedepositmoneyintoyourbankaccount.Butittakesagreatdealofefforttospendthatmoneywiselyandtotrulyintegrateitintoyourlife,tomakesurethatthe“meteor”doesnotknockyouoffcoursebutratherbringsnewresourcestoyourworld.Mostsimply,whatweadvocateisthatbeneficiariesbecomeactiverecipients.
Mostpeoplestructuretheirlivesaroundmakingmoney.Therearemanycareerstochooseamonginordertopursuethatgoal.Therearemanypathswithinthosecareers,whicharewellmarkedout.Everydisciplineorjobhasitsown“ladder”toclimb.Mostpeopleclimbingthoseladdersthinklittleornotatallaboutwhethertheyaredoingthe“right”thing.
What,then,aboutthelifethatdoesnothavetoaimatmakingmoney?Wherearetheguidepostsorroadmapsforsomeoneforwhomthequestionisnot,“HowdoImakealiving?”butrather,“GiventhatIhavemoney,howdoIlivewell?”Wherearetheprerequisites,qualifications,educationalpaths,orthecorporate“ladder”toclimb?Therearenone.Withsuchadearthofdirections,thisjob—tointegrateunearnedmoneyintoagoodlife—startstolookmuchharderthanthetypicalcareerpath.Andyetbeneficiariesmustmakethiseffortattheverysametimethatmostoftheauthoritiesintheirlivestellthemthattheyhaveiteasy.Doingitwelltakesactiveeffort.
Becomingagreatbeneficiarymeansfacingthecorequestionoflife:HowcanIlivewell?Ifsomeonefacesthatquestioneffectively,thenheorshecertainlydeservestheadjectivegreat.
Howcanabeneficiarybegintomeetthatchallenge?AfterwewroteCycleoftheGift,wetookupthisquestioninasecondvolume,TheVoiceoftheRisingGeneration,whichwasaddressedspecificallyto20-,30-,and40-somethingsinfamilieswithwealth.Wewillencapsulateheresomeofthemainmessagesfromthatbook,whileencouragingreaderstoturnthereformoredepth:
First,askyourself,“Whataremydreams?”Whataretheactivitiesyoufeelbestin?Whendoyou“flow”?Spendsometimeanddon'tjudgeyouranswers.Theywill,overtime,givedirectiontotherestofyourlife.1
Then,askyourselfwhatareyourstrengthsandwhataretheinternalhurdlesyouhavetojumpoverinordertopursueyourdreams?Morespecifically,whatbeliefs—aboutyourself,yourfamily,theworld—doyoufeelsupportyouandwhatbeliefsholdyouback?Howcanyoustrengthentheformersetofbeliefsandhowcanyoubegintochangethelatter?
Whenhaveyouworked—forsomeoneelse'scompanyorenterpriseorbenefit?Haveyoueverbeenanapprenticetoaspecificdisciplineorfield?Whatcanyoulearnfromthoseexperiences?Ifyoudon'thavesuchexperiences,wherecanyouturntofindthem?
Whenyouthinkabouttheimportantrelationshipsinyourlife,whichonesaffirmyourstrengths?Whichfriendsorfamilymembersshareyourdreams?Doyouhaverelationshipswithpeoplewhoarepositiveandforwardfocused?Doyouhaverelationshipswithpeoplewhochallengeyoutobethebestyoucanbe?Ifnot,wherecanyoulooktocultivatesuchrelationships?
Doyoufeelabletoadvocateforyourselfandyourdreamstoyourparentsortrustees?Doyouevenfeelyouunderstandthetrustsorotherstructuresthatimpactyourlifefinanciallyandbeyond?Ifnot,whatarestepsyoucantaketoincreaseyourunderstandingortodevelopyourskills?
Thesearelargequestions,andnaturallytheytakeusfarbeyondtheconfinesofthetrustscapeandtherelationshipbetweenabeneficiaryandhisorhertrustees.Butitispossibletoadaptthespiritofthesequestionstothatrelationshipaswell.Ourco-authorJayHughesdidsoinhisfirstbookFamilyWealth,andwehavereproducedhislistoftherolesandresponsibilitiesofbeneficiaries.Again,manypeoplemayfinditstrangetothinkthatabeneficiary—arecipient—hasanyroleorresponsibilities.Butthatviewignorestherealworkinvolvedinreceivingwell.Indeed,thesearedutiesthatyouowenottoothersbutrathertoyourself.
RolesandResponsibilitiesofBeneficiaries
Eachbeneficiaryhasanobligationtoeducatehimselforherselfaboutthedutiesofabeneficiary,aswellasthedutiesofthefamilytrustees.Herearespecificresponsibilitiesofbeneficiaries:
Togainaclearcomprehensionofeachtrustinwhichthebeneficiaryhasaninterestandaspecificunderstandingofthemissionstatementforeachtrustaspreparedbythetrustees
Toeducatehimselforherselfaboutalltrusteeresponsibilities
Tounderstandthetrustee'sresponsibilitytomaintainthepurchasingpowerofthetrust'scapitalwhilemaintainingareasonabledistributionratefortheincomebeneficiaries
Tohaveageneralunderstandingofmodernportfoliotheoryandtheformationandprocessofassetallocation
Torecognizeandlookforproofthateachtrusteerepresentsallbeneficiaries
Tomeetwitheachtrusteeonceeachyeartodiscusshisorherpersonalfinancialcircumstancesandpersonalgoalsandtoadvisethetrusteeofhisorherassessmentofthetrustee'sperformanceofthetrusteerolesandresponsibilitiestothetrust,tothebeneficiary,andtofamilygovernance
Tobecomeknowledgeableaboutthefunctionsandimportanceofeachelementofthefamily'strustgovernancestructure
Toattendtheannualfamilybusinessmeetingandtoacceptresponsibleroleswithinthefamilygovernancestructure,basedonhisorherqualificationsforsuchroles
Todevelopageneralcapacitytounderstandfiduciaryaccounting
Todemonstrateawillingnesstoparticipateineducationalsessionsandtobecomefinanciallyliterate(throughfamilyseminarsandfamily-fundededucationalprograms)
Toknowhowandinwhatamounttrusteesandotherprofessionalsarecompensatedandtoobtainageneralunderstandingofthebudgetsforthetrustandinvestmententitiesinwhichthetrustwillbeinvested
Thereisonemorestepthatweencouragebeneficiariestotakeinordertobecomeactiverecipients.Itinvolvesgratitude.
Therehasbeenagreatdealofresearchinrecentyearsshowingthebeneficialeffectsofgratitudeonpeople'slives.2Gratitudehelpsmoveourattentionawayfromnegativeandtowardspositiveemotions;wefocusonwhatwehaveratherthanwhat
wedon'thave.Evensmallinstancesofgratitude—saying,“Thankyou,”toastrangerwhoholdsthedoorforyououtorcallinguparelativetosayhowgladyouaretohavehimorherinyourlife—canhavealastingimpact.Itisnoexaggerationtosaythatgratitudemaybeoneofthekeystohappiness.
Andyet,forallthatbeneficiariesreceive,gratitudeissometimeshard.Thatmaybebecausethetrustcreatorislonggone—andperhapsneverevenknewthebeneficiaryheorshehasbenefited.Itmaybebecausethesourceofwealthinvolvedproductsorprocessesthatconflictwiththebeneficiary'svalues.Itcanbethatthebeneficiaryfeelsashamedtoreceivemoneyheorshedidnotearn.
Itcanalsobehardtoexpressgratitudewhenthetrustcreator'swishesconflictwiththebeneficiary'sowndreams.Forexample,awomanweoncemetwasthebeneficiaryoftrustsetupbyhergrandfather,whosaidthattheprimarypurposeforthetrustwastopayforherweddingoradown-paymentonahouse.Shedidnotplantomarry,andshewasalsonotplanningtobuyahouseanytimesoon.Butshehadreturnedtoschoolandwastryingtohandlecoursesandholddownafull-timejob.Whatshereallyneededwasacar,togetfromclasses,towork,andback.Hertrusteeandshefoundawaytomakeadistributiontohelpherbuythecar.Asgratefulasshewas,however,shecouldnotexpresshergratitudedirectlytohergrandfather;shefeltthathejustwouldnotunderstand.
Wementionthesedifficultiesbecausethefactisthat,withoutsomeexpressionofgratitude,agiftremainsincomplete,andanincompletegiftlacksspirit.Itcannotbecometrulyintegratedintotherecipient'slife.Itremainsexternal,evenaburden.Thisisoneofthereasonsthatinsomecountries,France,forexample,recipientsmustacknowledgeagiftforittobecomecomplete.
Withthismoralrealityinmind,then,werecommendthatbeneficiariestryoutsomesortofgratitudeexercisewithregardtotheirtrust.Perhapsitisspeakingdirectlytothetrustcreatorandexplainingwhatsortsofpositiveimpactthetrusthashadonyourlife.Ifthetrustcreatorisnolongalive,perhapsitmeanswritingalettertohimorherthatyoukeepinyourfiles.Oryoucouldsendthislettertothecurrenttrustee.Ifyourrelationshipwiththetrustcreatorortrusteehasbeenchallenging,thenmaybetheexpressionbecomessimplyreflectingonwhatyouhavelearnedfromyourexperienceasabeneficiary.
Thisisnotanexercisethatneedstoberepeatedonadailyorweeklybasis.Butitmakessensetopracticeitonceortwiceayear.Youmaybesurprisedhowyourexpressionsofgratitudechangeovertheyearsasyourtrustortrustsplaydifferentrolesinyourchanginglife.Truly,findingsomeauthenticexpressionofgratitudeiskeytobecominganactiverecipient.
TrustCreatorsWhatarethecorrespondingroleandresponsibilitiesofatrustcreator?Again,even
speakingaboutthetrustcreator'sresponsibilitiesmaysoundstrange.Whatresponsibilitiesdoessomeonehaveingivingawayhisorherownmoney?Isn'titafreegift,tobemadeasthegiverseesfit?
Thereisnodoubtthatfreedomisakeycomponentofgiving.Butfreedomandresponsibilityarenotatodds.Indeed,mostparentssaytotheirchildren,“Withfreedomcomesresponsibility.”Thetwoareinseparable.Forexample,youdon'tgetthekeystothecaruntilyoucanprovethatyoucandriveitresponsibly,thatis,withoutposingadangertoyourselfandothers.Responsibilitygivesshapetotheexerciseoftruefreedom.
Ofcourse,therearenocarkeysforanewtrust;noristhereadriver'slicenseexam.Onlytheindividualtrustcreatorcandecidewhetherheorsheisreadytomakearesponsiblegift,agiftwithspirit,intheformofatrust.Ourexperienceisthatmostofusarenotready,evenwhenwethinkweare.Takingthisstepmaytakeagreatdealoftimeanddeliberation.Itisnotsomethingtohurryalongbecauseofperceiveddeadlinesduetochangingtaxlawsorthelike.Thoughitmaybeheresytosomeaccountantsandtaxattorneys,wesayitisbettertopaysometaxtodaythantoputtheentirecapitalofthegiftatriskasitbecomesadestructivemeteorforgenerationstocome.Putmostsimply,weencouragetrustcreatorstobeactivegivers.
How,then,canawisetrustcreatorgiveactivelyandresponsibly?Tobegin,onemustacknowledgetheimportanceofactingwithintentionor,asourfriendandcolleagueJohnA.Warnickputsit,ofacting“purposefully.”Unlikeinthecaseofthebeneficiaries,atrustcreator'sdutiesarenottohim-orherself,primarily,buttoothers,tothebeneficiaries.Fulfillingthosedutiestoothersrequiresthoughtandcare.Itrequirespurposefulness.
Afirststepinpurposefulgivingistoaskyourself,“AmItrulyatrustcreator?”Mostpeopleareactuallytrustsigners.Thatis,theysignatrustdocumentdraftedbyanattorney,adocumentlargelyifnotwhollycomposedof“boilerplate.”Thereisnothingcreativeaboutit.Indeed,ifyoufindyourselfplowingthroughreamsofdocumentsinonesitting,youmaynotevenbeatrustsigner:youmaybemoreofatruststamper!
Toactcreativelyrequiresfirstunderstandingwhereyouarecomingfrominthiswork.Weencouragetrustcreatorstoaskthemselvestheseadditionalquestions:
Whatisanexampleofagiftthatyouhavemadethatenhancedyourlifeandthelifeofyourrecipient?Itmayhavebeenabiggift;itmayhavebeensmall.Thesizeisnottheissuebutratherthespirit.
Whatisanexampleofagiftthatyoumadeorreceivedthatdidnotenhancethelivesofthegiverandoftherecipient?Interestingly,mostpeoplefinditeasiertothinkofthesenegative,failedgiftsthanexamplesofpositive,successfulones.Thisgoestoshowhowharditistogivewell.
Whatchallengesareyoufacingnowinyourgivingandhowdoyouplantoaddressthosechallenges?
Ourpastexperienceswithgivingalwaysaffectourpresentorfutureattemptstogivewell.Ifwedonotacknowledgethoseexperiences,welosethebenefitoflearningfromthem,andweopenourselvestobeingcontrolled,unconsciously,bytheireffects.Thatistheveryoppositeofactingpurposefully.
Someadditionalquestionsmayhelpyouasatrustcreatorgainevengreaterclarityaboutyourself,asagiver,inpreparationformakingagiftwithspirit:
Whereareyouinyourlife?Thatis,whereareyouinyourownstageofdevelopment?Makingagiftatage40isverydifferentfrommakingagiftatage80.Ourhopesandaspirationschangeaswegothroughthestagesofourlife.Thesehopesandaspirationswillnaturallyaffectourexpectationsofourgifts.
Whatdoyouwanttoachieve?Thisquestionrefersmoretothedesiredoutcomeofthegiftthantoitspurposeorintention.Agift'spurposemaybetoenhancethelifeofthebeneficiary.Oneofitsoutcomesmaybetorestrictfundsinthecasethatthebeneficiaryshowssignsofaddiction.Sometimesthetoughestconversationsamonggiversandrecipientsconcerntheseemingdisparitybetweenintentionsandoutcomes.Peopleoftenseeonlytoday'soutcomeandmisstheenduringintention.
Doesthegiftreflectyourvalues?Thisisafundamentalquestionforeverygiver.Allofushavevalues,deeplyheldbeliefs,whichgovernourchoicesandourfeelings.Sometimeswedonotacknowledgethosevaluesclearlyenough,andasaresultwebecomeangrywhenweseeagiftwehavemadebeingusedinwaysthatoffendthosevalues.Inothercasesgiversmakeadherencetotheirvaluesaconditionforreceivingagift,sparkingresentmentorresistanceintherecipient.Whatyourvaluesareandtowhatdegreeyouwantthemtogovernthemannerofyourgivingarequestionsonlyyoucananswer—butansweringthembeforeyougiveiscrucialtogivingwell.
Wouldthisgiftbringyoujoy?Thisisaquestionthatrequiressomeimaginationtoanswer.Imaginethatyouhavemadethegiftintrustandthatitisnowseveraldecadeslater.Thetrusthasplayedaroleinthelifeofthebeneficiary.Whatdoesitsimpactlooklike?Whatchoiceshasitmadepossible?Inwhatwaysmayithaveheldthebeneficiaryback?Doesthisvisionbringyoujoyinyourheartorpain?Ifthelatter,thenitmaybeimportanttorethinkthetrust.
Next,asatrustcreator,askyourselfwhetherthegiftintrustthatyouarecontemplatingorhavemadeisagiftwithspirit.Thatis,
Doesithaveaclearintentionorpurpose?
Isitfocusedonenhancingthelivesofthebeneficiaries?
Hasthatpurposebeenclearlycommunicatedtothebeneficiaries?
Inmanycases,trustcreatorsdohaveclear,positivepurposesfortheirgifts,but
whenitcomestothatthirdquestion,theybalk:“HowcanItellthebeneficiariesaboutthetrust?Imaydisincentivizethem!”Thisconcernisaveryrealone.Whileweencourageclearcommunication,itisalsothecasethatcommunicatingtoosoonmayserveasthat“meteor”thatknocksabeneficiaryoffhisorherlife'spath.Onlyyoucantellwhetherthatwouldbethecaseatthismomentintime.Ifitseemspossiblethatitwouldknocktherecipientoffcourse,thendonotcommunicatethegift.Butrecognizeatthesametimethatthegiftisnottrulycomplete—itremainsatransfer—untilthecommunicationtakesplace.Focus,then,onhowtohelpthebeneficiarymovetoaplacewheresuchcommunicationwillbepossible.Andifitseemsasthoughsuchatimewillnevercome,thenperhapsitwouldbewisernottomakethegiftatall.
Justasitiscrucialforatrustcreatortounderstandhim-orherselfinordertogivewell,sotooitiscrucialtounderstandtheintendedbeneficiary.Nogiftcanbemadewelltosomeoneyoudon'tknowordon'ttrytounderstand:anypositiveoutcomeinsuchcasesismereluck.Tothisend,askyourselfthesequestionsabouttheintendedrecipient:
Whereistherecipientinhisorherlife?Thatis,whatstageofdevelopment?Makingagifttoateenagerisnaturallymuchdifferentthansettingupatrustforsomeoneinmiddleage.
Whatistherecipient'scharacter?Canyoutrusthimorher?Doestherecipienthabituallymakegoodchoicesorbadones?Thesemaybequestionsthatarepainfultoface,buttheymustbefacedifyouaretomakeanhonestappraisaloftherecipient'sabilitytoreceivewell.
Whatistherecipient'stemperament?Temperamentisdifferentthancharacter:itismorethewaythattherecipientisintheworld:slowversushasty,gentleversusangry.Temperamentcanbeannoying,butitdoesnotrisetobeingoffensivethewaybadcharacterdoes.
Whatmoneyskillsandknowledgedoestherecipientpossess?ItisnotnecessaryforagreatrecipienttohaveanMBA.But,asdescribedearlier,somebasicunderstandingisaresponsibilityofagreatbeneficiary.Iftherecipientdoesnothavesuchknowledgeandskills,howcanyouorthetrusteehelphimorherdevelopthem?
Howresilientisthebeneficiary?Thisisacorequestion,sinceresilienceaffectsthebeneficiary'sabilitytointegratethe“meteor”ofthetrustintohisorherlife.Resilienceistheabilityto“bounceback”fromchallenges.Itispartlygeneticandpartlylearned.Itcanbedevelopedthroughwork,apprenticeship,sports,andotherdemandingactivities.Iftherecipienthasnotdisplayedresilience,howcanyouorthetrusteehelphimorherincreaseresilience?
Atthispointyoumaybegettingclosetofinalizingyourtrustandmakingthegift.Ifyouhavedonesobasedonatrueunderstandingofyourselfandyourrecipient,thenbravo:youareaheadofmosttrustcreators.Justassomeknowledgeofthetrust
itselfisimperativeinthecaseofabeneficiary,itisalsotrue—andmaybeevenmoreso—inthecaseofthetrustcreator.Tothatend,amongtheresponsibilitiesoftrustcreatorsweincludethesepoints:
Togainaclearcomprehensionofthetrustagreement.
Toeducateyourselfabouttheresponsibilitiesofthetrusteesand(ifapplicable)trustprotectors.
Tounderstandthetrustee'sdutytobalancetheinterestsofpresentbeneficiariesandremainderorcontingentbeneficiaries.
Tounderstand,inabasicsense,modernportfoliotheoryanditsapplicationtotrustassetallocation.
Tolookforproofthateachtrusteerepresentsallbeneficiaries.
Tomeetwiththetrusteesatleastonceayeartoassessthetrustee'sperformance,especiallywithaviewtowardthedevelopmentofbeneficiaries.
Wesharetheseresponsibilitiesbecausetheyare,inaway,bothbroaderandnarrowerthantheapproachthatmanytrustcreatorstaketotheirtrusts.Manytrustcreatorsseethetruststheyestablishas“mymoney.”Asaresult,theymaycontacttrusteesfrequently,demandingbetterinvestmentperformance,andbristlingattrustees'commentsthattrustscannotbemanagedthesameaspersonalfunds.Theseresponsibilitiesshouldhelptrustcreatorsseethat,becausetrustfundsarenotpersonalfunds,theirmanagementisdifferentand,indeed,themainquestionisnot,“Whatreturnarethetrust'sinvestmentsmaking?”butrather,“Whatimpactisthetrusthavinginthelifeofthebeneficiary?”
Finally,wecomebacktothetopicofcommunication.Asmentionedearlier,agiftisnotcomplete—itremainsatransfer—solongasitisnotcommunicated.Whenyourrecipientsareindependentadults,werecommendathree-stepprocessformakingthiscommunication(wediscussthisthree-stepprocessatmorelengthinChapter16):
First,clarifywhatyouwanttocommunicate,andthendiscussthiswithyourspouseorpartner.Together,planthecommunicationwithyourchildrenorotherrecipients,whetherthatwillbeoneononeoralltogether.Itisusuallylessstressfulandmoremanageabletocommunicateoneonone,thoughparentsmustbemindfulthatchildrenspeakwitheachother,sotheircommunicationshouldbeconsistent.
Second,holdtheconversationwithyouradultchild.Useitasanopportunityto“seektounderstand.”Sharewhatyouhavedecidedtoshare,andthenlisten.Seewhatquestionsyourchildhas.Seehowheorshereacts.Remindyourwould-berecipientthattodiscussthetopicisnottodecidethematter.Youretaintheprerogativetochangeyourmindasyoufinalizeyourplans.Butyouwouldlikehisorherinput.Sometimeschildrenhaveveryhelpfulthoughts,especiallywhenit
comestostructuringtrustsfortheirownchildren,yourgrandchildren.Listentotheirthoughtsandmakenotes.
Third,reflectonwhatyoulearnedintheconversationswithyouradultchildren.Decidewithyourspouseorpartneriftherearechangesthatyouwanttomaketoyourplans.Iftherearechanges,makesuretocommunicatethosechangestoyourchildren.Loopbacktotheminanyeventtoletthemknowyourplanningiscompleteandthatyouappreciatetheirinvolvementinit.
Suchaprocessiseasiertodescribethantodo.Butwehaveseenmanycouplesgothroughitinthisstep-by-stepwayandcomeouttheotherendfeelinggoodabouttheresults.Ittakestimeandittakeshonest,sometimesdifficultconversationswithyourspouseandchildren.Butproceedingmethodicallygreatlydecreasesthelikelihoodthattherewillbedifficultconversationsorevenconflictafteryouaregone.
Butwhataboutwhenyoudonothaveindependent,adultbeneficiarieswithwhomtocommunicateinthisreasonablefashion?Whatifyourrecipientsarechildrenorevenunborn?Whatiftheyaredisabledbyaddictions?
Inthecaseofaddiction,werecommendthattrustcreatorscarefullyconsidertherecommendationsofferedbyBillMessingerinChapter15,whichfocusesonthisdifficultarea.
Inthecaseofminororunbornrecipients,youmustsimplyacceptthatyouarenotmakingatrulycompletedgift:youaremakingatransferandrelyingonthetrusteetocompletethegift.Thisisacrucialpointtorecognize.Insuchcases,youmustrelyonthetrusteetoinfusethegiftwithspirit.Todoso,thetrusteewillhavetorelyonyourguidanceanddirection,sometimesintheformofwrittenlettersofwishesorthe“Preamble”toyourtrustasdescribedinChapter10.Youwillalsoneedtogivethetrusteethediscretiontoshapethespiritoftheeventualgifttothecharacterandqualitiesofthefuturerecipients.
Again,noonecangivewelltosomeonehedoesnotevenknow.Thisinabilitypointstoalastconsiderationinsuchcases:youmusttrustyourtrustee.Thechoiceoftrusteeanddesignofthetrustscapebecomehighlyimportantwhenyouaremakingatransfertominororunbornrecipients,foritisthetrustee(perhapssupportedbytheDistributionCommitteethatwedescribeinChapter20andAppendix3)whowillturnthattransferintoatruegiftwithspirit.Whocanservewellinsucharole?Asastartingpoint,reconsidertheprinciplesthatwedescribeintheIntroduction,particularlyanunderstandingoftheprincipleofregency.
Wewanttoendwithonemorequestion,atleastforpeoplewhoareconsideringbecomingtrustcreators:whatdoyouwanttonameyourtrust?Thismayseemlikeaminormatter.Infact,itusuallygetshandledinacursoryfashion,asdocumentsareflyingabout,beingpreparedforsigning.Asaresult,mosttrustsendupwithcumbersomenames,composedofthenameofthegiver,adate,andperhapssomelegalesedescribingthetypeoftrust.Forexample,“TheJohnDoe2015Grantor
RetainedAnnuityTrust.”
Butifyouthinkaheadafewyears,whatisitthatyourbeneficiariesaregoingtoseeofthistrust?Theywillgetacopyofthetrustagreement,butunlesstheyreadthefirstpartofthischapter,theymaypaylittleattentiontothat.However,atsomepointintheiradultlives,theywillstartreceivingmonthlyorquarterlystatementsfromwhomever'smanagingthetrustassets.Andatthetopofthosestatementswillbethenameofthetrust.Doyouwantthatnametoappeartothemtobegibberish?Doyouwanttoremindthemofadatethatprobablydoesnotmeananythingtothem?Asworthyasyouare,doyouwantthenametobeallaboutyou?
Instead,arethereotherwords,perhapsexpressingvalues,thatyouwouldprefertopassbeforeyourbeneficiaries'eyeseachtimetheyopenatruststatement?Whatarethosewords?Perhapssomeofthemwouldmakeafinenameforatrust.Comingupwithameaningfultrustnameisasmallbutpowerfulstepinactivegiving.
Notes
1.Formoreonflowanddreams,seetheclassicworkbyMihalyCzikszentmihalyi,Flow:ThePsychologyofOptimalExperience(NewYork:Harper,2000).
2.See,forexample,MartinSeligman,AuthenticHappiness(NewYork:FreePress,2002),ChapterFive,andmanyotherbooksthereafter.
CHAPTER8THETRUSTPROTECTORANDTHETRUSTADVISER
Peopleoftenimagineatrusttobesomethinglikeasafe,withthetrusteekeepingwatchoverit.Thebeneficiarymayevenbeconsideredasafecracker,lookingforanopeningandawaytogetthegoods.
Wedisputedthisversionofthetrusteeinthepriortwochapters.Ifatrustisnothingbutasafe,thenitisnotatrust:atrustrequiressomeone,abeneficiary,forwhomitdoessomegood.ThetrusteeisnotaBrinksguard.Heorsheoritmustplaysomedistributiverole.Indeed,thatroleispartofthetrustee'shighestpurpose.
Nonetheless,the“guardian”versionofthetrusteeisapowerfulone.Anditleadsnaturallytoaquestion,firstposedbytheRomanpoetJuvenaltwomillenniaago:Quiscustodietipsoscustodes?“Whoshallguardtheguardiansthemselves?”
TrustAdvisersTheconcernisacommonone.Ifyouareentrustingabank,oranattorney,oragoodfriendwithassetsforthebenefitofsomeoneyoucareabout,howcanyoubesurethatthetrusteewillmanageanddistributethoseassetsasyouwish?Ifthetrusteeisanindividual,nodoubtyouhaveexaminedhisorhercharacterandfindittrustworthy.Ifthatindividualisaprofessional,youalsoprobablyrelyonhisorherprofessionalidentityandethics.Andifthetrusteeisacompany,youlikelyrelyonitswell-developedprocessesandprocedures,aswellasitsconcernsforitscorporatereputationandfearoflitigation.
Still,noneofthesesafeguardsarefoolproof.Evenpeopleofgoodcharactercandisagree.Professionalethics,procedures,reputation,andlitigationcannotensureunanimitywithatrustcreator'swishes.
Asaresult,sometimesthetrustscapeincludesanadditionalcharacterorsetofcharactersknownastrustadvisers.Trustadvisersaredistinctfromtheattorneysoraccountantswhoadviseafamilyaboutthecreationormodificationofatrust—thoughthesesameprofessionalsmayalsoserveintheroleof“trustadviser.”
Thisrolewasdevelopedtowatchoverthewatchers,toguardtheguardians.Typicallyitiswrittenintothetrustagreement,withsomestatementofthepowersandresponsibilitiesofthetrustadviser,alongwithadescriptionofhow(orif)thetrustadvisercanselecthis,her,oritssuccessor.
Commonfunctionsofthetrustadviserinclude:
Reviewinginvestmentmanagementdecisions.
Receivingandreviewingthetrustee'saccountings.
Reviewingdistributivedecisions.
Providing,whenrequested,insightstothetrusteeregardingthetrustcreator'swishesorhopesforthetrust.
Servingasaconduitbetweenthetrusteeandbeneficiaries,advisingthetrusteeastothetrueneedsofbeneficiaries.
Inmanyoftheseways,thetrustadvisermayserveasasortofproxyforthetrustcreatorhim-orherself,a“stand-in”forapersonwhohaspassedawayorwhocannot,forlegalreasons,attempttoinfluencethetrustee.Forthisreason,atrustadviserisoftenayoungerassociateofthetrustcreator,someonewhoisdeeplytrustedandwhomthetrustcreatormayevenlookuponasasortof“secondself.”
Veryimportantly,becausethetrustadviserdoesnothavethepowertomakedecisionsforthetrustee,thetrustadviserisnotafiduciary.Thatmeansthatthetrustadviserisnotrequiredtoactsolelyinthebestinterestsofthebeneficiariesofthetrust.Also,thetrustadviserisnotsubjecttotheliabilityofatrustee,alongwiththereputationalandeconomicrisksthatsuchliabilitybrings.Theabsenceoffiduciaryliabilitysometimesmakesatrustadviserrolemoreattractivetoafamilyorbusinessconfidantwithhisorherownpersonalwealthtobeconcernedabout.
TrustProtectorsOutoftheroleoftrustadviserhasgrownanadditionalguardian,thetrustprotector.Trustprotectorsoriginallyweredevelopedtoexercisespecificadministrativeortaxfunctionsforoffshoretrusts.Butinthepasttwodecades,theyhavebecomemorecommonindomesticcircumstancesaswell.
Somejurisdictionshavealsocreatedlegislationdefiningthetrustprotectorrole(e.g.,theUniformTrustCodeincludestrustprotectors)anddeterminingwhetheratrustprotectordoes—ordoesnot—havefiduciarydutiessimilartothoseofatrustee.Naturally,thatdeterminationisasignificantfactorinthemindsofanyoneconsideringwhethertoacceptappointmentasatrustprotector.Youshouldconsultyourtrustcounselregardingtheuseofatrustprotectorinyourjurisdiction.
Ideally,fromthestandpointofapotentialtrustprotector,theroleisdefinedinsuchawayastotrytoavoidfiduciaryduties.Nevertheless,manytrustprotectorsstillmanagetohavewide-rangingpowers.Inthischapterwewillreviewthesebroadpowers.Asthisguideprogresses,andparticularlyinPart4,wewillargueforamorenarrowandfocusedapplicationofthetrustprotector.
Startingwiththebroadrange,someofthetrustprotector'spowersmayinclude:
Removingorappointingtrustees.
Modifyingthetrustfortaxpurposes.
Modifyingbeneficiaries'interests.
Modifyingpowersofappointment.
Changingtheapplicablelawgoverningthetrust.
Terminatingthetrust.
Atrustprotectorcannotbenefitfromthetrust.Butabsentthisrestriction,andabsentanyactsof“badfaith”bythetrustprotector,hisorheroritspowerscanberemarkablybroad.
Ofcourse,suchbroadpowersraisethequestion,“Whoshallguardtheguardians?,”toyetanotherlevel.Asaresult,sometrustsspecifythatthetrustprotectorshallspringintoactiononlyoncertainconditions.
Forexample,aswediscussinmoredetailinChapter21,atrustprotectormaytakea“judicial”role,asan“elder”withinthefamilysystem.Whatthisroleentailslookssomethinglikethis:Atrustmayspecifythatthetrusteehasabsolutediscretiontomakedistributionstothebeneficiaryinordertofurtherthatbeneficiary'sflourishinginlife.Ittakesanenlightenedtrusteetoexercisesuchdiscretionwell.Thetrusteewillneedtotakethetimetogettoknowthebeneficiary,hisorhertrueneeds,andthebestwaystosupportandfosterthebeneficiary'sgrowthanddevelopment.Asthebeneficiarygrowsanddevelops,heorshemaytakeadifferentviewofthoseneedsthanthetrustee.Thiscanleadtoconflictoveradistribution.Insuchacase,eitherpartycouldaskthetrustprotectortospringintoactiontoreviewthequestionand,inamediatorrole,helpresolvetheconflict.Suchmediationdoesnotrequirethatthetrustprotectordecidetheissueorapprove(ordeny)thedistribution.Rather,asanelder,thetrustprotectorwouldlistentobothsides,reflectonthecircumstances,andproposesolutionsforthetwopartiestoconsider.Ifmattersremainatanimpasse,thenandonlythencouldthetrustprotectorbeauthorizedtotakemoredirectinterventions,suchasbyremovingthetrusteeandappointinganotherinhis,her,oritsplace.
Wehaveseentrustprotectorsactinsuchajudicialfunctionwithgreatsuccess.Oneofthebenefitsofdefiningthetrustprotector'sroleinthiswayisthatitpreservestheintegrityoftheprimacyoftherelationshipbetweenthetrusteeandthebeneficiary:neitherisinclinedtolooktothetrustprotectorasthetrue“powerbehindthethrone.”Thetrustprotector'smainfunctionistomediate,notdecide.Andthatpowerarisesonlyattherequestofoneoranotheroftheparties.Atthesametime,thetrustprotectorhasthe“teeth,”ifallelsefailstoresolveaseriousimpasse.
ChoicesGiventhesometimesbroadandsignificantpowersofatrustadviserortrust
protector,thechoiceofanindividualorcompanytofillsucharoleisaseriousone.Asmentioned,trustcreatorsoftenlooktosomeonelikethemselvestofilltheroleoftrustadviserortrustprotector:almosta“secondself”tokeepwatchoveraninstitutionalorprofessionaltrusteeandthebeneficiaries.
Thisapproachisnatural,butithasitsdownside.Atrustadviserortrustprotectorwhomthetrustcreatorselectsbecausethatpersonlooks“justlikeme”willimmediatelybeseenassuchbythetrusteeandthebeneficiaries.Theresultisthatthetrustadviserortrustprotectorwillbebrandedas“Dad's”(orMom's)“guy.”Foraprofessionalorinstitutionaltrustee,suchachoicemayleadtoconflictoverthetrust'sinvestmentstrategy.Professionalorinstitutionaltrusteesofteninvesttrustfundsinwaysthatcomportwiththeirprofessionaljudgmentbutthatarenotasaggressiveorriskyasdesiredbythe(nonprofessional)trustcreatororhisorherdeputies.Choosingatrustadviserorprotectorwhowouldinvest“justlikeme”couldsetupyearsofconflictwithamorejudiciousprofessionalorinstitutionaltrustee.
Forbeneficiaries,thechoiceofsuchatrustadviserorprotectorcanleadtoyearsofconflictwithafatherormothersubstitute.Makingthetrustadviserorprotectorserveinlocoparentiscouldmeanrelegatingadultbeneficiariestothelocuspeurorum—theplaceofperpetualchildren.Thereisnobetterwaytoraisetrustfundbabiesthantotreatadultsasbabies.
Especiallyinthecaseofatrustprotector,itistemptingtochoosesomeonewhomyouthinkwouldmakeagreattrusteebutwhoisunwillingtoserveintheroleoftrusteebecauseoffiduciaryliability—andthengivethattrustprotectoreverypowerpossible.Thishappensfrequentlywithtrustedattorneyswhoselaw-firmsormalpracticeinsuranceprovidernolongerallowthemtoserveasindividualtrustees.But,asmentionedabove,makingsuchachoicecansetupabitterconflictbetweentheactualtrusteeandthis“shadow”trustee.
Forallthesereasons,enlightenedtrustcreatorsoftenresistthetemptationtoappointatrustadviserorprotectorwholooksjustlikethemorwhoservestodotheirbidding.Instead,theymaylooktoanindividualorcompanythatexcelsinnavigatingthecomplexrelationshipsformedamongtrustees,beneficiaries,trustcreators,andtrustadvisersorprotectors.(Theymayalsoaskadultbeneficiariestosharetheirinputandtointerviewprospectiveprotectors.)This“systemssense”isperhapsthemaincriterionnecessaryinagoodtrustadviserorprotector.Fromthissystemssensefollowsattentiontocommunicationandtotheneedtoshareinformationinordertofostersharedpurposeandeffectivedecisionmaking.
Finally,awisetrustadviserorprotectorknowshowtopreservethegreatestassetthatheorsheorithas:theluxurytotakethelongview.Unlikeatrustee,whoispressedbycircumstancestoattendtotheday-to-daymanagementofthetrustaswellasthehere-and-nowgoodofthebeneficiary,thetrustadviserorprotectorcanattendtotherolethatthetrustwillplayintheentirefamily'slifeforthenextdecadeoreventhenextcentury.Thislong-termviewisagreatassettobuildintoany
trustscape.Again,wewillcomebacktotheroleoftrustprotectorinPart4,withideasonhowawell-structuredtrustprotectorfunctioncanplayanimportantroleinawholenewversionofthetrustscape.
PARTTHREEBUILDINGGREATRELATIONSHIPS
CHAPTER9CONSIDERATIONSPRIORTOACCEPTINGAPPOINTMENTASTRUSTEE
Atthispointyoushouldhaveagoodsenseofwhatismeantbyatrustscapeandwhothemainplayersarewithinthatenvironment.Butunlikealandscapeorportraitpainting,thetrustscapeanditsdenizensarealive.Itisnowtimetoputthemintomotion.Thechaptersinthispartfocusonthepracticeofbuildinggreatrelationshipswithinthetrustscape.Weinviteyoualwaystokeepyourownsituationinmindasyoureadsothatyoucanconsiderhowtoapplythesepracticestoyourtrustscape.Buttohelpyougetstarted,wewillbeginwithanotherstory.
Imaginethatafriend—callherSarah—phonesyouseekingadvice.Yearsago,shewasnamedtrusteeinanotherfriend'swill.WhenaskingSarah'spermissiontodesignateher,herfriendexplainedthatshedidn'thavecandidatesotherthanfriends.Shehadnochildrenofherownandwasalienatedfromherniecesandnephews.Sarahwantedtoaccommodateherfriend,soshegaveitlittlethoughtbeforeagreeingtobenamedinherfriend'strustdocument.
Sarah'sfrienddiedlastweekattheageof79.Theestateinquestionisamixofassetsandmoderatelydisorganizedrecords,withniecesandnephewsalreadymakingdemands.
Let'sconsiderthingsfromSarah'svantagepoint.Forthefirsttime,she'sconfrontedwiththecomplexitiesandtimecommitmentfacedbybeingatrustee.She'sexperiencingemotionalturmoil,weighingloyaltytoherfriend'swishesagainstthedemandsofherlifetoday.
Sarahhasafull-timecareerandherownfamilytotendto.She'salreadyverybusyasitis.Whatseemedaminordecisionyearsagoistodayanythingbuthumdrum.Infact,she'swonderingwhethertodeclineappointment.
Sarahsaysthathadsheknownthenwhatsheknowsnowabouttherealityofbeingatrustee,shewouldhaveweighedherdecisionmorethoughtfully.
Sheespeciallywishesthatherfriend'sattorneyhadtakenthetimetospeakwithherinsomedetailatthetimethewillwasdrafted.
Estateplansroutinelydesignatetrustees,andthedesignationcanbemademanyyearsbeforethenamedindividualisaskedtostepintotherole,inotherwords,atatimewhenthereisnoemotional“heat”todealwith.And,mostoften,theattorneydraftingtheestateplangiveslittleexplanationoftheday-to-dayrealitiesofbeingatrusteetothoseindividualswho'veagreedtobenamed.
So—You'veBeenAskedtoServeasTrusteeIfyouareinSarah'sposition,ormaybeatsomepointinthefuture,howdoyouevenbegintothinkaboutthisrequestandwhethertosayyes?
Yourinitialresponseshouldlikelybesomeversionof,“Thankyouforasking.Itakeyourrequestseriously,sopleasegivemealittletimetothinkaboutit.”Alsoaskforacopyofthetrustdocumentandanswerstothesequestions:
Whoisthecreatorofthetrust?
Whoarethebeneficiaries?
WhenwouldIbegintoserveastrustee?Rightaway?Whensomeonedies?Someothertime?
Whatledyoutoaskme?
Findaquietplace,takeafewdeepbreaths,andtuneintoyourintuition.Don'toverthinkitasyouconsider:
Whatdoesmyguttellme?AmIfeelinganxiety?Excitement?Fear?Joy?
WhyamIinclinedtosay“no”?
WhyamIinclinedtosay“yes”?
We'llcomebacktothesequestionsagain.
NowforSomeHomeworkReadthetrustdocumentwithpurposeandcuriosity.Markitupwithcommentsandquestions.It'ssurprisinghowmanypeoplefailtodothis.
Awordofcaution.Muchofthetrustdocumentwillbeboilerplate(standardlanguagetosavetaxes,administerthetrust,andsoon).Boilerplatetendstobelegaleseandboring.Don'tskipoverit.AswesawinChapter5's“treasurehunt,”youneverknowwhatmightbehiddenthere.
Herearesomequestionsforyoutokeepinmindasyouread:
Areyouabletodiscernthepurposeofthetrust?
Whenwouldyourroleastrusteebecomeactive?
Istheremorethanonetrustee?
Whatpropertyisgovernedbythetrust?
Whoisentitledtoreceivedistributionsfromthetrust?Underwhatcircumstancesaredistributionstobemade?
Whendoesthetrustcometoanend?Thenwhathappenstothetrustassets?
Thisisalsothepointtoaskyourselfsomeimportantquestions.WetalkedinChapter4aboutnarratives.Whatnarrativedoyoubringtothepotentialroleoftrustee?Areyouyourselfabeneficiaryorarecipientofwealth?Whatnarrativedoyouholdaboutfamilywealth?Doyouseeitassomethingpositiveorasasourceofdysfunction?Howdoyoufeelaboutyourmanagementofyourownaffairs?Doyouenjoykeepingtrackofyourownassets,liabilities,income,andexpenses?Ordoyoufindsuchfinancialadministrationandmanagementarealchore?Haveyousetuptrustsforormadesignificantgiftstoyourownchildrenorotherrelatives?Ifso,didthatgowellornotsowell?Givingyourselfhonestanswerstothesequestionsisakeypartofapproachingpotentialtrusteeshipwithopeneyes.
IfYouAreNewtotheTrustscapeOnceyou'velookedintoorreflectedonthequestionsabove,ifyoustillwanttomoveahead,makealistofpeopleyouknowwhoare(orhavebeen)trusteesand/orbeneficiaries.Ifnonecometomind,askyourfriendsfornames.Scheduletimestospeakwithatleastafewofthoseonyourlist.Listencarefullyandtakenotesduringyourinterviews.
Questionstoasktrusteesmightinclude:
Howdidyoumakeyourdecisiontoacceptappointment?
Whathasyourexperiencebeenservingasatrustee?What'schallengedyouthemost?What'ssurprisedyouthemost?What'sgivenyouthemostsatisfaction?
Whatadvicedoyouhaveforme?
Questionsforbeneficiariesinclude:
Howwouldyoudescribeagreattrustee?
Whatworksreallywellbetweenyouandyourtrustee?Whatcouldstandsomeimprovement?
Whatadvicedoyouhaveforme?
Whenyourinterviewsarecomplete,askyourselfthesequestionsonceagain:
Whatdoesmyguttellme?
WhyamIinclinedtosay“no”?
WhyamIinclinedtosay“yes”?
UnderstandingtheTechnicalSideAssumingthatyouarestillonboard,thenextstepistoaskthetrustcreatortoscheduleatimeforthetwoofyoutospeakwiththeattorneywhodraftedthetrust
document.Anhourshouldbeenough.Yourgoalistounderstand,atahighlevel,thetrustdocument,thetrustee'slegalduties,possibleliabilities,theadvisoryteam,andthemagnitudeandcomplexityofassets.Don'tforgettobringthecopyofthetrustdocumentthatyoumarkedup.
Awordaboutliability:indiscussionsoftrusteeship,liabilityoftenbecomesthecentraltopic,ifnottheonlytopic,ofconsideration.Thisisunfortunate,sincethepointoftrusteeshipistoservewell,nottoprotectyourself.Thatiswhywehavefocusedourattentiononthelarger,humanquestionsoftrusteeshipratherthanthetechnicalmatterofliability.
Thatsaid,liabilityisanimportantconcern,anditwouldberashtoenterintotrusteeshipwithoutgivingitthoughtfulconsideration.Generally,whenatrustbenefitsprivateindividualsalone(andnotcharitableentities),themainsourceofliabilityarisesfromclaimsthatthoseindividuals,thebeneficiaries,mayhavethatthetrusteehasharmedtheirinterestbyinadequateadministration,poorinvestmentoversight,orunfairdistributions.Itisimpossibletopredictallspecificoccasionsforsuchclaims.Butifyouareconsideringacceptingappointmentasatrustee,herearesomequestionsthatmayhighlightconditionsinwhichclaimsagainstyoumightarise:
Doyouknowthebeneficiariesoraretheystrangerstoyou?
Didthetrustcreatorhaveacloseorastrainedrelationshipwiththebeneficiaries?
Doesthefamilyhaveahistoryofconflictualrelationshipswitheachother?Isthereahistoryof“cuttingoff”familymemberswhenconflicthasarisen?
Doesthefamilyhaveahistoryoflitigation?Inparticular,arethereanyinstancesofpasttrusteesbeingsued?
Willyoubedealingwithbeneficiarieswhoarechildrenfrommultiplemarriages?Ifso,havetherebeenamicableorconflictualrelationsamongthevariousspousesandex-spouses?
Willyoubedealingwithbeneficiariesfrommultiplebranchesofthefamily?
Willyoubedealingwithbeneficiariesfrommultiplegenerations?
Doyouknowifanyofthepresentorfuturebeneficiarieshaveorhavehadsignificantaddictionsorotherbehavioralissues?
Doesthetrustincludeassetsthatrequirespecialexpertisetomanage?
Doesthetrustdirectthetrusteetotakeanyunusualstepswithregardingtomanagingcertainassets(e.g.,holdingaparticularstockdespiteadversemarketconditions)?
Doesthetrustholdsomeoralloftheownershipinafamilybusiness?
Noneoftheseconditions(exceptperhapsahistoryoflitigation)isaproverbial“redflag.”Buttheyareallpotential“yellowflags,”whichwouldcounselyoutogoslowly
andaskmorequestionsbeforeacceptingappointment.
Followingthemeetingwiththeattorneyandyourreflectiononthesemattersofliability,onceagainaskyourself:
Whatdoesmyguttellme?
WhyamIinclinedtosay“no”?
WhyamIinclinedtosay“yes”?
AlmostThereThissetofquestionsforyourselftakesitdeeper:
1. DoIunderstandwhythetrustcreatorselectedmetobetrustee?Moreimportantly,doIbelievethetrustcreator'sreasoninginchoosingmetobeatrusteewasvalid?
2. AmIsufficientlyhumbleaboutareaswhereI'minexperienced,andreadytotakeinitiativetoinformmyselfthroughreadingandconsultingwithothersorexpandingmyexperienceatmyowninitiative?
3. AmIcomfortableoverseeingthespendingchoicesofthebeneficiaries?DoIthinkthatmonitoringafamilymember'smoneycouldchangemyrelationshipwiththem?
4. DoIknowwhattodoifthereisadifferenceofopinionbetweenmeandthebeneficiary?WithwhomwouldIconsult?HaveIidentifiedfriends/colleagueswhocouldadvisemeinformallywhoareotherwiseindependentofthetrustanditsbeneficiaries?
5. HaveItalkedwiththebeneficiaryabouttheimplicationsofthisnewarrangement,goals,andexpectations?
6. AmIlookingforwardtotheopportunitytobetrusteeforthisfamilymember?Ifso,why?Howwilltheybenefit?
7. WillIbepaidforthiswork?Ifso,howdoIfeelaboutthat?Andhowwillmycompensationbedetermined?Ifnot,howelsemightthiseffortbenefitme?
8. HowsignificantdoIthinktheliabilityriskis?AmIcomfortablewiththeliabilityassociatedwithbecomingatrustee?
9. AmIpreparedtotakeonthelong-termcommitmentofbeingatrustee?IfIeverbelieveitisrightornecessarytostepdown,whatistheprocessforresigning?
AFinalStepAtthispoint,youmaybeaskingyourself:“Whywouldanyoneeveragreetoserveasatrustee?”Afterall,don'tthetimecommitment,administrativeresponsibilities,and
potentialliabilityadduptoaterribleburden?Ifthat'sallthereistobeingatrustee,we'dtendtoagree—andadviseyoutoleaveitsolelytotheprofessionals.
So,beforeyoumakeyourdecision,wesuggestafinalstep.Now'sthetimetoriseaboveadministrativeresponsibilitiesanduseyourimagination.ReadahandfuloftheinspiringstoriesinTrustWorthy.1Seeifyoucanimagineyourselfsteppingintothelife-changingrolesplayedbythetrustees.Doesthatimpactyour“narrative”aboutservingastrustee?
NowYou'reReadytoDecideSomepeopleacceptappointmentastrusteebecausetheyviewtrusteeshipasameaningfulwaytoservetheirfamilyorafriend.Therearethosewhoacceptbecausetheydon'twanttoletfamilyorfriendsdown.Othershavedeclinedbecauseoftheemotionalortimecommitment,orthepotentialliability,orthefearthatservinginthatrolewillchangetheirrelationshipsinpossiblynegativeways.Thereisnorightorwronganswer.Doyourresearch,andthenfollowyourheart.
Onemorepoint:inChapters7and8wediscussedthechoicesthatyoumayhavewithregardtoselectingtrusteesortrustprotectors.Thischapterhasfocusedonconsiderationsbeforeacceptingappointmentastrustee.Ifyourfocusisselectionratherthanacceptanceyoucanalsousemanyofthesesamequestionsforevaluatingpossiblecandidatesfortheseroles.Andifatrusteecandidatecomestoyouwiththesequestionsinhand,that'sagoodsignthatheorsheisevaluatingthepossibilityofservingwithgreatseriousness.
Note
1.GoldstoneandWiseman,TrustWorthy—NewAnglesonTrustsfromBeneficiariesandTrustees.TrustscapeLLC(2012).
CHAPTER10CREATINGPREAMBLES
Manyofusbeyondacertainage,ifaskedtodefine“preamble,”willharkenbacktosixth-gradecivics,andstartwithanexample—andthreepowerfulwords:“WethePeople…”
ThePreambletotheUnitedStatesConstitutionconveysthefundamentalpurposeofwhat'stofollow.Ingeneralterms,itstateswhatthefoundingfathershopetheConstitutionwillachieve:
WethePeopleoftheUnitedStates,
inOrdertoformamoreperfectUnion,
establishJustice,
insuredomesticTranquility,
provideforthecommondefense,
promotethegeneralWelfare,
andsecuretheBlessingsofLibertytoourselvesandourPosterity,
doordainandestablishthisConstitutionfortheUnitedStatesofAmerica.
Itwould'vebeenoddhadthedraftersbeguntheConstitutionwithArticleI,talkingabouttheSenateandHouseofRepresentatives.Readerswouldwonder,“What'sthepoint?Whereareyoutakingus,andwhy?”
Yetattorneyswhodrafttrustagreementsdothisallthetime.Trustsleadoffwiththenameofthetrust,itsdate,itsterm,orsomeotherbitofinformation.Interestingtoknow,butthereaderisleftwonderingaboutthepurposeofitall.
Naturally,atrustagreementisn'ttheU.S.Constitution,butthesameprincipleapplieswhenitcomestoafamily'sprinciplesandpurposes.
PreamblesandPurposeAfamilymaybeengagedinestateplanningfromscratch.Ortheymaybelivingunderthe“governance”ofoldertrusts.Ineithercase,sharingsomeclarityaboutthepurposesofatrustwillhavealong-termpositiveimpactonthepeopleaffectedbyit.
Whiletrusteesare,ofcourse,boundbythelanguageofthetrustagreement,inpracticetheyrecognizethat“knowingwhatthetrustcreatorwouldhavewanted”providesvaluableguidanceinmakingdecisions.Andyoushouldn'thavetoinferordeducetheintentbysplittinghairsaboutthecontent.
Trusteesandbeneficiariesaliketellusthatknowingthatintentiscrucial.Saidonebeneficiary:“ItwaswhatIneededpersonallytohearsothatIcouldmakesenseofhowandwhythiswashappeningtome!”
Thelanguageofatrustembodiesthethoughtsandfeelingsofthetrustcreatoratadistinctmomentinhisorherlifeandinthefamily'sevolution.Ifthedocumentreflectsthetrustcreator'sfearsandanxieties,thesedisturbingdynamicsarelikelytoimpactthefamilyforgenerationstocome.Wemayhearadultbeneficiariescomplainthatthereistoomuch“controlfromthegrave,”orthatthetrusteeisactinginlocoparentislongafterthebeneficiaryhasleftchildhood.
Incontrast,ifapreambleiscarefullycrafted,theimpactonfuturegenerationshasagreaterprobabilityofbeingalignedwithmosteveryparentandgrandparent'sfondestwish—thattheirheirsbegiventheopportunitytopursuemeaningful,healthylives.
Thereisanothersignificantbenefitoftrustcreators'writingapreamble(orexpressingpurposeinsomeotherway):itmaypromptfuturetrusteesalwaystokeepinmindthequestionthatisfundamentaltodiscretionarytrustdistributions:“Isthisdistributionenhancingthelifeofthebeneficiary?”Ifthatquestionisnotpartoftheformal,legallanguageofthetrust(anditprobablywillnotbe),sometrusteesmaysay,“Well,myhandsaretied:Ijustcan'tconsiderit.”However,ifthetrustcreatorincludesapreamblethatspeaksabouthisorherviewofwhatlifeenhancementlookslike,orattheveryleastasksthetrusteetoconsiderthisquestion,thenwhilefuturetrusteeswillnotberequiredtodosotheywillbemuchmorelikelytofeelempoweredorevenencouragedtoaskthatquestionandtakeitseriously.
Thissuggestionthatyoucreateapreambleforyourtrustortrustsispartofalargermovementtoinfusetrustsandestateplanningmoregenerallywithagreatersenseofpurpose.Someoftheotherwaysthattrustcreatorsareexpressingpurposeinoraroundtheirdocumentsinclude:
Draftinga“trustsummary”toaccompanyeachtrust,summarizingthemajortermsofthetrustandincludingaparagraphexpressingthetrustcreator'sintent.
Including“textboxes”withintrustdocumentssummarizingeachsectionandexplainingwhythetrustincludesthoseterms
Writingan“ethicalwill”thatexpressesthetrustcreatorvalues,lifelessonslearned,orperhapsthehistoryofthewealthcreation,alongwiththegiver'shopesforwhatthegiftaccomplishes.
Writingashort“letter”toone'sdescendants,describingoneselfatone'sbestandtherebycapturingthetruelegacytobehandeddown.
Shootingavideoofthetrustcreatorinwhichthegivertalksabouthisorherlife,values,andwishes.
Noneoftheseexpressionsofpurposeismeanttotaketheplaceofthelegallanguageofthetrust;allofthemare,inlawyer-speak,“precatory.”Theyarewishes
ratherthancommands.Thepreambleisjustoneoftheseformsofexpression.Weencourageyoutothinkaboutwhichformorformsofexpressionwouldfityourfamilyandyourdocuments.
“ButMyTrustWasDrafted20YearsAgo!”Ideally,everytrustwouldbeginwithashortparagraphtoclarifythetrustcreator'sintentionsandsetthetone.Severalattorneysweknow(includingoneoftheco-authors)haveforyearsbeguneachtrustwithatwo-sentencepreamble:“Thistrustisagiftoflove.Itexiststoenhancethelivesofitsbeneficiaries.”
How'sthatforsettingthetone?Cantherebeanydoubtofthetrustcreator'sintent?
Manyreadersofthisguidehavetrusts.Somewereprobablydraftedyearsago,andhardlyanylikelybeginwithapreamble.Thatcomesasnosurprise.Attorneyswhocrosspathswiththeconceptoftenaredubious.Manytellclientssomeversionof:“I'vebeendraftingtrustsfor30years.Mytrustsarebulletproof.Iknowhowthecourtswillconstrueeveryword.WhyshouldIchange?”
Thatviewshouldn'tdeteryou.Therearewaystobeprudentwithoutforsakingcommunication.Thetaskisnotjusttounderstandwhatgoesonwithinatrustagreement'sfourcorners.Whatreallymattersishowthosewhoareaffectedinterpretatrust.Howaretheygoingtoavoidmisunderstandingandconflict?Howaretheygoingtopromotewell-being?
Aswe'reabouttoseeinamoment,anyoneenteringatrustscape,atwhateverpointintime,hastheopportunitytocreateapreamble.Thatincludestrustcreators—evenlongaftertheyhavesignedtheirtrusts—aswellastrusteesandbeneficiaries.Itisanopportunitynottobemissed.
ThemesandSchemesNomatteritsformat,apreamblewillanswerthreequestions:
1. Whoisspeaking?
2. Whoisbeingspokento?
3. Whatdoesthespeakerwanttobeknownaboutthetrustorthetrustrelationship?
Ifthepreambleiswithinthetrustdocument,itwillprobablybethevoiceofthetrustcreatorspeakingtothebeneficiaries.
Forexample:
I'vecreatedthisTrusttogiveyou,myfamily,whatIhopewillbethebestopportunitytothriveafterme.IdonotwishforthemoneyIleavebehindtoharmyourpursuitofmeaningfullives;rather,Iwouldlikeitandourotherassetstobehelpful.
Asmentioned,trustcreatorssometimesexpresstheirintentoutsideofthetrustdocumentitself.Forexample,anethicalwillorsideletteroffersanopportunityforthespeakertocommunicatehisorherlegacytoreaders(orlistenersorviewers).Thewriterofanethicalwilloftenexpressessomecombinationoffamilyhistory,personalhistory,coreculturalandspiritualvalues,blessings,expressionsoflove,wisdomlearnedfromlife'slessons,hopesanddreamsforchildrenandgrandchildren,andothermattersofimportance.
Sometimesanethicalwilltakesa“formal”tone.Moreoften,themessageisconveyedinapersonalstyle.
Lettersofwishesprovidethetrustcreator'snonbindingguidancetotrustees,beneficiaries,andadvisers.We'veseenavarietyoftypes:
Aletterfromthetrustcreatortoabeneficiaryexplainingthecreator'sintentincreatingthetrust.Thismaybesplitintomultiplelettersaddressedtoeachbeneficiarywhoispersonallyknowntothetrustcreator,andanotherlettertogenerationsofbeneficiariesyettobeborn.
Aletterofguidancetotrustees.Again,knowinghowthetrustcreatorwouldlikethetrusteetoapproachhistaskisnotbinding,buthelpfulnevertheless.
Aletterfromthecurrenttrusteetofuturetrusteesandbeneficiariesdesignedtodocumentandregeneratethespiritofthetrust.
We'veincludedasampleletterofwishesinAppendix1foryoutoseetoseehowothershaveexpressedtheiraspirations.
PreamblesCreatedbyTrusteesandBeneficiariesTrusteesandbeneficiariesoftenenterthetrustscapeyearsafteratrusthasbeencreated.Thetrustcreatormaynolongerbealive.Theremayormaynotbearecordofthetrustcreator'sintent.
Fundamentally,itneednotmatter.Trusteesandbeneficiariesarewelladvisedtocreatetheirownpreambleforhowtheywillworktogetherandunderstandthepurposesofthetrust.Whatmakestheirpreamblespecialisthatitisnotapreambleonlytothetrustbutalsototheirrelationship.Evenifthegrantor'sintentisclear,stepbackandtakeafreshlook.Theoverridingquestionis,“Whatdoesthetrustmeanforus?”
Anotherwaythatapreamblewrittenbytrusteesandbeneficiariescanhelpiswhenthosebeneficiariesarethemselvestheparentsofyoungbeneficiaries.Suchparents
aresometimesreferredtoas“interim”beneficiaries.Thechallengeofbeinganinterimbeneficiaryisthatyoumaynotwantthetrusttoplaythesameroleinyourchildren'slivesthatitdoesinyours.Butyourtrustees(orco-trustees)maytellyouthat,aspartoftheirdutyofimpartiality,theyhavetotreatyourchildrenjustthesame.Workingtogethertocreateapreamblethatexplainshowyouaregoingtoresolvesuchconflictsisagreatwayforinterimbeneficiariesandtrusteestothinkthroughasoundandfairapproach,onethataddressesthetrustees'concernaboutimpartialityandtheparents'concernsaboutwhatisbestfortheirchildren.Ofcourse,theidealsituationiswhenthetrustcreator,perhapsinhisorherownpreamble,asksfuturetrusteesandbeneficiariestotakeexactlythisstep:toworktogethertocreatetheirownfuturepreambledescribinghowtheywillworktogetherarounddistributionstothethirdgenerationandbeyond.
We'veintentionallykeptthissubsectionbrief.Theprocessoftrusteeandbeneficiary“gettingonthesamepage”deservesachapteruntoitself.SeeChapter12,inwhichaprocessisdescribedfortrusteesandbeneficiariestoaligntheirperceptionsofthetrustandtheirexpectationsforworkingtogether.Thisprocesscanthenresultinapreamblethatexpressestheviewsofthetrusteesandbeneficiariesatthispointintime.Themainpointhereisthattrustcreatorsarenottheonlypeoplewhocancreateapreamble.Trusteesandbeneficiariesarewelladvisedtosettheirhandtoittoo.
RevisitthePreamblePreamblesdonothavetobeaone-timedeal.Peoplechangeandcircumstanceschange.What'susefultodaymaybelesssotomorrow.Wesuggestthattrusteesandbeneficiariesperiodicallytakealookattheirpreambletoseewhatremainsrelevantandwhatmayhavegrownstale.
EventhoughThomasJeffersonfamouslysuggestedthatthepeopleshouldcomeupwithanewconstitutionevery19years,1wedon'tsuggestrippingupyourtrustagreementeachtimethenewgenerationcomesofage,evenifyoucould.Butwedosuggestthatyourevisitthepreambleatleastonceadecade,aswellaseverytimethere'sasignificantchangefromthestatusquo.Examplesofthatkindofchangeinclude:
Anewtrusteeorbeneficiarycomesaboard.
Atrusteeorbeneficiaryleaves.
Akeyassetsuchasanoperatingbusinessissold.
Abeneficiarymovesintoanewstageoflife.
Asignificantchangeoccursinthehealthofatrusteeorbeneficiary.
AsYouBegintoCreateYourPreambleHerearesomewordsthatmaysparkanideaortwo(addtothelistasyougo):
Ambition
Beauty
Challenge
Community
Compassion
Courage
Curiosity
Dreams
Education
Faith
Family
Freedom
Gratitude
Honesty
Hope
Humility
Humor
Innovation
Joy
Integrity
Legacy
Love
Opportunity
Patience
Personalgrowth
Perseverance
Philanthropy
Pride
Risk
Security
Service
Socialresponsibility
Spirituality
Tolerance
Workethic
Note
1.SeeLettertoJamesMadison,September6,1789:Jefferson'sprincipleisthat“theearthbelongsalwaystothelivinggeneration.”
CHAPTER11ACTIONSTEPSPRIORTOTHEFIRSTTRUSTEE-BENEFICIARYMEETING
Therelationshipbetweenatrusteeandbeneficiarybeginsbeforetheirfirstface-to-facemeeting.Mostoften,it'suptothetrusteetosetthetone,especiallyifthebeneficiaryishavingatrustee-beneficiarymeetingforthefirsttime.
Theinitialcommunicationbetweenatrusteeandabeneficiary—whetherbyphone,writtencommunication,oratthefamilydinnertable—isanopportunitytobegin.Quiteoften,theconversationisbrief.Introductionsaremadeandameetingisscheduled.
IfYouAreaTrusteeFollowupyourinitialconversationwithaemailtothebeneficiary.Inthisintroductorynote,youmaywantto:
1. Brieflyreintroduceyourself.
2. Confirmthetimeandlocationofthefirstmeeting.
3. Brieflydescribeyourhopesfortherelationship.
4. Explainwhatyouplantocoveratthefirstmeeting.
5. Invitethebeneficiarytoaddtotheagenda.
6. Invitethebeneficiarytobringalistofquestionsforthetrustee.
Here'sanexampleofwhatthisemailcouldlooklike:
Dear________________,
IlookforwardtoourmeetingonThursday,May14at10:00A.M.Pleaseplanontwohours.I'dbedelightedtohavelunchtogetherfollowingourmeetingifyouareavailable.
Asareminder,wearelocatedat500MainStreet,Suite1500.Theentrywaytoourundergroundparkinggarageisatthebackofourbuilding.Pleaseparkinoneofthespacesdesignatedforourclients.Elevator“B”willtakeyoudirectlytothe15thfloor.
Whenyouarrive,myassistant,JohnSmith,willgreetyou.We'llhavetheusualcoffee,tea,andwateravailable,alongwithalightmidmorningsnack.Doyouhaveanypreferences?Howaboutdietaryrestrictions?
Yourlategrandfathermadeitcleartomethatyourtrustismeanttohelpyoumoveaheadinlife.Myhopeisthatwedevelopthekindofrelationshipthatwillmakethatpossible.
Here'showIanticipatethatourmeetingwillunfold—andpleasefeelfreetoaddtothisagenda.Towardthatend,pleasegivesomethoughttowhatmusthappenduringourmeetingforyoutoleavethinkingtoyourself,“Thiswasaverygoodmeeting.WeaccomplishedeverythingthatIhadhopedforandmore.”
Attheoutset,we'llspendtimegettingtoknoweachother.I'dliketobegintolearnwhat'simportanttoyou.I'dalsoliketoanswerquestionsyouhaveaboutme.
Next,we'llturnourattentiontoyourquestionsandconcernsabouttrustsgenerally,andaboutyourtrustinparticular.Sometimebeforeourmeeting,pleasereadyourtrustagreement.Thatwillmakeiteasierformetoofferabriefoverviewofthedocument.
Thenwe'llspendasmuchtimeasweneedtoansweryourquestions.I'mespeciallyinterestedinunderstandingyourgoals,hopes,andanyconcernsyouhave.
I'llexplaintherolesandresponsibilitiesthatIhaveastrustee.Likewise,we'lldiscussyourroleandresponsibilitiesasbeneficiary.Then,althoughtheywon'tbeatthisfirstmeeting,we'lltalkabouttherolesandresponsibilitiesofthetrustprotector,theinvestmentadviser,andthedistributioncommittee.
Overtheyears,I'velearnedthatbeneficiariesoftenhesitatetoaskquestions.Sometimestheyholdback,thinking,“Ishouldknowtheanswertothat.”Ifyoufeelthatway,Iunderstand.Atthesametime,Iencourageyoutoaskanyway.I'lltrytoanswerwhatIcanandtohelpgetanswerswhenIcan't.
Nodoubtyou'rewonderingaboutreceivingfundsfromthetrust.We'llspendasmuchtimeasyouneeddiscussinghowyouwouldgoaboutmakingrequestsandhowIwillanalyzeyourrequests.I'llmaketheprocesstransparenttoyou.
We'lltalkaboutyourtrust'sinvestmentsinwhateverdetailsuitsyou.I'llshowyouwhatourquarterlystatementlookslikeandwalkyouthroughasample.
Ourconversationwillconcludebyturningourattentiontoanyremainingquestions.
I'vefoundthatit'sgoodpracticetoscheduleafollow-uptelephonecalloneweekfollowingourfirstmeeting.Thatway,wecandiscussanyquestionsthatmayoccurtoyouafteryou'vehadachancetoreflect.
Pleaseletmeknowhowthismeetingagendasoundstoyou,andwhatelse,ifanything,youwouldlikeustocoverduringourmeeting.
Ilookforwardtobeginningournewrelationship.Seeyouinafewweeks.
Bestregards,
IfYouAreaBeneficiaryThetrusteemaybesomeonethatyouaremeetingforthefirsttimeorsomeonethatyoualreadyknow—maybeevensomeonewhomyou'veknownallyourlife.Eitherway,it'sgoodpracticetointroduce(orreintroduce)yourselfinyourroleasbeneficiary.
Awell-draftedletterofintroductionwillsetyouapart.Fewbeneficiariestaketheinitiativetolayafoundationforaproductivepartnership.Butthereisnoreasonthatyoucan't.Beingproactivewillsurpriseyourtrusteeandgoalongwaytowardgettingthisrelationshipoffontherightfoot.Agoodtrusteewillbejustascuriousaboutyouasyouareabouthimorher.
Beforecomposingyourletter,taketimetothinkaboutyourgoalsfortheupcomingmeeting.Whatwouldyouliketoaccomplish?Whatneedstohappenduringthemeetingforyoutofeelthatthemeetingisasuccess?Whatquestionswouldyouliketohaveanswered?
Spendtimereviewingyourtrustinstrument,notingquestionsandconcernsasyougo.Ifyouhaven'ttriedthe“treasurehunt”exercisefoundinChapter5,nowwouldbeagoodtimetodoso.
Ifyouhavewarmfeelingstowardthepersonwhocreatedyourtrust,spendafewmomentsenjoyingthem.Thinkaboutwhatthegiftofatrustwillmakepossible.Perhapstrywritinga“gratitudeletter”tothetrustcreator,evenifitwillneverbedelivered.Intheletter,givedetailsaboutwhatyouarethankfulforandwhy.1
Ifyouhavenegativefeelingstowardthetrustcreator,towardthetrustee,ortowardanyotheraspectofyourtrust,acknowledgethemwithoutdwellingonthem.Doyourbesttosetyournegativefeelingsasideforafewmoments.
Bringtomindanupside—somethingdelightfulorencouraging—aboutyourtrust,nomatterhowsmallthatupsideseems.Quiteoften,onepositivethoughtwillevokeothers.
Nowyou'rereadytodraftaletteroremailtoyourtrustee.Wesuggestthatyouorganizeyourletteralongtheselines:
1. Takeafewparagraphstointroduceyourself.Givethetrusteeanideaofwhat'sgoingoninyourlifeandwhat'simportanttoyou.Describeyouraspirationsand,ifappropriate,howyouseeyourtrustfittingin.Nowwouldalsobeagoodtimetoexpressgratitudeforyourtrust,aslongasthefeelingisauthentic.
2. Letyourtrusteeknowofitemsthatyouwouldliketotalkaboutduringtheupcomingmeeting.Thinkbacktoyourgoalsandquestions.Ineffect,youwillbe
co-designingthemeetingagenda.
3. Doyouintend—atthisopeningmeeting—toaskforfundsfromyourtrust?Ifso,takealookatChapter14,whichexplainsindetailhowtorequestdistributionsinacrediblemanner.Yourtrusteewillappreciateknowingaboutyourrequestandhavingthesupportingdocumentationinhandpriortothemeeting.
4. Closeyourletterwitharequestfortheagendaandotherinformationthatwillhelpyouprepareforyourmeeting.
Followingisasampleletteroremail.
Dear[Trustee],
Iamexcitedtomeetwithyouand[InvestmentAdviser]todiscusstheXXXFamilyTrusts.Sincewe'llhavelimitedtimetogether,Iamwritingtoproposesometopicsfordiscussionnow,andtoinviteyoubothtoaddanythingelsethatyou'dliketospeakaboutonthe15th.
First,I'mconfirmingthatyouandIwillhaveaboutanhourtospeakbefore[InvestmentAdviser]joinsus,atwhichpointwe'llhaveanotherhourtomeet.Isthatstillcorrect?
IwouldliketobeginourmeetingbydiscussingtheworkIhavedonesofartofurthermycareer,aswellasmyphilanthropyandfinancialeducation,whichwillhelpmecarryonthestewardshipofmyfamily'slegacy.Iwouldalsolovetosharemyshort-termplanstocontinuethatwork.
IwillpresentmybudgetforlivingexpensesinSanFranciscothisyear.Then,I'dliketosharemyplansandgoalsforthecomingfiveyearsandtheirfinancialimplications,includingtuitionandlivingexpensesduringthefirstfewyearsofadoctoralprograminearlychildhoodlearning.
Iinviteyoutodiscusshowyouseethetrustsparticipatingintheseshort-andmedium-termplansandwhatroleImighttakeinthecominginvestmentconversations.
Iwouldalsoliketorequesttwodistributions.Thefirstinvolvesaone-timereimbursementfortrust-relatedexpenses,includingattorneyfees,andthefinancialeducationthatIhavebegun.Thesecondisarequestforongoingsupportforlivingexpensesinthecomingyear.Ihavepreparedwrittenrequestswithsupportingdocumentationsuchasreceiptsandmybudget.Wouldyouliketherequestse-mailedtoyouinadvance,orshouldIwaittoprovidethematthemeeting?
Finally,Iwouldenjoydiscussinghowthetwoofuscanbestworktogethergoingforwardand,whenwecanmeetagain,eitherinpersonoroverSkype.
Pleaseletmeknowwhatadditionaltopicsyouwouldliketodiscussbefore
[InvestmentAdviser]arrives.
When[InvestmentAdviser]joinsus,Iwouldliketobeginwithafewquestionsaboutthetruststatements.Thenreviewthetimingandamountsofmyprojectedfinancialneeds,anddiscusshowyoutwomightaligntheportfoliotoaddressthoseneeds.
I'dalsoliketodiscussothertopicsthetwoofyouwouldliketocover,andthenendbydiscussingthebestwayforthethreeofustoworktogetherinthefuture.
IalsowanttoletyouknowthatImayberequestingadditionaldistributionsduringthenext12monthsoutsideofmylivingexpenses,fortrust-relatedcostssuchastaxpreparation,attorneyconsultingfees,andtrusteducation,aswellasforsignificantcareer-relatedexpensessuchasprofessionalconferences,andtravel.Iamuncertainofthetotalcosts,soIhavedecidedtowaittorequestreimbursement.
PleaseletmeknowifyouwouldliketoaddressothertopicsorthatIbringadditionalsupportingmaterials.
I'mreallylookingforwardtoourmeeting.I'dalsoliketothankyoufortakingonthechallengingtaskofmanagingmultipletrustsformultiplebeneficiaries.Iknowthatmygrandparentswouldappreciateit.
Best,
Astheproverbsays,“Thebeginningismorethanhalfthewhole.”Manypeopleassumethatatrustbeginswiththedraftingoftheagreementorthetrustcreator'ssignatureonthefinaldocument.Intruth,atrusttrulybeginswhenthetrusteeandbeneficiarybegintheirworkofmeetinganddecidingtogetherhowtotaketheagreement'slegaleseandturnitintoapositiveforceinthebeneficiary'slife.Weofferthesuggestionsinthischapter—somereflective,somepurelyaction-oriented—tohelpyouboth“gettothebeginning.”
Note
1.AswesawinChapter7,researchshowsthatmany(butnotall)peopleexperienceavarietyoflastingbenefitsiftheytaketimetoexperiencegratituderegularly.Gratitudeexercisescanbeassimpleasjottingaquicknotelisting“threegoodthings”goingoninyourlife,alongwithaquickdescriptionoftheroleofothers,aswellasyourrole,inbringingaboutthesegoodthings.Amoreelaborateexerciseiswritingagratitudelettertosomeonetowhomyouarethankful,andthenpersonallyreadingittothem.SeeRobertA.Emmons,GratitudeWorks(SanFrancisco:Jossey-Bass,2013)andMartinE.P.Seligman,AuthenticHappiness(NewYork:FreePress,2002).
CHAPTER12POSITIVEEVENTS,SUPPORTIVERESPONSES
Nowthatwehavediscussedacceptingtheroleoftrustee,reviewingorevencreatingapreambledescribingthepurposesofthetrust,andpreparingforaninitialtrustee-beneficiarymeeting,itmayseemreasonabletojumpintostructuringthatmeetingitself.However,beforetakingthatstep,wewouldencourageyoutothinkabouthowtobringyourbestthinkingtobearinthatmeeting.Thatisthepurposeofthischapter.
Inordertoprepareyourselftodoso,stepbackforamomentfromtrustsandtrustlawandthinkaboutpsychology.Whatcomestomindwhenyouthinkaboutresearcherslookingintoquestionsofhumanpsychology?Chancesareyouranswerwouldbesomeversionof:They'retryingtofindbetterwaystoreduceoreliminatementalillness.
Inotherwords,psychologywouldseemtobeaimedatraisingourcapacitytocopewithlife'sstumblingblocks.Andyouwouldbehalfcorrect.
Asecond(and,untilrecently,comparativelysmall)groupofpsychologistshasaskedadifferentquestion.Theyseektoknow:Howcanweincreasementalhealthor,astheyoftencallit,humanflourishing?Thesepsychologistsaremoreinterestedinhowwehumans,individuallyandingroups,goaboutincreasingourcapacitytothrive.
Overthepasttwodecades,thissecondrealmofinquiryhasgrownintoamainstreamforcewithinthefieldofpsychology.Thebodyofempiricalresearchanditspracticalapplicationiscollectivelyreferredtoaspositivepsychology.
Conceptslearnedfrompositivepsychologydovetailnicelywiththetrustscape.Inthischapter,we'llintroduceyoutoasamplingofideastohelpyou,asatrusteeorabeneficiary,preparetomeetwithyourcounterpart.
MatchingMind-settoTaskTrustofficerA—you'llmeethercounterpartBshortly—startsherdaywithalookatseveralreportsofthepreviousday'sgoings-oninhertrustaccounts:cashinflowsandoutflows,investmentactivity,andthelike.Hertrainedeyeseesnothingoutoforder.
Thenshepreparesforthequarterlymeetingwithabeneficiarythatshewillbehostinglaterthismorning.Amethodicallookatthefile,and—good,nomistakesthereeither.
Shecontemplatestheimpendingmeeting,remindingherselfthatit'sherresponsibilitytobecautiousandtoreinforcerestraintinthisrelationshipforthelonghaul.Bigmoneycanmeanbigproblems.Hermotto:“Bettersafethansorry.”
Themeetingtakesplaceatthetrustee'soffice.Friendlyconversationisinterspersed
withareviewofthetrust'sinvestmentperformance.
Whenthebeneficiarypresentsarequestforadistributionfromhistrust,trustofficerApolitelyreplies,“No,”andexplainswhythelanguageofthetrustleaveshernochoice.Whenthemeetingisover,Aisrelievedthatitwentthewayitneededtogo.Apotentiallytroublesomesetofcircumstanceswasheadedoffatthestart.
Acrosstown,trustofficerB'sdayhasbeguninasimilarmanner—checkingthedailyreportstoassureherselfthatnoerrorsweremade.Whilepreparingforherbeneficiarymeeting,she,too,reviewsthefileforaccuracy.
Butnowtheirroutinesdiverge.TrustofficerBtakestimetothinkaboutthebeneficiaryandwhatcouldmakethemeetingsuccessful.Shereflectsonothermeetings,duringwhichshe'sbeenabletocontributetoabeneficiary'sgrowthtowardmaturity.Ifshehadamotto,itwouldbe,“Beprudent,butmakesomethinggoodhappen!”
Whenthedistributionrequestismade,trustofficerBdescribeswhyshewouldhavesomedifficultyapprovingit.Sheasksthebeneficiary:“Whatdoyouhopetoaccomplishbymakingthisrequest?”Theanswersoundssincere,ifalittlehalting.Andthen:“Whyisthatimportanttoyou?”
Thebeneficiaryissurprisedbytheseopen-endedquestionsandevenmoresurprisedbythealmost20minutesofthoughtfulback-and-forththeyleadto.They'rebrainstormingalternativewaysofaccomplishinghisgoal.Doeshehavesufficientassetsoutsidethetrust?Isthereadifferentwaytolookathisgoal—onethatwouldleadtoarequesttowhichtrustofficerBcouldsay“yes”?
Attheendofmeeting,thebeneficiaryleaveswithanewgameplan—andtrustofficerBfeelselated.
Somuchforourparallelstories.Now,howmightweexplainthetrustofficers'similarbehaviorswhenprecisioniscalledfor,asdistinctfromtheirbehaviorsthatdivergewhilepreparingfortheirrespectivebeneficiarymeetings?
Oneanswermightbefoundinunderstandingprevention-focusedandpromotion-focusedmind-sets.1We'reinaprevention-focusedmind-setwhentheideaistostopbadthingsfromhappening.Wheninapromotion-focusedmind-set,weseekadvancement,growth,andgain.
Neithermind-setisinherentlybetterthantheother.Eachhasitsplace.
Inourtale,bothtrustofficerswerepreventionfocusedwhenscrutinizingthereportsandfileswithaneyetowardavoidingslip-upsthatcouldleadtoloss.TrustofficerAkeptthatfocusintothemeetingwiththebeneficiary.TrustofficerB,incontrast,shiftedtoapromotion-focusedmind-setwhilecontemplatingthatday'smeeting.
Ifyouareatrustee,beforereadingfurther,givesomethoughttoacoupleofquestions:
1. Howwouldeachrespectivemind-sethelpandhinderyourworkingrelationshipswithbeneficiaries?
2. Aretheresomesituationswhereeachmightbeuseful?
What'simportantisknowingwhetherwecanvoluntarilydirectourmind-set.Andiftheanswerisyes,howdowegoaboutdoingso?
Althougheachofushasadefaultmind-set,wecanindeedtakestepstoshiftourmind-settomatchthetaskwearetackling.Wedoitallthetime!Planningabirthdaypartycallsforadifferentkindofattitudethandoespreparingataxreturn.
Theexperienceoftheauthorsisthatmosttrusteesarecomfortablewithaprevention-focusedmind-set.Thistendencyislogical,giventheemphasisonavoidingmistakes.Indeed,nothinginthisbookshouldimplythattrusteesorothersshouldbe“softonmistakes.”Awarenessatalltimesisthebestprofessionalstandard.And,tobeawareofopportunitiesinadditiontotherisks,herearesometipstoshift—whencircumstanceswarrant—toapromotionfocus.
First,askyourself,“Whatarethesignsthatthisisasituationwhereapromotion-focusedmind-setwouldbemostappropriate?”
ThendowhattrustofficerBdid.Mulloveryourhopesandaspirationsfortheupcomingmeeting.Reflectonothertimeswhenyouorotherscontributedtosomeone'sgrowthandgain.Thenconsider:Whatdifferencewouldapromotion-focusedmind-setmaketothesuccessofthemeeting?Tothebeneficiary?Toyou?Arethereotherpositives?2
SupportiveResponsestoPositiveEvents3
Agoodwayforbeneficiariesandtrusteestobreaktheicetowardthebeginningofameetingistoswapstoriesaboutapositiveeventortwothatoccurredfollowingtheirlastmeeting.Theepisodemaybetrustrelated,butnotnecessarilyso.
Whatmakesalotofsense,ifyouthinkaboutit,isthatthedegreeofourhappinessinthetellingofanexcitingnewsupdateisaffectedbyhowtheotherpersonresponds.
Let'ssayabeneficiaryblurtsouttoatrustee:“ThosefundsthatIreceivedfrommytrusttostudyabroad—youwon'tbelievehowwellitallworkedout!Firstofall,justasIhadhoped,thecourseworkwasexactlywhatIwaslookingforandmore.IhaveadozenideasforwhatIwouldliketostudynext.Andthelocation?Gorgeous.Wehikedinthemountainsalmosteveryweekend!I'veneverseensuchbeauty.Ican'twaittoshowyoumyphotographs.And—canyoubelieveit—Inowhaveawholenewgroupoffriendsfromallovertheworldtostayintouchwith.We'realreadyplanningareunion.…”
Okay,trustees,here'sapopquiz.Whichofthefollowingresponseswillleadto
deeperconnectionwiththebeneficiary?
a. Wow!Thatsoundsincredible.Yourhardworktogetacceptedintothesemesterabroadprogramreallypaidoff.And,boy,didyoutakefulladvantageit!Tellmemore.…
b. That'snice.
c. Okay,butI'mwonderingifthetrust'smoneywaswellspent.
d. Let'stakealookatthetruststatementsfromlastquarter.
Canweagreethatthefirstresponseisbest?Itseemssoobvious.Yetit'ssurprisinghowoftentrusteesgointoautopilotandtheirresponsessoundmorelikeoneofthethreeothers.
Here'showresearcherslabeleachtypeofresponsegivenbythetrustee:
a. Active-constructiveresponse.Expressingenthusiasticsupport.Encouragingthetellertoelaborate—open-endedquestionsworkwellhere.Thekindofresponsewe'dliketogetbackwhenwe'rethebearerofexcitingnews.
b. Passive-constructiveresponse.Here,thetrusteegavequiet,understatedsupport.
c. Active-destructiveresponse.Theresponsetothebeneficiarywasdemeaning.Canyouimaginesomeonesayingthattoyou?
d. Passive-destructiveresponse.Thetrusteeignoredwhatthebeneficiaryhadtosay.
Asyoumightimagine,onlyactive-constructiveresponsesbuildfriendliness,trust,andopenness.Butthat'sonlyifyourresponseisgenuine.Don'tsayitunlessyoumeanit.
Soasyouprepareforameeting,doesitmakesensetoremindyourselftopayattentiontohowyou'llrespondtogoodnews?
PlaytoYourStrengthsResearchhasshownthatplayingtoourstrengths,asopposedtoshoringupourweaknesses,willleadtogreatersuccessandlifesatisfaction.4Identifyingourstrengthscanbechallengingas,ingeneral,manypeoplelackavocabularyofstrengths.Sowelookforclues.Strengthsareoftenatplaywhilewearedoingthingsthatwearegoodatandaresimultaneouslyexperiencinganelevatedenergylevel.Anotherclueistonoticewhenweareinastateofflow,thatis,soabsorbedinwhatwearedoingthattimeseemstostandstill;insuchmoments,oneormoreofourhigheststrengthsarefrequentlyengaged.Anotherwaytospotstrengthsistothinkaboutthingswelovedtodoasachildortoaskyourself,“WhendoIfeelmostalive?”Finally,youmaydecidetouseanempiricallyvalidatedassessmenttohelpidentifyyourstrengths.5
Theauthorssuggestthatatrusteepayattentiontohowshemightemployherownstrengthsanddrawoutthoseofthebeneficiary.Here'saseveral-prongedpractice.
Puttogetheralistofyourstrengths.Thenask:
1. Howhavemystrengthscomeintoplay/notcomeintoplayinpastmeetingswithbeneficiaries?
2. Howwouldtheycomeintoplayifthingsweretogowellintheupcomingmeeting?
3. DoIeverfallintothetrapofequatingabeneficiarywithhisorher“problems”?DoIlabelthatpersonforeverasa“problem”beneficiary?
4. AsIthinkofsomeonewhoisa“problem”beneficiary,canIlistsomeofthisperson'sstrengthsandvirtues?
5. AmIsurprisedtodiscoverhowmanystrengthsandvirtuesthispersonhasonceIbegintopayattention?
6. Supposethebeneficiarywon'tchangeinthewayIwishfor.WhatcanIdotoimprovethesituationregardless?HowcanIbringmystrengthsandvirtuesintoplay?HowcanIengagethebeneficiary'sstrengths?Whatdifferencewillthatmaketome?Tothebeneficiary?
Thesearethreeexamplesofwhatwecall“positive”approaches.Intherealworld,ofcourse,you,thereader,areinvitedtomakeuseof—amendandrefine—theseideastomakethemostofyourowntrustee-beneficiarysituations.
Notes
1.Prevention-focusedandpromotion-focusedmind-setsarethesubjectofresearchofDrs.HeidiGrantHalvorsonandE.ToryHiggins,directorsoftheMotivationScienceCenteratColumbiaUniversity.SeetheirbookFocus(NewYork:HudsonStreetPress,2013).
2.AdaptedwithpermissionfromHartleyGoldstone,ATaleofTwoTrustees,whichfirstappearedathttp://wealthmanagement.com/estate-planning/tale-two-trustees.©TrustscapeLLC.
3.SeeShellyL.Gableetal.,“WillYouBeThereforMeWhenThingsGoRight?SupportiveResponsestoPositiveEventDisclosures.”JournalofPersonalityandSocialPsychologyVol.91,No.5(2006):904–917.Whilethestudiesinvolveinteractionsbetweenpeopleincloserelationships(romanticpartners,parents,bestfriends),webelievetheremaybeapplicabilitytointeractionsbetweentrusteesandbeneficiaries.
4.Toseewhatabroadspectrumofresearchsays,gotowww.viacharacter.org/www/Research/Research-Findings#nav
5.AstrengthsassessmentthattheauthorslikeistheVIASurvey,foundat(www.viacharacter.org/www/The-Survey#nav)
CHAPTER13TRUSTEE-BENEFICIARYMEETINGS
Meetingsbetweenatrusteeandabeneficiaryarebusinessmeetings.Treatthemassuch.Prepareanagendathatisagreeduponaheadoftime.Plansufficienttimetomovethroughtheagendacomfortably.Holdthemeetinginasettingthatallowsforprivacy—whichmeanssomewhereotherthanarestaurant.Schedulesocialtimetofollowthecompletionofbusiness.
Doesthepriorparagraphsoundsurprising?Itprobablyshould.Muchofitiscontrarytothetypicalpracticeofbeneficiaryandtrusteemeetings.Thebeneficiarymayshowupwithaquestionortwo.Butapartfromthat,thesessionwilllikelybelittlemorethanareviewofthetrust'sinvestmentperformanceoverlunch,anampledoseofpolitesmalltalk,afirmhandshake,andthenit'sfarewelluntilnextquarterorevennextyear.
PremeetingChecklistsBecausetrustee-beneficiarymeetingsareseriousbusiness,theyrequireprework.Whetheryouareatrusteeorabeneficiary,youhavesomepreparationtodo.
Fortrustees,thepremeetingchecklistmayinclude:
1. Reviewthetrustinstrument,correspondence,truststatement,andothernotes.
2. Reviewthemeetingagenda.Whatarethehighestpurposesoftheupcomingmeeting?Whatwouldgreatoutcomeslookandsoundlike?
3. Reviewyourinternalnarrativesaboutthebeneficiary,thetrustcreator,andtheupcomingmeeting.(Forarefresheronnarratives,reviewChapter4.)Dothesenarrativesservebothyouandthebeneficiarywell?Ifnot,whatcanyouchangetobringyournarrativesintoalignmentwiththehighestpurposesofthemeeting?
4. Reviewthebeneficiary'sdistributionrequest(s),ifany.Atfirstglance,doestherequestappeartoenhance,ratherthanmerelysubsidize,thebeneficiary'slife?WhatquestionscanIaskthebeneficiarythatmayleadtoadeeperconversation,ifappropriate?
5. Bigquestionstoreflecton,asappropriate,include:
Isthebeneficiaryself-aware?Doesthebeneficiaryperceivethedifferencebetweencourageandbullying?Betweenhubrisandhumility?
Hasthebeneficiarysoughttoknowhisorhercalling?Ifyes,isheorshepursuingit?Ifno,whynot?
Hasthebeneficiaryhadamentorinpursuinghisorhercalling,orinanyotherareaoflife?Ifnot,doesthebeneficiaryhavetheskillstofindone?
Canthispersonexpresscompassionforhim-orherselfandforothers?Expressgratitude?Expressjoyandhumor?
Doesthebeneficiarytakeactiverolesinthelargersociety?
Doesthebeneficiaryhaveaprocessforevaluatingpossibleadvisers?
Doesthebeneficiaryfeelandacceptreciprocalresponsibilitiestothefamily?Doesheorsheworktoinstillfinancialandotherknowledgeinthenextgenerationofthefamily?
Ifthebeneficiaryrequiresgrowthinanyoftheseareas,amIequipped,astrustee,toassistthebeneficiary?
Forthebeneficiary,thepremeetingchecklistmayinclude:
1. Reviewthetrustinstrument,correspondence,andothernotes.
2. Addnewquestionstoyourwritten“masterlist”ofquestionsforthetrustee.Bringthelistwithyoutothemeeting.
3. Reviewthemeetingagenda.Doyouhaveanythingtoadd?Whatwouldgreatoutcomeslooklike?Doesthisagendaallowforthesegreatoutcomes?
4. Reviewyourdistributionrequest(s),ifany.Howwouldtherequestenhanceyourlife?Whatdifferencewouldthatmaketoyou?
5. Reviewyourinternalnarrativesaboutthetrustee,thetrustcreator,andtheupcomingmeeting.Beverycuriousasyouexamineyournarratives.Wheredotheycomefrom?Aretheyservingyou?
6. Reviewyourstrengths.Howmightyouplaytoyourstrengthstoaddtothesuccessofthemeeting?
7. ReflectuponsomeofthebigquestionsforbeneficiariesfoundinChapter7.
IfThisIstheFirstMeetingThefirst45minutesorsowillgoalongwaytowardsettingthestageforyourrelationship.Ascountlessmomshavetoldcountlesschildrenovertheyears,youdon'tgetasecondchancetomakeafirstimpression.Ideally,themeetinghasbeenpreparedforwiththebackandforthofintroductorylettersofthesortwereviewedinChapter11.
Afterintroductions,thefirstorderofbusinessatthemeetingisforthetrusteetobreaktheicewithaverybriefexplanationofherrole,awordortwoaboutherexperienceandherapproach.Explainthenatureofthejourneythatthetwoofyouareembarkingontogether.Pauseforquestions.
Next,askgentle,probingquestionsdesignedtohelpbothtrusteeandbeneficiarysurfaceandunderstandthebeneficiary's(mis)perceptions,anxieties,expectations,andsoon.Maybetryoutsomeversionofthisspeech:
Ineverknewyourgrandfather,thetrustcreator.ButifIhadtoguess,heprobablywouldwantyourtrustmanagedinawaythatenhancesyourlife,notsimplysubsidizesit.SoIhopetogettoknowyouwellovertime.Butfirst,I'dlovetoknow—whatkindsofthingsareonyourmind?Whatpuzzlesyouaboutyourtrust?Howaboutifyoustartbytellingmewhatyouthinkyouknowabouttrusts,generally,andaboutyourtrustinparticular.Thatway,Icanclearupanymisconceptions.Thenwe'llbuilduponwhatyoualreadyknow.…
Thenaddressgapsinthebeneficiary'sunderstandingbysupplyingsolidknowledge.Keepinmindthat,althoughyoumaybewell-acquaintedwithtrusts,itmaybeunfamiliarterritoryforanewly-mintedbeneficiary.Thebeneficiarymaybeacompetentadultwhosimplylacksfacts.
Imaginebeingpresentedwithatrustagreementthatseemsopaque.Addtothatabarely-comprehensibleprocessinvolvinginheritedmoneythatappearstobe“sonearyetsofar.”Overlayallofthiswithemotion.
Here'swhatthatmaylooklike:
Adistraughtwidow,meredaysafterlosingherhusband,isshockedtolearnthatherfinancialresourceswillbeheldintrustasaresultofherlatehusband'staxplanning.Thebank,asthetrustee,isthereforeanunexpected,andunwelcome,intrusionintoherlife.
Aforty-somethingbeneficiarysays:“I'vebeenlivingonchecksfromtrustsmywholelifewithoutquestioningwheretheycomefromorwhentheywillend.I'mnowdoingmyownestateplanningandthinkingaboutmychildren.Ihavenoideahowthetruststhatweresetupformewillaffectthem.Andsoit'stimeformetogrowup,andreallyunderstandmytrusts.
Asuccessfulprofessionalinherthirtiesplanstobringherattorneytoherfirstmeetingwithhertrustees.Why?Fromherperspective,thetrusteeswereanextensionofhergrandfather.Shesays:“Mygrandfatherwasaverycontrollingperson.Sowasmyfatherbeforehepassedaway.Mytrusteesworkforthefamilybusiness.Thisfeelslikemoreofthesame.Iwantmyattorneytheretobalancethepower.”
Theadvisertothislatterbeneficiarydescribestheirfirstmeeting:
Forthebetterpartofanhour,wetalkedaboutthelanguageofthetrust.Turnsoutthatsomeofwhatsheinterpretedasbeingcontrollingwasnecessarytopreservethetrust'sintegrityagainstpotentialchallengesbyhercreditors:Ifshehadbeengiventoomuchauthority,itcouldbepierced.Aswetalkedaboutherassumptions,expectationsandfears,shebecamesomewhatlessfrustrated.Thecontextwaswideningandbecominglessdependentonpersonalities.Asshegainedunderstanding,herspiritsbegantolift.Shenolongerfelttheneedtobringherattorneytocompensateforherfeelingsofpowerlessness.Withprompting,shetalkedabouthergratitudeforwhatthetrustwouldmakepossible.
Onlywhentheanxietiesarereduced,andavisionfortherelationshiphasbeguntotakeshape,shouldyouproceedtodiscussnutsandbolts.
Andouradvicetonewbeneficiaries?Achievingtrustliteracy,likeanybranchoflearning,isgoingtotakeeffort.Notjuststudy,butarisinglevelofawareness.Youhavemoreoptionsthanyounowthink.Putinthetimetolearnwhattheyare.
ASamplingofAgendaItemsTowardthebeginningofthemeeting:
1. “Whatdowehopetoaccomplishtoday?Whathastohappentodayforustoagreethatthismeetingwassuccessful?”Theanswersdon'thavetobeprofound.Somemeetingsareanticipatedtobelittlemorethantransactional.Perhapsthebeneficiaryhasaskedtodropbytocheckontheparticularsofanupcomingincomedistribution.Nevertheless,it'sgoodpracticetoaskifthere'ssomethingmoreonthebeneficiary'smind.
2. “Doestheagendalookaboutright?Anyadditionsorsubtractions?”
3. Anysignificantchangesinthebeneficiary'slifesincethelastmeeting?Births,deaths,marriageordivorce,ornewjob.Ifso,whataretheimplications?
4. Ifto-doswereagreeduponatthelastmeeting,what'stheirstatus?Whateverthestatus,whatcanbelearned?
Annualreview:1. Whatarethebeneficiary'shopes,challenges,andopportunitiesforthecoming
year?Lookatbothbigpictureandspecificitems.
2. Whataresomehopes,challenges,andopportunitiesinthecomingyearforthetrusteeinherroleastrustee?
3. Lookingattherelationship,what'sworkingwell?Whatcouldstandsomeimprovement?
4. Whatisthebeneficiary'sassessmentofthetrustee'sperformanceofherroles
andresponsibilitiestothetrustandtothebeneficiary?
5. Whatisthetrustee'sassessmentofthebeneficiary'sperformanceofhisrolesandresponsibilities?
6. Areasofdispute,ifany:Whatarethey?Canweresolveourdifferencestoday?Ifnot,whatarethenextstepsforustotake?
Technicalmatters:1. Reviewofthetruststatement,taxreturns,andother“quantitative”items.
Discussionsrelatedtodistributions(formoreondistributions,seechapter14):1. Anynewrequests?
2. Anypastrequeststhatarestillpending?
3. Anyfuturerequestthatweshouldbethinkingabout?
Closingitems:1. Whatelsedoweneedtoaddressbeforewrappingup?
2. Agreeuponto-dosgoingforward.
3. Closingquery:Didweaccomplishwhatwehoped?Whatworkedwell?Whatdidwelearnthatwillbeofusegoingforward?
An“Appreciative”ExerciseSometimesyourmeetingswithyourtrusteeorbeneficiarytakeonanespeciallydeeplevelofengagement.Thismightbepartoftheagreed-uponagenda,orasuddenandnewlevelofconnectioncanhappenonitsown.Theoutcomesofthissortofmeetingarealmostalwaysvaluabletoeachofyou.Taketimeduringthenextweekorsotoreflectuponasmany—orasfew—ofthefollowingquestionsasyoulike.
Perhapsyoumaywishtouseboththequestionsandyouranswersasthestartingpointforaconversationatyournextmeeting.1
1. Thinkofatimewhenyouparticipatedinagreatmeetingwithyourtrusteeorbeneficiarywhereyoubothwerecollaboratingespeciallywell.Whatwasthesituation?Whatwasthedrivingforcebehindthesuccessofthismeeting?Whatweretheconditionsthatpromotedthis?Specifically,whatroledidyou,yourcounterpart,thephysicalenvironment,and/ortheworkofthemeetingitselfplay?Howdidyourroleunleashyourcapacities?Howdidyourroleunleashyourcounterpart'scapacities?
2. Thinkofyourmostrecentmeetingwithyourtrusteeorbeneficiary.Howwouldyou
ratethemeeting,onascaleof1to5,with5beingthehighest,intermsofengagement?Whatwasgoingonthatcausedyoutoratethemeetingashighasyoudid(evenifyouchosea“low”number)?Whatmustthatmeetinghavelookedlikeforyoutoincreaseyourratingby1?Whodidwhat?Withwhateffect?
3. Reflectingontheseandotherexperiences,whatarethecorequalitiesandpracticesthatbringoutthebestinyourmeetingswithyourtrusteeorbeneficiary?Whatdoyouthinkyoudowellandshouldcontinuedoingordomoreof?Whatdoyouthinkyourcounterpartdoeswellandshouldcontinuedoingordomoreof?
Missionaccomplished.Youdidwhatyousetouttodo:comfortablyworkedthroughthe“business”agenda—whileatthesameexpandingyourrelationshipasyoulearnedfromoneanother.
Nowit'stimetoheadouttoyourfavoriterestaurantforawell-deservedlunch.
Note
1.“Thesequestionsareadaptedfroma“solution-focused”of“brief”approachtotherapyandcoaching.See,forexample,BergandSzabo,BriefCoachingforLastingSolutions.W.W.Norton&Company(2005).”
CHAPTER14REQUESTSFORDISTRIBUTION
Asthepriorchaptermadeclear,trusteesandbeneficiariestalkaboutmanythings,includingadministrationofthetrust,investments,taxes,aswellasthetrusteeandthebeneficiary'sownlivesandwell-being.Butprobablythemostchargedtopicoftheirmutualfocusisdistributions,thecentralfunctionofatrust.Inthischapter,welayoutsomethoughtsonhowtrusteescanapproachthisdelicatetopicwithtrueunderstanding,andhowbeneficiariescanpreparethemselvestomakethoughtfulrequests.Tobegin,wewillstartwithonemorestory.
Yourtelephonerings.It'sSusan—amiddle-agedbeneficiarythatyouhaveworkedwithforseveralyears.Susanlivesofftheincomefromhertrust.She'sextremelystressedasshetellsyou:
IjustreceivedaletterfromtheIRS.TheysaythatIowethemalotofmoney!IguessIforgottofilemytaxes.Evenworse—Idon'thaveenoughmoneytopaywhatIowe.I'moutofmymindwithworryandhaven'tsleptfordays.CanthetrustpaytheIRS?
Susan'strustpaysincometoherquarterly.Thatsumcoversherlivingexpenseswithlittletonothingleftover.Principalmaybeinvadedonlyforhealth-relatedexpenses.Susan'shealth-relatedexpenseshaverecentlyincludedroutinecheck-upsandherpsychiatrist'sinvoices.
Doyou—asthetrustee—honorSusan'srequestforfundstopayhertaxdeficiency?
Theanswerseemsprettycutanddried.Youarepermittedtoinvadeprincipalforhealth-relatedexpensesonly.Susan'srequestistoclearupataxmatter.Soyoupolitelysay“no”andexplainwhythelanguageofhertrustleavesyounochoice.
Ordoyou?
Let'saddafewmorefacts.Overtheyears,youhavegottentoknowSusan.You'velearnedthatshe'sarecoveringalcoholicwhostoppeddrinkingfiveyearsagoandregularlyattendsAlcoholicsAnonymousmeetings.Thismorning,shetellsyouthattheIRSmatterhastemptedhertostartdrinkingagain.
Doesthischangeyourthinking?
Thisisatruestorythatweregularlymakeuseofinadecision-makingexercisethatwedevelopedfortrustees.Invariably,participantsdeclineSusan'srequestafterhearingthefirstsetoffacts.Afterlearningtheadditionalfacts,somearen'tsosure.
Now,listenintoSusan'sactualtrustofficer1:
IlikedSusanverymuch.Ithoughtthiswasawomanwhohadstruggledallofherlifeandwastryingveryhardtopullherlifetogether.
Ithoughtaboutit.Maybewehadawaytosaythatherfailuretopaytaxeswasmakingherill.Maybewecouldsaythatthepaymentfortaxpurposeswasamedicalexpense.
“WoulditbeallrightifIspoketoyourpsychiatrist?”Itoldherwhy.
“Yes,youmaydothat.”
Icalledthepsychiatrist,whosaidthattheIRSthreatwastheonlytopiconSusan'smind.Susancouldn'tgetbeyondit,anditmightinterferewithherabilitytostaysober.Itwasawful.
“WouldyouwritealettertomeconfirmingthatSusan'staxsituationisworseninghermedicalsituation?”Thepsychiatristreadilyagreedtodoso.
OnthebasisofthatletterandmyunderstandingofSusan'splight,Iagreedtopayheroutstandingtaxes.Wealsosetupasystemtoreserveacertainamountofhertrustincometopayfuturetaxessoshewouldn'thavethisproblemagain.
ThisworkedbecauseIknewSusanandIthought,“Whydidhermotherlimitthetrust'sabilitytopayonlyformedicalpurposes?”IconcludedthatshewasworriedthatifSusangotherhandsonthemoney,shewoulddrinkitorwasteitinsomeway.Idon'tthinkshewantedSusantobesickbecauseofherinabilitytopaytaxes.
GivingSusanthemoneytopaytaxeswastherightdecision.
“ThisWorkedbecauseIKnewSusan…”Whendoestheanalysisofabeneficiary'srequestforfundsbegin?Mosttrusteeswouldanswer:“Theanalysisofabeneficiary'srequestforfundsbeginswhentherequestissubmitted.”Thispostureisthenorm,anditislogical.Itisalsoreactive.Itisoneofthereasonsthatthedistributivefunctionoftrustsissooftenstill-born:noone—thetrustcreator,thetrustee,thetrustadvisersorprotector—wantstothinkaboutdistributionsuntilarequestlandsintheirinbox.Andtheymaystillnotwanttothinkaboutiteventhen.
Wesuggestthattheanalysisofarequestworksbestiftheprocessisn'treactive.Imaginethedifferenceitwillmaketotrusteeandbeneficiaryifattheinceptionoftheirrelationship,theydeliberatelybegintobuildasolidfoundationfortheanalysisofrequests.Overtime,thetrusteewillcometoknowthebeneficiary.Meetings,occasionalphonecalls,timespentgrapplingwithissuesbothtrust-relatedandotherwisewillbuildtrust.That,inturn,willhelpthetrusteeandbeneficiaryanticipaterequests.Andthetrusteewillunderstandthecontextandbeinabetterpositiontomakeagooddecisionwhenarequestismade.
BecauseheknewSusanandhadaprettygoodideawhathermotherwouldhavewanted,whenthetrustofficerheardSusan'srequest,hewasarmedwithanarrativethat(1)embracedthepotentialofthetrusttobelifeenhancingand(2)wastemperedwithanequaldoseofrealism.
Granted,Susan'sdilemmaisoutoftheordinary—andnoteveryonereadingthiswillapproveofthewaythetrustofficerhandledit.Butthischapter,andmuchofthisguide,isaimedatexpandingperspectivesandoptions.
Nowlet'stackleabeneficiaryandtrusteesituationthat'smorerun-of-the-mill—therequestisforpaymentoflivingexpensesforthecomingyear.
Thetrusteeandbeneficiarygothroughtheirannualritual.Thebeneficiarypresentsabudget.Thetrusteereviewsthebudgetwithaneyetowardthereasonablenessoftheexpenses.Someminornegotiationandthebudgetisapproved.
Butwhatifazighereandazagthereareslippedintotheprocess?
Whatifatrusteeasksatwenty-somethingbeneficiarywhoisrequestingcoverageoflivingexpenses:“Ifyourtrustweretopayyourday-to-daybills,wouldyoubegivingupanimportantpartofyourindependence?”Thisquestioncouldeasilyleadtoaconversationaboutself-worthanddependency.
Orduringatrustee'sconversationaboutlivingexpenseswithabeneficiarywhoisfurtheralonginyears:“Whatmightyoubegivingupbyhavingthetrustsupportacertainlifestyle?”Thiscouldleadtoaconversationaboutdialingbackonlifestyleinordertohavemorefundsavailabletosupportafavoritephilanthropicundertaking.
Willeitherbeneficiary'srequestortheultimateoutcomesbeanydifferentfollowingtheseconversations?Itishardtosay.Buteitherway,athought-activatingconversationaboutwhatenhancingone'slifereallymeansislikelytotakeplace.
TheRequestProcessTherearetwotypesoftrustdistributions.Thefirstaremandatorydistributions.Asthenameimplies,thetrusteemustmakemandatorydistributions.Somecommonexamplesofmandatorydistributionsincludetherequireddistributionofannualnetincometobeneficiariesorthedistributionofcertainpercentagesofthetrustprincipaltoabeneficiaryatacertainage(suchasone-thirdatage35,anotherhalfatage45,andtheremainingprincipalatage55).
Theothertypeofdistributionsarediscretionarydistributions.Again,asthenameimplies,thetrusteehasdiscretionoverthesedistributions:thetrusteemaymakethembutdoesnothaveto.Sometimesthetrustdocumentwillspelloutcertainstandardstoguidethetrustee'sdiscretion.Themostcommonsuchstandardsare“health,education,maintenance,andsupport,”whichtogetherarereferredtobytheacronym“HEMS,”andwhichareknown(forspecifictaxreasons)as“ascertainable
standards.”Thesewordshavespecificmeaningsbasedonpastcasesintrustlaw.Insomecases,suchasinSusan'strustdescribedabovethestandardisverynarrow:onlyforthehealthofthebeneficiary.Inothercasesthestandardisverybroad:the“well-being”or“comfort”ofthebeneficiary.
Inthefaceoflitigationfromex-spousesorothercreditors,ithasbecomemorecommoninrecentyearsfortruststoincludenomandatorydistributionsandnostandardstoguidethetrustees'discretion.Thisway,someonesuingabeneficiarycannotarguetoacourtthatthetrusteemustormaydistributetrustfundsforsuchandsuchpurposes.Ifatrusteehassuchdiscretion,withoutstandardstoguideit,thenthetrusteeissaidtohave“absolutediscretion”andthetrustisreferredtoasan“absolute-discretion”trust.
Inwhatfollowswearegoingtofocusondiscretionarydistributions,sincetheyinvolvejudgmentandchoice.Everytrusteewhoneedstoconsiderdiscretionarydistributionrequestsshouldhavesomesortofstructureforaprocessforthebeneficiarytofollowinmakingrequests.Wehavesuggestedtheoutlineofsuchaprocessbelow:
1. Requestsaremadeinwriting.Thewrittenrequestwilladdress
a. Thepurposeoftherequest.
b. Theamountbeingrequested.
c. Thelanguagewithinthetrustinstrumentthatwouldallowthetrusteetoapprovetherequest.
d. Thetimingofthedistribution.
e. Iftherewillbeadditionalrequestsrelatedtothisone,providetheamountsandtimingoftheadditionalrequests.
f. Amountsandtimingofotherrequeststhatthebeneficiaryanticipatesduringthecomingyear.
2. Supportingdocuments,asappropriate,shouldinclude
a. Invoices.
b. Receipts.
c. Budget(e.g.,showingthemajorcategoriesofexpensesandtheprojectedannualexpendituresforeach).
d. Businessplan(ingreaterorlessdetail,dependingontheexperienceofthebeneficiaryandthesizeoftherequest).
e. Balancesheetshowingoutsideresources.
f. Othersupportingdocumentsrequestedbythetrustee.
3. Whenappropriate:Anessayaddressinghowapprovingtherequestwillenhancethebeneficiary'slife.
4. Unlessit'sanemergency,requestsaretobesubmittedaccordingtoapredeterminedschedule(e.g.,quarterlyforsmallerrequests,annuallyformoresignificantdistributions).
In“reallife,”atrusteemaynotrequireallthisinformationforeveryrequest.Doingsowouldprobablybequiteanannoyancetothebeneficiary!Morelikely,thetrusteewillworkwiththebeneficiarytocompilethisinformationfromtheirinteractions(whetherinpersonoroverthephone)andfromthetrustee'sownfiles.Thegoalhereisnottosendthebeneficiaryscurryingfordataortoputhurdlesinthewayofdistributions.Rather,itistokeepinmindthevariousquestionsthatcouldhelpthebeneficiarymakethemostthoughtfulrequestpossible.
AnalysisofaRequestIntheauthors'experience,thebestdecisionsaremadewhenthetrusteebeginsbydiscussingtherequestwiththebeneficiary.Theconversationmayoccurbeforeoraftertheformalwrittenrequestissubmitted.Again,suchaconversationmightsupplyafairamountoftheinformationneededintheformalrequest.
Herearesomeconversationstarters:
Whatmotivatesyoutomakethisrequest?Isthereabiggerpurposethatliesbeneathit?
Howdoestherequestsquarewiththetrustcreator'sintent?
Howdoesitsquarewiththelanguageofthetrustinstrument?
Aretheremoreappropriatewaysforyoutoachieveyourgoalotherthanbyrequestingfundsfromthetrust?
Inadditiontoachievingyourpurposewiththehelpoffundsfromthetrust,doyouplantohaveyourownfinancial“skininthegame”?
Ifyourrequestisapproved,what'sthebestpossibleoutcome?Whatdifferencewilltheapprovalmakeintheshortterm?Inthelongterm?
Ifyourrequestisdenied,whatdifferencewillthatdenialmakeintheshortterm?Inthelongterm?Whatwouldbethebestpossibleoutcomefollowingthedenial?Whatalternatepathsmightleadtoaccomplishingyourgoal?
Followingtheconversationandreviewoftheformalwrittenrequest,askyourself:“Willmaking(ornotmaking)thedistributionbemorelikely(orlesslikely)toenhancethebeneficiary'slife?”AswementionedinChapter10,indiscussingpreambles,thisquestionprobablywillnotappearinthetrustdocumentitself,andsometrusteesmayfeelawkward“intruding”itintotheforefrontoftheirdecision-makingprocesswithouttheauthorizationofthedocument.Itmayseemlike“rewriting”thedocument.However,ifyouhavereadthisfar,youwouldlikelyagreethat,whetherthisquestion
appearsinthetrustdocumentornot,itisattheheartofthetrustee'svirtuesoffidelityanddiscernment,virtuesthatunderlietheactivityofdiscretion.Thegoalhereisnottorewriteexistingtrustsbuttobroadenourlensofevaluationtotakeintoaccountthetruebreadthofpossibilitiesandconsequencesoftrustdistributions.
Onceyouhaveconsideredthehumanquestionoflifeenhancement,thenitistimetoturnbacktothedocument,andaskyourself:“Wouldapprovalofthebeneficiary'srequestbeareasonableexerciseofdiscretionaccordingtothelanguageofthetrust?”
Iftheanswerstothesequestionsleantowardapproval,thereareseveralotherstoconsider:
Howlargeistheamountoftherequestcomparedtothesizeofthetrust?Willthisrequestdepletethetrustbeyondwhat'sprudent(orbeyondwhat'spermitted)?
Whathasbeenthebeneficiary'shistoryofrequestsforthepastfewyears?Wouldapproving/denyingthisrequestbeconsistentwithpastdecisions?
Istherequestaone-offorpartofalargerplan?Ifpartofalargerplan,whatadditionalrequestsareanticipated?Whatwouldthecollectiveimpactoftherequestsbeonthetrust'sassets?
Whatotherrequestsareanticipatedfromthebeneficiaryduringthecomingyear?Beyondthecomingyear?Howdoesthisrequestpotentiallyimpactdecisionsthatwillhavetobemadeinthefuture?
What'stheimpactonotherbeneficiariesifthisrequestisgranted?
Isthetrusteerequiredtoconsiderthebeneficiary'sresourcesoutsideofthetrust?Ifsowhatarethebeneficiary'sincome,expenses,andassets?
Isthisasituationinwhich(ifthetrustdocumentallowsit)itmaybebetterforthebeneficiarytoreceivealoanfromthetrustratherthanadistribution?Forexample,trusteessometimesmakepaymentsforabeneficiaries'residenceasaloan,toberepaidthewayaconventionalmortgagewould,ratherthanadistribution.Itcouldalsomakesensetostructureadisbursalaspart-distributionandpart-loan,sothatthebeneficiaryhassome“skininthegame.”
Nowthetrusteeisreadytomakeadecision.Oncemade,communicatewhat'sbeendecidedandthereasoningbehindittothebeneficiary.Betransparent.Answerthebeneficiary'squestions.Addressthebeneficiary'sconcerns.Iftherequesthasbeendeniedandthebeneficiaryisdisappointed,offertospendtimebrainstormingalternatewaysofreachingthebeneficiary'sgoals.
Thelaststepistodocumentinwritingtheprocessandanalysisthatledtothedecision.Thiswillbeausefulaidforanalyzingfuturerequestsandaninvaluableresourceforfuturetrustees,anditprovidesanimportantrecordshouldthedecisionbechallenged,eitherinthe“courtoffamilyopinion,”orinacourtoflaw.
AboutEnhancementManytrustsaredraftedwhenbeneficiariesareyoung,maybenotevenbornyet.Thenightmaretobeprotectedagainstmightlooksomethinglikethis:
Asoontobe21-year-oldhadbeenorphanedataveryyoungage,hisparentskilledinatragiccaraccident.Growingup,manyofhisexpensesarepaidfromatrustholdingsubstantiallife-insuranceproceeds.Uponturning21,thetrustwillcometoanendandhewillreceiveaconsiderablesum.Mightthisapproachingeventaddfirmnessandarealsenseoffuturetohisperspective?Inthiscase,no,forhehappenstobeimmature,showinglittleinclinationtoplanbeyondhispayday.Hetriestogamethesystembycreativelyplottingtosecureanearlydistributiontokeephis“friends”around.Withinayearfollowinghis21stbirthday,themoneyisgone,andsoarethefriends.
Or,onthepositiveside:
Arecentcollegegradasksforhelpdraftingherfirstbusinessplan.Theconversationincludeshowthetrustmightsupportherdreamandwhatwouldberequiredofhertoreceivefinancialbacking.Shedoesherhomeworkandconcludesthattheideaisnotsound.Shegoesbacktothedrawingboardtostartoveragain.
Atthesametime,it'snotuncommonthattheparentsof“babyboomers”intheirsixtiesaregoingstrongintheireighties.Sotothinkofnewly-mintedbeneficiariesasstrictlyaschildrenoremergingadultsmaybeadisservicetobeneficiarieswhoarefurtheralonginlife.Forexample,doesitmakesensetobypassaspouseofthirtyyearsinthechainofinheritance?Ortofailtoincludelanguagepermittingabeneficiarytoseekfundstosupportafavoritephilanthropicendeavor?
Whenperformingthedistributivefunction,wesuggestthatatrusteekeepinmindthat“enhance”dependsonfactsandcircumstances,includingthestageofthebeneficiary'slife.Whilethismayseemobvious,awomaninherfortieshadthistosaytooneoftheauthors:
“Mylifeissuccessfulbyalmostanymeasure.IamatenuredprofessoratanIvyLeagueuniversity.Ihaveawonderfulhusbandandchildren.Isitonseveralnon-profitboardsandcurrentlychairmyfamily'sfoundation.TheonlyplacethatIamtreatedlikeachildiswhenIvisitmytrustee.Ihavecometotermswiththis,butwhatconcernsmeisthatmychildrenwillhavetogothroughthesamething.”
ThinkbacktoSusan'sstorythatbeganthischapter.Wasthetrustee'sapproachmore“partner”than“parental”becauseSusanwasmiddle-agedratherthanjuststartingoutinlife?Whenweusethisstoryasthebasisforanexercisewithgroupsoftrustees,theagethatweassigntoSusandoesseemtomakeadifference.
TrustWorthycontainsmanyexamplesofwhatenhancingthelifeofadultbeneficiarieslookslike.Forexample,in“WeAllFeltLikeGodparents,”thoughtfulanalysisleadsto
adecisiontoreleasefundsforinvitrofertilizationwheretrustlanguagepermitsdistributionformedicalexpensesonly.In“DoesAnybodyReallyNeedaHelicopter,”arequestthatonitsfaceseemslikeaslam-dunk“no”leadstoanaffirmativedecisionforanexecutivewhosebusinesstravelstakehimtoremote,dangerouscornersoftheworld.Andin“FortheLoveofSiblings,”atrusteetakestheinitiativetoreuniteagingbrotherandsisterinanassistedlivingfacility.
Note
1.From“TaxesCanMakeYouSick,”inTrustWorthy.©TrustscapeLLC.Reprintedwithpermission.
CHAPTER15WORKINGWITHADDICTIONS
Inthepriorchaptersinthispartoftheguide,wehavefocusedonbuildinggreatrelationships,particularlybetweenthetrusteeandthebeneficiary.Doingsoinvolvessome“internalwork”aswellasthe“external”workofpreparingforandholdingmeaningfulmeetingsandproductivelydiscussingdistributions.Thisworkcutsacrossalmostalltrustee-beneficiaryrelationshipsandappliesprettymuchuniversallytotrustscapesofallshapesandsizes.
Inthenextthreechapters,wefocusonmorespecificmattersthatarisewithinoraffecttheserelationships,specifically,addiction,marriage,andtransitionsinthetrustscape.Thesetopicswillnotbethesubjectofeachandeveryinteractionbetweentrusteesandbeneficiaries.Buttheywilllikelyplayapart,andapowerfulpart,inalmosteverytrustscapeatonetimeoranother.
Helpingafamilymemberwithanaddictionisanincrediblydifficulttask.Itismadeallthemoresowhenthatindividualhasaccesstofundsinatrust—fundsthatmaybeusedtofueltheaddictionevenoverlovedones'andtrustees'concernsandobjections.
Becauseofthespecializednatureofaddictiontreatmentanditsintersectionwithtrusts,wedecidedtostructurethischapterasaninterviewwithBillMessinger,whohasspentdecadesdealingwiththistopic,bothasamemberofafamilywithwealthandasaprofessionaladvisertofamilies.Besidesbeinganattorney,Billisalicensedalcoholanddrugcounselor.Bill'spracticefocusesonhelpingclientsidentifyandimplementwinningstrategiestocombatalcoholanddrugabuseintheirfamilies,familybusinesses,andbeneficiaries.InterestedreaderscanfindmuchmoreonBill'sapproachtomanagingaddictioninthecontextoftrustsathissite:www.billmessinger.com.
FamilyTrusts:“Bill,inyouryearsofworkingwithfamiliesandtrustees,whataresomeofthemajorpitfallsyou'veseenthemfallintowhenitcomestoaddictionmanagement?”
BillMessinger:“Thefirstandbiggestproblemiswiththetreatmentmodelmostpeopleuseindealingwithaddiction.Theyallowthealcoholicoraddicttopickthetreatmentprogramandmanagehisorherrecoveryprogram.Whiletheintentionindoingsoiskind-hearted,itis,unfortunately,oftenarecipeforfailureandrelapse.Also,whenitcomestotrusts,thelanguageintrustsandothergovernancedocumentsisusuallyineffectiveindealingwithaddiction,evenwhenthetrusteehasbroaddiscretionaryauthority.Finally,trusteesandprofessionalsadvisingfamiliesoftenlacktrainingandunderstandingregardingaddiction.”
FT:“Itsoundslikeabasicproblemisthelackofunderstandingofeffectivetreatment.Sowhatworks?”
BM:“Thekeyistoapplyleveragetoencouragetreatmentcompliance.Thebasisforthisapproachisthehighlysuccessfultreatmentprogramsforpilotsandphysicians.Iwilltellyouashortstory.MyinterestindevelopingandusingtheconceptofleveragefortrustsandfamiliesdealingwithaddictionbeganwhenIsawthisheadlineintheHazeldenVoicein1998:‘AirlinePilotsSoartoSuccessinRecovery.’Itturnedoutthat92percentofairlinepilotsintheHazeldenprogramwere100percentabstinentfortwoyears.IdidsomediggingandIfoundoutthatdoctorsalsohadveryhighrecoveryrates—almost80percentoverfiveyears.Itturnedoutthataddictionistheonlyfieldofmedicinewherephysiciansaretreateddifferentlythantherestofthepopulation!Sincethattime,ithasbecomecleartomethatreplicatingthepilot-physicianmodelforinclusionintrustsandothergovernancedocumentsisbyfarthemosteffectivewaytocombatsubstanceusedisorders.”
FT:“Everyonehasheardabouthigh-profilecasesofaddictionincelebritiesorhigh-profilefamilieswithwealth.Arethehorrorstoriesthenorm?Canyousayabitaboutthecontextforaddictioninfamilieswithwealth?”
BM:“Alcoholism,drugdependence,otheraddictions,andsignificantmentalhealthdisordersarestatisticallyprobableandwilloccurinaffluentfamiliesatanestimatedminimumrateof20percent—oftenmuchhigher.Thesedisorderswillunderminethebestfamilymissionstatementsandsuccessionplansandresultinthelossofbothfinancialwealthandfamilycohesion.Addictsandalcoholicsarepeoplewithanillness.Theyneededucated,activefamilymemberstohelpthemfindeffectivetreatmentandencouragethemtoengageinpost-treatmentrecoveryactivities,justlikerelativeswhoaresickwithotherchronic,life-threateningdiseases.”
FT:“Whydoyoustresstheconceptof‘leverage’?”
BM:“Becausewithoutitusuallynothingchanges.Whenadoctorisaddicted,thestatemedicalboardwillusehisorherlicenseasleverage:complywithatreatmentplanoryoucan'tpracticemedicine!Itisallwellandgoodtodiscusshighlysuccessfulrecoveryprograms,systemstransformation,andclinicallyappropriateandrespectfultreatmenttoimproveoutcomes.But,first,afamilymustfirstovercomeabasicproblem:howdowegettheaddicttoentertreatmentandremainactiveinapost-treatmentprogram?Withoutapplyingleverage,mostaddictswillcontinuetodrink,usedrugs,andcontinueotheraddictivebehaviorbecausetheirmoneyandotherresourcesbufferthemfromtheconsequencesoftheiraddiction.Unfortunately,Iknowpeopleinthesesituationswhostoponlywhentheyareinstitutionalizedordead.”
FT:“Doesusingleveragemeancuttingsomeoneoff?”
BM:“Itmaymeancuttingthemofffromallfundsexceptforfundstobeusedfortreatmentandsupport,asdirectedbyalicensedcounselor.Leveragenevermeanscuttingsomeoneofffromsupportorfromcontact.Aspainfulasitmaybe,itisimportantforafamilytoremainengagedwithanaddict.”
FT:“Howwouldyourecommendfamiliesapproachthechallengeofmakingtheirtrustssecureinthefaceofaddiction?”
BM:“First,Iwouldsaydon'twait:itisnotnecessarytowaituntilsomeoneisdeeplyaddictedbeforetakingaction.Infact,itmaybenearlyimpossibletohelponceanaddictionhasbecomedeeplyingrained.Second,Idothinkitisimportanttoincludespecificprovisionsregardingaddictioninplanningdocumentsortoreformtrustsinordertoincludesuchprovisions.Third,familiesshoulduseexpertstoevaluatememberswithaproblemandmakeobjectiverecommendations.Fourth,userequestsforfundsasanopportunitytolearnabouttheproblem,evaluatethebeneficiary,andstarttoputinplacearecommendedplan.Fifth,bemindfulofthecourtoffamilyopinionaswellasthecourtoflaw.Dealingwithaddictionorpotentialaddictionisnotaquickfix.Itisnotjustamatterofhiringtherightlawyer.Itisaprocessthatwilleventuallyinvolvemultiplefamilymembersandexternalexperts.Butifpursuedasaprocess,itreallycanwork.”
FT:“Youemphasizetheroleofexperts.Familiesareoftenhesitanttoinviteinoutsiders,evenexperts,especiallyaroundsomethingassensitiveasaddiction.Whatwouldyousaytothem?”
BM:“FirstIwouldremindfamilymembersthataddictionisachronicdisease,notapersonalfailure.Itrequiresamedicalperspectivetotreatiteffectively.Also,treatingaddictionisnotamatterof28daysandyou'redone.Myexperienceisthatitismorelikelyatwo-tofive-yearprocessofrecovery.Mostlawyers,trustees,andfamilymembersdonothavethetimeortheskillstohelpafamilymemberwithaddictionnavigatethatprocess.Itusuallydoesn'thappenwithoutthesupportofatrained,respectfulprofessional.”
FT:“Whatwouldatreatmentapproachbasedonthewiseuseoftrustslooklike?”
BM:“Thereareacoupleoftrackstosuchanapproach.Firstistheleveragetrack.Onthistrack,itisimportanttohaveexplicitleverage:expectationsthataresetoutingoverningdocumentssuchastrusts.Thatlanguagemay,forinstance,requirespecifictestingandtreatmentactivities.[Forexamplesofsuchlanguage,seeAppendix2.]Togetitintodocumentsmayrequiredecantingorreformingthosetrusts.Atthesametime,non-explicitleverageisalsoimportant:Imeanthesortof‘soft’leveragethatcancomefrompersonalconversations,expressionsofconcern,anddemandsforchange.Thesecondtrackisrecoverymanagement.Here,theinvolvementofanexpertcasemanageriscrucial,toidentifytreatment
optionsandsetclearguidepostsandexpectationsforthefamilyandthememberwiththedisease.Thisprocessrequiresclearcommunicationamongalltheparties.Itcanalsohelptohaveasignedcontractbetweenthefamilymemberswiththeaddictionandtherestofthefamily—justasdoctorswithaddictionhavetosignwiththeirmedicalboard.Suchcommunicationandcleardelineationofexpectations,aswellastheinvolvementofanexpertcasemanager,helptakepressureoffthetrusteesaswellasotherfamilymembers.”
FT:“Istherelanguagethatyourecommendfamiliesuseas‘explicitleverage’?Isitenoughtogivetrusteesabsolutediscretioninmakingdistributions?”
BM:“Idon'tthinkrelyingonabsolutediscretionisenough.Therealityisthatmosttrusteesdon'thavethetimeorexpertisetoidentifyaddictionproblemsinbeneficiaries,sotheymayunwittinglygoalongwithharmfulrequests.Also,justsaying‘no’isreallynotsufficient,especiallyinthefaceofaninsistent(andperhapslegallyarmed)beneficiary.ThatiswhyIrecommendspecificlanguagetosupportthatleverage.Forexample,givetrusteesthediscretiontowithholddistributionswhenbeneficiariesexhibitaddictive,compulsive,ordestructivebehaviors,mentalhealthconditions,oranycombinationthereof.Givethetrusteethepowertowithholdfundsuntilthebeneficiaryisintreatmentandtospendfundsontreatmentandlicensedexpertoversightoftheprocess.Veryimportantly,theleveragelanguageshouldalsorequirethebeneficiarytocomplyfullywithtreatmentrecommendationsandtosignreleasesallowingthetrusteetoreviewtreatmentplansandspeakwithcounselingstaff.Finally,thedocumentsshouldspecifythatthetrustee(nottheaddict)hasthepowertoselectareliabledrugtestingserviceandtowithholddistributionsifthebeneficiaryfailstocomplywiththerecommendedtestingregimen.”
FT:“Arethereanyexamplesofspecificlanguagethatyou'vefoundhelpfulintrusts?”
BM:“Yes,forexample,here'sacasewherethegrantorwantedtogivethetrusteethedirectiontowithholddistributionsspecificallyinthecaseofaddiction:
Notwithstandingtheforegoing,thetrustee,inhis/hersolediscretion,shallwithholddistributionsofassets,income,orotherwithdrawalsfromanybeneficiarywhohasanactivedrugandoralcoholdependency.Suchassets,income,orwithdrawalsshallberetainedandheldbythetrusteeuntilsuchtimeasthetrusteedetermines,inhisorhersolediscretion,thatthebeneficiaryisinrecoveryfromsuchdrugandoralcoholdependency.
Asecondexampledescriptionforthe‘trigger’forwithholdingdistributionsissomewhatbroader:
IfatanytimeaBeneficiaryeligibletoreceivenetincomeorprincipaldistributions,inthesolejudgmentoftheTrustees,isdeemedtobeincapableofproperlymanaginghisorherfinancialaffairs,orshouldtheTrusteesbecomereasonablyconcernedregardingthemoralconductoraffairsofanyBeneficiaryhereundertosuchadegreeastobeconcernedforsuchBeneficiary'shealthorwelfare,orshouldanyBeneficiarybeconvictedofacrime,orbethesubjectofacriminalinvestigation…
Andhereisathirdcase,inwhichthegrantorexpressesverygeneralwishesforthebeneficiaries'well-being:
ItismywishthatmyIndependentTrusteesconsider(mychild's)mentalandphysicalconditionand(mychild's)bestinterestsbeforemakingsuchdistribution.
Readerscanfindmuchmoreextensivesamplelanguageforinclusionintrustsonmywebsite[andinAppendix2ofthisguide].Naturally,theexactlanguagewilldependonthevaluesofthegrantorandthedynamicsofthefamily.Iwouldaddthatthislanguagecanbeusednotonlyintrustsbutalsoinsuchsharedentitiesasfamilylimitedpartnershipsorlimitedliabilitycompanies.”
FT:“Whataboutonceafamilymemberhasenteredtreatmentorhasgraduatedfromaprogram?Aretherespecificprovisionsthatarehelpfultohaveinplacethen?”
BM:“Absolutely.Again,treatmentandrecoveryarenotamatterofafewweeksorevenmonths.Generally,ittakesaminimumoftwoyearsforthebraintostabilizeandforapersonwithanaddictiontolearnnewhabits.Thetrusteeshouldhavethepowertorequiretestingduringthisperiodandtowithholdfunds—exceptfortreatment—ifthebeneficiarydoesnotcomply.Also,thetrusteeshouldbecarefultoidentifythestartof‘recovery’aswhenthebeneficiarytrulyreturnstoanormallivingarrangement,notwhenheorsheisintheprotectiveenvironmentofahalfwayhouseorinpatientfacility.Sometimesaddictedbeneficiarieswillthreatentheirspouseswithlossoffundsiftheyreporttheiraddiction,sothetrusteeshouldhavethepowertogetfundstoanaddictedbeneficiary'sspouseorchildrendespitetheaddictedbeneficiary'sobjections.Naturally,duringtheperiodthatthetrusteehassuspendeddistributions,thebeneficiaryshouldloseanypowertoremoveorreplacethetrusteeoractasatrustee.Finally,thetrusteeandtheexpertsthetrusteehiresshouldhavenoliabilityfortheactionsorwelfareofthebeneficiary;thisprovisionshouldprotectthetrusteeandothersinvolvedfromanythreatsbythebeneficiary.”
FT:“Bill,yourperspectiveissohelpful.Doyouhaveanyfinalthoughttosharewithourreaders?”
BM:“Mostsimply,bepersistentandproactive.IhopethatI'veencouragedtrustees,familymembers,andtheiradviserstotakeaproactiveapproachin
addressingsubstanceuse.Successispossible.Incaseswhereaddictionisnotcurrentlypresentinfamiliesmyadditionalhopeisthatthesethoughtswillprovideanimpetusforfamiliestoadoptmeasurestoeffectivelyaddressdysfunctionsinfuturegenerations.Forfartoolong,beneficiarieshavebeensufferingunnecessarily,somedyingpreventabledeaths,tooursorrow.”
Again,forsamplelanguagethatBillsuggestsusingintrustsandsimilarinstruments,pleaseseeAppendix2.
Addictionmayseemtobeaspecializedtopicbutthisentirebookisaboutusingtruststoenhancethelivesofbeneficiaries,andthegreatdangerthattrustsposeisthedangerof“distributionaddiction,”thatis,addictiontomonthlyorquarterlysupportpaymentsthatsapthebeneficiary'ssenseofpurposeandstriving.Seeninthislight,theworkofeverytrustcreator,trustee,andbeneficiaryshouldbetheavoidanceofaddiction.Thekeytodoingsoistobreathelifeintotheserelationships—togiveallpartiesavoiceandasenseofdignity—sothataddictiontofinancialdistributionsneverusurpsthebeneficiary'sownsenseofpurpose.
CHAPTER16TRUSTSANDMARRIAGE
AsFreudobservedlongago(andmanysongwritersremindustothisday),someofthegreatestchallengespeoplefaceinvolveloveandmoney.Whentrustsintersectwithplansformarriage(orremarriage),thesechallengescometogetherintoone.Itisnosurprisethattheintersectionoftrustsandmarriageisoneofthetrickiestpointstonavigateinthetrustscape.
Marriageissomethingthatchangesandevolvesthroughoutanindividual'sandafamily'slife.Sowewilltakeupthistopicfromseveraldifferentangles.(Andby“marriage”herewemeantoincludeanycommitted,long-termrelationship.)First,wewillconsiderhowtomanagetheplaceoftrustsasyouenterintomarriage.Then,wewillturntohowcouplescandiscusstrustsintheirmarriage,andmorespecificallytothequestionofwhenandhowtotellbeneficiariesabouttheexistenceofatrust.Finally,wewilllookatthethornytopicoftrustsinasecondmarriageorbeyond.Throughout,wewillalsobecognizantofthepartthatfiscalinequalitybetweenpartners—especiallywhenthewomanhasmorewealththantheman—playsinmanagingtheplaceoftrustsinarelationship.
PrenuptialsPrenupsaretypicallyobjectsofdreadtoallinvolved.Theyevokeimagesofoverlyprotectiveparents,infantilizedchildren,gold-diggingfiancés,ablackmarkonanewrelationship,mistrustwherethereshouldbelove,andsuspicionwherethereshouldbehope—inshort,awholepanoplyoffears.
Itdoesnothavetobeso.AswedescribemorefullyinTheCycleoftheGift,thoughtandcarecanturntheprenupprocessfromanightmareintoaritualofwelcome,partofthecreationofthenewcoupleandthenewfamily.Wewillsummarizethewaystodosobelow.But,first,itiscrucialtorecognizethattrustscanplayalargepartinmakingthatprocesspositive,ratherthanaddingtoitsnegativity.
Thereasonisthatifthetrustsarestructuredcorrectly,thetrustassetsmaynotbepartoftheto-be-formed“maritalestate”belongingtothenewcouple.Inmanystatesandcountries,thetrustassetswouldsimplybe“offthetable”withregardtoapossibledivorceordissolution,andsowouldnothavetobethesubjectofnegotiationintheprenupprocess.1Theymustbedisclosed,bothfortheintegrityofthatprocessand,moreimportantly,fortheeducationofthebeneficiaryandhisorherpotentiallifepartner.Butdisclosuredoesnotequalaccess,muchlessdistribution.Thetrustassetsarepartofthelandscapeforthenewfamily,butnotpartofthegroundthatbelongstothemorthattheymightonedayhavetodivide.
Thepresenceoftrustspriortotheprenupprocesscan,asaresult,providethemarryingcouplesomerelief.Wehaveheardmanybeneficiariessaythattheyfeltrelievedthattheirparentshadputassetsintotrust,sinceitremovedanydecisionaboutthoseassetsfromtheir—theyoungfamilymembers'—hands.Asonefiancéesaid,“Ididn'tfeellikeIwastellingmyboyfriendthatIdidn'twanthimtohavethisproperty.Iwasabletosaythatthedecisionwasmadelongbeforehecamealong.”Likewise,afiancéoncetoldus,“Iwasgladtolearnthatherassetswereintrust.Thatwasherdadandmom'sgifttoher.Ithadnothingtodowithme.SheandIcouldthenmakeourlifetogetherandIcouldmakemygifttohermyself.”Italsohelpstoframetheuseoftrustsintermsofthefamily'svaluesandhistoryratherthanaspartofaplantoprotectagainstthisorthatspouse.Forexample,somefamilieshaveexplained,“Thisissimplywhatourfamilydoes:it'snotaboutyou.”Orsimilarly,“Ourfamilywealth(orbusiness)isafamilyassetthataffectsmanydifferentpeopleandispartofourlegacy.That'swhyweputtheseassetsintotrust.”
Theseexamplesalsoshowhowoftentrustsarepartofthelargerdynamicoffiscalinequality.Fiscalinequalityinamarriageisabigtopic,whichgoesbeyondthescopeofthischapter.Itisalsoatopicthatisbecomingmoreandmorecommon,asparentsmakelifetimegiftstotheirchildrenandaswomen,inparticular,findthemselvesinpossessionofmoreandmorewealth.Thekeytomanagingsuchinequalityisempathyfortheotherpartyandforoneself.Recognizingthechallengethatinequalityposeswithinarelationship,forbothparties,isthestarttotheirmanagingthatinequality.Fromthatempathyflowstheabilitytocommunicateandtotalkaboutwhatthedifferencemeansforeachofthem.Suchdifferencesbecomemuchmoremanageablewheneachpartyisclearabouthisorherownfeelingsandhasputthosefeelings“onthetable.”
Asmentionedearlier,communicationisalsocrucialformanagingtheprenupprocessasawhole,withorwithoutthepresenceoftrusts.Condensedtoitssimplestform,thatcommunicationprocessinvolvessomeorallofthesesteps:
1. Asafamily,gettingclearwhich—ifany—assetseachchildbringstothemarriage(thatis,whichassetsarenotalreadydisposedviatrusts).
2. Asparentsofamarryingadultchild,clarifyingwhatyourfeelingsareaboutaprenupandwhatmotivatesyourfeelings(thisisparticularlyimportantifDadandMomperhapsdifferwitheachotheraboutthetopic).
3. Asparents,decidingwhetheryouarewillingtoleavethedecisionaboutaprenupinthehandsofyourchild.
4. Asafiancéorfiancée,clarifyingwhatyourfeelingsareaboutaprenupandwhatmotivatesthosefeelings.
5. Betweenparentsandchild,communicatingyourfeelingsclearlywiththegoalofunderstandingandempathizingwitheachother.
6. Betweenfiancéandfiancée,communicatingyourfeelingsclearlywiththegoalof
understandingandempathizingwitheachother.
7. Basedonthesestepsincommunication,decidingonhowtheprenupprocesscanbestsupporttheformationofthenewmarriage.
Aswithanyprocessofcommunication,somepeoplearemoreadeptatitthanothers.Inparticular,itmaybechallengingformarriage&familylawyerswholookattheprenupprocessthroughanadversariallenstohelpfamilymembersusethepre-nupprocessinapositiveway.Insuchsituationswehaveseenfamiliesmakegooduseof“translators”:peoplewithexpertiseintrustsandfamilydynamicswhohavebeenabletohelpthefamilyclarifytheirpositiveintentandthen“translate”thatintenttobothsetsofmarriage&familylawyers.This“translation”cansaveagreatdealinhurtfeelings,anxiety,andlegalfees.
Theprenupprocessisnevereasy,butifpursuedwithgoodwill,itcanproducemuchbetterresultsthanbottlinguptheanxietyandthenposingthedemandforaprenupshortlybeforethenuptials.Indeed,whenmotivatedbypositivepurpose(ratherthanasanexpressionoffear),theprenupprocesscanserveaspartof“onboarding”ofthenewspouseintothefamilyratherthanseemtobealockeddoororsignofsuspicionatthebeginningofthemarriage.Again,ourmainpointhereisthatthepresenceoftrusts—farfrommakingthemattermoredifficult—canactuallyeasetheprocessandhelpputthefocuslessonpropertyandmoreonthehappycoupleandtheirnewmarriage.
WithinMarriageTherearemanywaysthattrustscanimpactanestablishedmarriage.Forexample,couples,oneorbothofwhomarebeneficiariesoffamilytrusts,mayrevisitthequestionofhowmuchorhowlittletointegratethosetrustsintotheirmarriage.Thisworkamountstorevisitingandperhapsrenegotiatingtheprenupprocessinthecontextofanestablishedmarriage.Also,coupleswhoaresettinguptheirownfamilytrustsneedtodecidehowmuchoftheirpropertytoputintrust,forwhom,andunderwhattermsofdistribution.Evenmorebasically,theyneedtodecidehowtodecidethesematters:willbothofthemhaveanequalsay,orwillthespousewhohascreatedthewealthtakethelead?Intheheatofcreatingwealthandraisingchildren,manycouples“default”tothelatterapproach,leavingthewealth-creatingspouse(often,butnotalways,thehusband)toworkoutthe“legaldetails”withlittleinputfromtheotherspouse.Ifthathappens,theymaywanttorevisitthosedetailsinlateryears,whentheyhavemoretimeandexperiencetoreflectontheirpriorchoices.
Forthesakeofbrevity,wefocushereonthechallengethatmarriedcouplestypicallystrugglewithmostwhenitcomestotruststhattheyhaveestablishedduringtheirmarriage:thequestionofwhattotelltheirgrowingchildrenaboutthetrustsandwhentotellit.
This,too,isatopicthatwetakeupmorefullyinTheCycleoftheGift.Here,we
condensethematerialtoitsessence,whileaddingconsiderationsspecifictotrustsasdistinctfromfamilywealthmoregenerally.
Toanswerthisquestion,werecommendthatcouplestaketheapproachfirstrecommendedbyourfriendandcolleagueCharlesCollier,formerseniorphilanthropicadviseratHarvardUniversity(andalsodescribedinChapter7inthesectionontrustcreators).Charliecalledthisapproachthe“three-stepprocess.”Ithashelpedcountlesscouplesnavigatedifficultdecisions;itamountstothefollowing:
1. First,eachmemberofthecoupleshouldclarifywhatheorshewantstocommunicate;whatarethegoals,fromhisorherperspective,ofthecommunication;andhowheorshefeelsaboutcommunicatingwithhisorherchildrenaboutthetrust.
2. Second,withthisindividualclarityinmind,thetwomembersofthecoupleshouldsharetheirthoughtswitheachother,withagoalfirstnotof“winningover”theotherbutratheroflistening,learning,understandingtheother'spointofview,andempathizingwiththeotherpartner.
3. Third,onlywhenthecouplehasfullyexploredstep2shouldtheymoveontodeciding,asacouple,whattheywanttocommunicatetotheirchildren,when,andhow.
Typically,weseecouplesskipsteps1and2andtrytomovedirectlytostep3,especiallybytryingtoanswerthe“when”and“how”questions.Thatiswhythosequestionsoftenfeelsoinsuperable:becausethemembersofthecouplemaynotknowtheirownhearts,muchlesswhat'sgoingonintheother'sheartandmind.Incontrast,ifacoupledevotestimeandenergytosteps1and2,step3movesrelativelyquicklyandsmoothly.
Ofcourse,thereareatleasttwosidestoeverycommunication.Theparentsareoneside.Childrenaretheother.Andsometimesparentshavegoodreasonsfordoubtingtheirchildren'sabilitytohear,understand,andintegrate,inahealthyway,informationaboutfamilytrusts.Theconcernsabouttrusts'demotivatingchildren'sworkethicarereal.
Theanswertosuchconcerns,whichareverycommon,istoseektounderstandeachchildasanindividual.Somechildrenarealmostnaturallyresponsibleandself-directed:theymaybeabletounderstandandintegrateinformationabouttrustsinahealthyfashionevenwhentheyareintheirlateteens.Otherchildrenmayfinditdifficulttointegratesuchinformationevenintheirlate20sor30s.Mostchildrenareprobablysomewhereinbetween.
Parentsoftentakeoneoftwoapproachestothissituation.Thefirstissecrecy.Theywithholdinformationaboutthetrustsaslongaspossible,perhapsevenlongaftertheiradultchildrenarelegallyentitledtoreceivethisinformation.Orparentsestablishtheirtrustsinjurisdictionsthatdonotrequirenotifyingadultbeneficiariesofthetrust'sexistence.Astemptingasitis,wehaverarelyseenthisapproachworkoutwell.It
createsalargeopportunitycost:thetimespentkeepingthingssecretcouldhavebeenusedtoeducatethebeneficiaryinthewaysthatwediscusselsewhereinthisbook.Italsoalmostalwaysbreedsresentment.Thetruthwilloutatsomepoint.Theadultbeneficiarywillthentallyupallthewaysthatknowingthetruthearliercouldhaveinfluencedhisorherlifechoices.Whetherornothisorherretrospectiveassessmentisaccurate,theresentmentatbeingtreatedlikeanirresponsiblechildwillberealanddamaging.
Theothercustomaryapproachistopunttheentirediscussionandplaceitinthehandsofan“expert,”usuallyanofficeroftheinstitutionaltrustee(ifthereisone)ortheprofessionaltrustee(suchasanattorney).Thisoccasionusuallycomesoutoftheblueforthebeneficiary,creatinganxiety,whichishardlyagoodfoundationforlearning.Thediscussionalsotendstobetechnicalandone-sided.Beneficiariesoftenleavesuchmeetingsfeelingbewilderedandevenashamed.Theresultmaybethattheentiresubjectisdroppedforyearsordecadesmore.Thatmaybetheresultthatsomeparentswishfor,but,again,itsetsupadynamicthatusuallyendsinpoorlyeducated,poorlypreparedbeneficiaries.Astheoldadagesays,“Failuretoprepareispreparingtofail.”Withthispoor“preparation,”itshouldbenosurprisethatsomanybeneficiariesdonotsucceedtomanagetheirtrustswell.
Instead,aswedescribedinChapter7,werecommendtailoringthecommunicationtobeneficiariesbasedonwhothosebeneficiariesare.Sometimesthatprocessmayinvolvethestepofhavingathirdpartyactuallyintervieweachadultbeneficiarytolearnwhathisorherlevelofknowledgeis,howpreparedeachpersonistolearnaboutthetrust,andwhatquestionsheorshehasaboutthetopic.Suchinterviewscanbeagreatwaytopreparebeneficiariestogetthemostoutoftheprocessaswellastoprepareparentsandtheiradviserstoteachbeneficiariesmosteffectively.Theseinterviewscanalsohelpparentsdecidewhethertoshareinformationwiththeirchildrenasagrouporasindividuals,withtheirspouses(ifthechildrenaremarried)orwithout.
Whateverthecommunicationprocessendsuplookinglikeforyou—whetheritisassimpleasafewone-on-oneconversationsorasinvolvedastheseriesofinterviewsandplanningsketchedoutabove—wereturntothisfundamentalprinciple:seektounderstand.Ifyouuseeachinteractionwithyourchildrenasachancetolearnaboutwhotheyare,whattheyknow,whattheywouldliketoknow,andhowwelltheyarelikelytointegratethatknowledge,thenthe“what,”the“when,”andthe“how”ofyourcommunicationwilllikelyflowquitenaturally.2
SecondMarriagesandBeyondThereisnothingascomplexinfamilylifeasblendedfamilies,whetherthatblendingcomesaboutafterthedeathofapriorspouseorthroughdivorce.Thepresenceoftrustswithinthefamilyaddscomplexityuponthiscomplexity.Managingthedynamics
oftrustsandremarriagerequiresgreatdelicacy,patience,andempathybyandforallparties.
Therearemanypermutationsthatthiscomplexitycantake.One,forexample,iswhenaspousediesaftersettingupa“maritaltrust”forhisorhersurvivingspouse,andthenthatsurvivingspouseremarries.Thissituationbearssomeresemblancetothesituationofyoungpeoplemarryingforthefirsttimewithfamilytrustsinthebackground.Itcancausesomeanxietyintheremarryingspouseandhisorhernewcompanion.Butitcanalsobeasourceofrelief:themaritaltrustestablishedbythedeceasedspouselikelyhascleartermsaboutdistributionanduseoftheassets.Itisprobably“offthetable”inthenewmarriage.Thisstatusmayhelpthenewcouplecreatetheirowneconomicworld,withasfewfeelingsofguiltorresentmentaboutthedeceasedspouse'sroleintheireconomiclifeaspossible.
Maritaltrustsalsoplayaroleinperhapsthemostcommonandmostdifficultsituationinvolvingtrustsandremarriage:whenapersonwithchildrenremarriesandcreatesamaritaltrustforhisorhernewspouse.Thesituationismadeallthemorechallengingifthenewspouseismuchyoungerthanthetrustcreator.Sometimesthatnewspouseandthechildrenfromthepriormarriagemayevenbeclosetothesameages.
Insuchcases,itisnaturalforthechildrenfromthefirstmarriagetowonderaboutthenewspouse'smotives:isheorshejustmarryingMomorDadforthemoney?Itisalsonaturalforthechildrenfromthefirstmarriagetoworryabouttheconsequencesforthemselvesandtheirchildren:Willthewealthoutlivethenewspouse?Willtherebeanythingleftforus?Willwehavetowaitallourlives?Thesearenotparticularlynobleconcerns,buttheyarecommonones.
Again,thesearesituationsofgreatcomplexity,andsimpleanswerswouldnotdothemjustice.However,inworkingwithmanyfamilies,wehaveobservedonerule:itisgenerallymuchbettertoaddressthesematterswhileyouarealivethantoleavethemtobehashedoutbetweenyouradultchildrenandyoursecondwifeorhusbandafteryouaredead.
Thereasonissimple:whileyouarealive,youandyournewspousecanformulateyourreasonsforestablishingthemaritaltrustandcommunicatethosereasonstoallinterestedparties.Childrenfromapriormarriagemaybepleasedforyou,ortheymayberesentfulandangry.Thatistheirchoice.Butatleasttheywillbeinformed.Theywillknowyourthoughtsandfeelings.TherewillbenoroomforcomplaininglateraboutwhatDadorMom“wouldhavewanted”or“reallythought.”
Thethree-stepprocessofcommunicationdescribedearlieristhesameonethatwerecommendspousesinasecondmarriageusetoclarifytheirthoughtsandfeelingsaboutcommunicatingabouttrustswithchildrenfrompriormarriages.Thisprocesswouldalsocoverthinkingaboutwhetheryouwanttoleaveassetsintrustforchildrenfromyourspouse'spriormarriage,whichsometimeshappensinsecondmarriages
wherethereisconsiderablefiscalinequalitybetweenthepartners.Whateveryoudecideinsuchsituations,thekeyisthatyouandyourspouseclarifyyourownindividualthoughts(step1),sharethosethoughtshonestlywitheachother(step2),andthendecidewhatyouaregoingtodoorsay(step3).
Thisprocessismucheasiersaidthandone.Itmaybeimportant,forexample,toincorporateavalues-clarificationexerciseaspartofsteps1and2.Suchanexercisewouldallowthetwospousestoclarifywhatmattersmosttoeachofoneofthemandwhatvaluestheyholdincommon.Recognitionoftheirdifferencesandtheircommongroundwouldthenprovideafirmerbasisforthinkingthroughactionsandcommunication.
Thisentireprocesswilltaketime,especiallyifthereislingeringangerandresentmentwithinthefamilyduetoearlierconflictordivorce.Thesituationisparticularlydifficultifyoufearthatcommunicatingyourwishesregardingyournewspousetoyouradultchildrenwillcausethemto“holdhostage”yourrelationshipwithyourgrandchildren.Thisisaterriblesituationforagrandparenttobein.Insuchcases,itisallthemoreimportanttotalkthroughthesituationwithyournewspouse,sothatyoubothareclearabouttheprosandconsofdifferentapproaches,thebenefits,andthelikelycosts.Sometimesonemustlettheproverbialchipsfallwheretheymay,butonlywhentheymust.Ifthatisthecase,itiscrucialthatthecouplebeclearaboutthatcourseofactionandthattheyagreeonthereasonsforproceeding—orfornotproceeding—withcommunication.
Again,love(andespeciallyparentallove)oftenbringsusourgreatestjoysandgreatestpains,andmoneycanservetointensifyboth.Therearenoeasyanswersfornavigatingtheroleoftrustswithinamarriage.However,wehavefoundthatwhencouples,youngorold,takethetimetounderstandthemselves,eachother,andtheirchildren,thestepsthattheytake,evenifsometimespainful,generallyproduceamorepositiveresult.
Notes
1.Thetreatmentofirrevocabletrustsindivorceisaconstantlychangingfieldanditrequirescarefullegalconsideration.WithintheUnitedStates,somestateshavemovedtomaketrustsevenmoreresistanttodivisionasmaritalproperty,whileotherstateshavemovedintheoppositedirections.Thecaseisthesameontheinternationalscene.Forinsightintothesituationinyourjurisdiction,pleaseseekcompetentlegaladvice.
2.InadditiontoCycleoftheGift,therearemanyothergooddiscussionsofbestpracticesincommunicatingwithchildrenaboutwealth.Whenitcomestoyoungchildren,aparticularlyinsightfultreatmentisMommy,AreWeRich?bySuzenPeterfriendandBarbaraHauser(MesatopPress,2001).
CHAPTER17TRANSITIONS
Solomon'sRingThereisastorytoldofKingSolomon,whowasknownforhiswisdom.Solomonwantedtotesttheingenuityofhischiefadviser,hisgrandvizier.Solomonhadabirthdayapproachinginafewmonths,sohecalledhisviziertohimandsaid,“ThisyearIwantyoutofindmeanespeciallyrareandwonderfulpresent:somethingthatcanmakeahappymansadandasadmanhappy.”
Forweeksthevizierrackedhisbrainastowhattogivehismaster.Butwhilehecouldfindplentyofthingstomakeahappymansad,andevenafewthingsthatmightmakeasadmanhappy,hecouldfindnothingtodoboth.Atlastasthebigdayapproached,thevizierfoundhimselfwanderingmiserablythroughtheGreatBazaar.Hiseyethenfelluponaniteminthecornerofamerchant'shumblestall.Afterexaminingitforamoment,heknewthathehadfoundhisprize.
Onhisbirthday,assumingthatthegrandvizierhadfailed,Solomonaskedhimtostepforwardwithhisgift.Thevizierdidsoandplacedasimplesilverringinhismaster'spalm.Solomonwassurprised.“Whatisthis?”hedemanded.
“Master,readwhatitisinscribeduponit,”quietlyrepliedthevizier.
Inscribedontheoutsideoftheringwerethewords“ThisTooShallPass.”
“Rememberit,OWiseOne,”saidtheviziertohismaster,“inyourmomentsofhappinessandinyourmomentsofsadness.”Solomonsmiledandknewthathisadviserwasatleastaswiseashe.
ThisTooShallPassItisasayingworthrememberingbytrustees,beneficiaries,andanyoneelsedealingwithfamilytrusts,inthosemanymomentsofdifficultyandfrustrationaswellasthesplendidmomentsofwell-being.Nothinggoodorbadlasts.
Forfamilytrusts,therearemanypossibletransitionpoints:
Thetrust'smodificationor“decanting”(explainedbelow).
Thechangeoftrustee.
Thechangeofbeneficiary.
Theterminationofatrustbythetermsofthetrustagreement.
Theterminationofatrustbyoperationoflaw.
Sometimesthesetransitionsarewithinthecontroloftheinterestedparties.Sometimestheyarenot.Butevenincasesoutofourcontrol,wecanplanforthepossibility.Thereisanotheroldsaying:“Looktotheend.”Evenifwecannotpredicttheend,andevenifwewillnotbepresentattheend,thinkingaboutthepossibleendsoroutcomescanhelpguideourchoicesandactionstoday.Fortheonethingweknowisthatthistoo—thepresentstate—shallpass.
ChangingtheTrustMostfamilytrustsareirrevocable,meaningthatonceestablishedtheycannotbechangedsignificantly,especiallywhenitcomestotheirdistributiveprovisions.ButasSolomonrecognized,nothingonthisearthistrulyunchangeable,andanumberofwayshavearisentomakechangestosupposedlyirrevocabletrusts.
Wearenotgoingtogoindepthintothesestrategies.Theiravailabilityandformvaryfromstatetostate,dependingonstatelaw.Themainstrategiesformakingchangestoirrevocabletrustsincludethefollowing:
Judicialsettlementagreements.
Judicialmodifications.
Decanting.
Judicialsettlementagreementsareperhapstheleastburdensomewaytochangeanirrevocabletrust.Insuchanagreement,thetrusteeandallthebeneficiaries—sometimesincludingrepresentatives(usuallyappointedbythecourt)ofminorbeneficiaries—cometogethertoagreetochangethetrustinsomesignificantway.Suchchangesmayincludemovingthedistributivepolicyfroman“income”distributiontoa“unitrust”distribution(thatis,afixedpercentageeveryyear).Orthepartiesmayagreetoaparticularinterpretationofthedistributivelanguagearoundhealthoreducationorthelike.Generally,ajudicialsettlementagreementcannotcreateordoawaywithbeneficialinterests,thoughsuchanagreementmaybeabletobringabouttheearlyterminationofthetrust.Again,statelawandthecircumstancesdictate.Asthenameimplies,ajudicialsettlementagreementmustbeblessedbyacourt,thoughitdoesnothavetobeprosecutedasatrial,whichmeansitismuchlessexpensivetoobtainthanajudicialmodification.
Ajudicialmodificationorreformation,incontrast,requiresfilingacomplaintandaskingacourttoinvestigatetherequestandrenderadecision.Beforetheadventofjudicialsettlementagreements,inmanystatesthiswastheonlywaytomakechangestoanirrevocabletrust.Ifsuchaprocessisrequired,thecourtwillrequireallpartiestoberepresented,includingminororunascertainedbeneficiaries.Dependingonthecomplexityofsituationandthecourt'sdocket,theprocessmayalsotakealongtime.Multipartyrepresentationplustimeequalssignificantlawyers'fees.Norisa
judgeguaranteedtoagreewithwhateverchangethepartiesareaskingfor,evenifalltheadultpartieshaveagreedtothechange.Afterall,ifthetrustcreatorisdeadandgone,thecourtmaybeverymuchinclinedtoleavemattersintheforminwhichthetrustcreatorcreatedthem—evenifachangewouldseemtomakeallthesenseintheworld.Thelawisnotknownforitslogic.
Inthefaceofsuchconstraints,trustattorneysandsomestateshaveinrecentyearsdevisedanewstrategyforchangingsupposedlyunchangeabletrusts:decanting.Asthenameimplies,decantinginvolves“pouring”theassetsofonetrustintoanother.Usually,thispouringalsoinvolvesmovingthesitusorthelegalhomeofthetrustfromonestatetoanother.Thischangemaybedesiredbecausethenew“home”allowsfordifferenttreatmentofthetrust,suchasnotrequiringasmuchnotificationofbeneficiariesormoreliberaldelegationoftrusteeduties.Inanyevent,decantingmayallowforsignificantchangestotheformofthetrust,includingtheadditionofatrustprotectorprovision,changestotheadministrationofthetrust,anddivisionoftrusteeduties.Generally,itisnotpossibletomakesignificantchangestobeneficialinterests.Decantingusuallyrequiresanagreementamongtrusteesandbeneficiariesand/oracourt'sblessingtomoveforward.
Whateverpathonechoosesinordertomakechangestoirrevocabletrusts,itiscrucialtoinvolveallthestakeholders.Afamilytrustbyitsnaturelastsalongtime,andpeople'sopinionsandattitudesmaychangeoverthattime.Someonewhowasnotproperlyinformedofachange—evenapositiveone—yearslatermaybeoffendedorworsebybeingleftoutoftheprocess.Giventhepossibleexpenseandthepossibledisruptionstofamilyrelationships(nottomentionthepossibleliabilityforthetrustee),suchchangesshouldbeapproachedwithgreatcare.
ChangingthePlayersIndividualtrusteesandbeneficiariesgetold,sometimesbecomedisabled,andalwayseventuallydie.Eveninstitutionaltrusteesmaybeswallowedupbyotherinstitutions;theirpersonnelalsoretireorotherwiseleavethescene.
Whatarethoughtfuldenizensofthetrustscapetodointhefaceofthesemanypossiblechanges?Fortrustees,werecommendthatoneofyourprimarydutiesistoprepareforyoursuccessor.Thisisajobthatdoesnotstartwhenyouarebeginningtothinkofsteppingdownbutratherwhenyoufirstacceptoffice.Thispreparationincludes:
Keepingclearandorderlyrecordssothatanothertrusteecould,ifneedbe,quicklycometounderstandthetrustandthetrustscape.
Documentingyourmajordecisionsaroundadministration,investments,anddistributionssothatasuccessortrusteecouldreadilyunderstandyourthinkingandyourstrategies.
Encouragingthebeneficiarytobecomeatruepartnerinmanaginghisorhertrust,sothatthebeneficiarycanapplythoseskillsnomatterwhothetrusteeis.
Ifyouhavethepowertonameyoursuccessor,keepinginmindpossiblecandidateswhocould,atamoment'snotice,undertakethedutieswellandmakingsurethatthebeneficiaryunderstandsyourpowerandiscomfortablewithyourpossiblesuccessors.
Ifthebeneficiaryhasthepowertonameyourreplacement,introducingthebeneficiarytopossiblecandidatesforreplacementand,whenthetimeisright,guidingthebeneficiarythroughaprocessofinterviewing,gettingtoknow,andselectingsuccessortrustees.
Ideally,servingsidebysidewithasuccessortrusteesothatyoucantransitiontasksandknowledgeinathoughtfulmannerandhelpthebeneficiaryandnewtrusteegothroughtheprocessthatwedescribeinearlierchaptersforestablishingafirmandlastingrelationship.
Abeneficiarygenerallyceasestobeabeneficiaryonlywhenheorshediesorwhenthetrustterminates.
Anotherwaytomanagelong-termchangeinatrustscapeisforthetrusteeorasimilarlyresponsiblepartytocommissiona10-yearreviewofthetrustscape.Suchaprocessmayincludereviewingwhoisservingastrusteeandwhoaretheprimarybeneficiaries;whichtrustsareactiveandfunded;howmuchtheyarepayingoutorareplannedtopayoutinthenext10years;whichtrustsarelikelytoterminateinthenext10years;howmuchthetrustsarecostinginfeestoinvestmentadvisers,trustees,andotherparties;whatsuccessionwouldlooklikeshouldacurrenttrusteedieorbeforcedtostepdown;whatsuccessionwouldlooklikeshouldacurrentbeneficiaryorevenanentireclassofbeneficiariespassaway;andwhere,tothebestofanyone'sabilitytopredict,potentialproblemspotsare.ThisreviewcanbepartofalargerFamilyTrustReview,aswedescribeinAppendix5.
Whenatrusteeorbeneficiary(and,onecouldadd,trustprotectorortrustadviser)leavesthetrustscape,thistransitionmarksanimportantstageinthelifeofthetrustandthesystem.Assuch,itisimportanttogivethesetransitionsthebenefitofritual.Thisritualneednotbecomplicatedorinvolved.Itmaybesomethingassimpleasacelebratorydinner,athank-yougiftandletterofappreciation,orsomesortofactivitythatembodiesthatproverbial“passingofthetorch.”Aswithanyritual(aswedescribeinTheCycleoftheGift),theelementsherearethreefold:first,asteppingbackfromtheday-to-daybusinessoflifeandthetrustscape;second,amomentofreflectionandlearningandparticularlyappreciationandgratitude;and,third,areturntotheeveryday,armedwiththelearningandgoodfeelingscapturedinthecenteroftheritual.Givingtimeandattentiontosuchritualsisakeywaytokeepingthetrustscapeenergizedandalivethroughitslonglife.
ComingtoanEndInthepast,mosttrustshadalifespanthatwaslimitedbytheso-called“ruleagainstperpetuities.”Originatinginthecommonlawandincorporatedintomanystatutes,thisrulelimitstruststothedurationofa“lifeinbeing”(e.g.,theyoungestlivingdescendantofthecurrentQueenofEngland)plus21years.Theideabehindtheruleseemstobethatthe“deadhand”ofthetrustcreatorshouldnotbeabletocontrolpropertymorethana100orsoyearsafterhisorherowndeath.Lifeisfortheliving.
InrecentyearsintheUnitedStatesmanystateshavegreatlyextendedtheruleagainstperpetuities(e.g.,to300oreven1,000years),whileothershaveabolishedaltogether,allowingforthepossibilityof“perpetualtrusts.”1Nonetheless,manytrustsstillincludesomespecificationoftheirowntermination.Itmaybethatafterthepassingofthetrustcreator'sowngrandchildren,trustassetswillflowtothegreat-grandchildrenoutright.Itmaybethatafterthetrustassetshavebeendividedbelowacertainsizetheywillflowtotheirbeneficiariesoutright.Manytrusts—suchascharitableleadorremaindertrusts—lastforaspecifictermofyearsorforoneperson'slifeandthenterminate,distributingtheirassetstotheirremainderbeneficiaries.
Whetherbyoperationoflaw(theruleagainstperpetuities)orbytheoperationofthetrustagreement,itiscrucialtoattendtotheendingofatrust,evenifitisstillyearsaway.AswementionedinChapter1,inacertainsensethehighestdutyofthetrusteeistomakesurethatbeneficiariescould,ifneedbe,receivethetrustassetsandintegratethemsuccessfullyintoahealthylife.Inthecaseofaterminatingtrust,thishighestdutyceasestobecomehypotheticalandmaybecomeveryreal.Foranespeciallylargeandcomplextrustsystem,thissituationisoneinwhichanOfficeoftheBeneficiarycanbeespeciallyhelpful.(FormoreontheOfficeoftheBeneficiary,seeChapter20.)ThismayalsobeasituationinwhichaFamilyTrustReviewwouldbeespeciallyhelpful(foradiscussionoftheFamilyTrustReview,pleaseseeAppendix5).
Insomecases,theterminationofonetrustleads—bytheprovisionofthetrustcreator'swillorbytheestateplansofbeneficiaries—tothecreationofanewtrust.Inothercases,presentbeneficiarieswhoarereceivingaterminatingtrust'sassetsmaydecidetogivethoseassetstoanewtrust.Inthesecases,itiscrucialtorecognizethatanewgiftistakingplace,andthisnewgiftshouldreceivealltheconsiderationthatanygift,fromscratch,shouldreceive:Whatisitspurpose?Whatdothegivershopetoachieve?Whoaretherecipients?Howcantheybestintegratethisgiftintotheirlives?Doesmakingthisgiftbringthegiversjoy?Thisisaperfectoccasionforthenewgiverstocreateapreamblefortheirnewtrusts.
Theterminationofatrustalsobringsvariousdutiesforthetrustee.Thetrusteemustcompletehisorheraccountingbysharingafullaccountofthetrust'soperationsandfinaldistributionswiththepresentbeneficiaries.Manytrusteesalsoasktherecipients
tosignarelease,afterreviewingthisfinalaccounting,releasingthetrusteefromanyfurtherliabilitywithregardtothetrust.Suchareleasedoesnotindemnifythetrusteefrompastmistakesormalfeasance,butitdoesputalegalfinalitytothetrustee'swork.
Apartfromsuchreleases,aswiththetransitionoftrusteesorbeneficiaries,theterminationofatrustalsocallsforamomentofritual.Thatritualcouldinvolvethepresentbeneficiaries'gatheringandreflectingontheimpactthatthetrusthashadontheirlives.Itcouldinvolveexpressionsofgratitudetothetrustcreator(whomaybelonggone)andthetrustees,pastandpresent.Itmayinvolvesomediscussionbythebeneficiariesaboutwheretheyplantogofromhere,togetherorseparately,andhowthetrustremainderwillaffecttheirplans.Sometimestrusteesevencomposeashorthistoryofthetrust,toweaveintothefamily'slargerhistory.
Trustsmayseemtobewritteninstone.Buttheonlythingcertaininlifeischange.Wehopethattheseconsiderationsabouttransitionshelpilluminatethemanypossiblechangesineventheseseeminglyunchangeableforms.Evenmoreso,wehopethatthesethoughtspromptyourownthinkingabouthowtopreparefor,manage,andevencelebratethesetransitions.
Note
1.Forsomethoughtsaboutdangersinherentinperpetualtrusts,pleaseseeAppendix6.
PARTFOURACOMPREHENSIVEMODELFORAHUMANETRUSTSCAPE
CHAPTER18APROMISEANDACHALLENGEFORTRUSTCREATORS
Intheprecedingchapters,we'vetakenyouthroughatourofthetrustscapeanditsdifferentrolesandrelationships.We'veintroducedthoserolesanddefinedthemtovaryingdegrees.Wehavealsolaidoutspecificpracticesforstrengtheningtherelationshipsacrossthetrustscapeandfordealingwithparticularchallengesaroundaddictions,marriage,andtransitions.
Inthefinalpartofthisbook,wewanttomovefromthistourofstructuresandrelationshipsthat,inmostcases,alreadyexist,toaprospectivejourneyintowhatcouldbe.Thepracticesandarrangementsthatwediscussinthesefinalfourchaptersarebeingtestedbyanumberofforward-thinkingfamilies.Theyarenotyetwidespread,buttheyarebasedonsoundprinciples.
Thisvisionofahumanetrustscapeis,webelieve,bestsuitedfortrustsholdingassetsover$10million.Whenthelevelismuchlower,theenvisionedstructuresmightbetooexpensiveandcumbersome.Asthefamily'swealthapproachesorexceeds$100millionormore,thefamilymaywanttoconsideraprivatetrustcompanythatinturnembodiesthesestructuresandfunctionswithinitoraroundit.(Formoreonprivatetrustcompanies,seeAppendix4.)
Ofcourse,whatevertherangeofafamily'sassets,ourmodelofahumanetrustscapeisnotgoingtoberightforalltrustsandallfamiliesunderallcircumstances.Pleaseconsiderwhatyoureadinthefollowingchaptersasfoodforthought,toadaptandapplyasbestsuitsyourfamily'soryourclients'circumstances.
ATrustCreator'sChallengeBeforebeginningtopaintthispictureofamodeltrustscapeinthenextchapter,wefirstwanttoreturnforamomenttothefundamentalchallengethattrustcreatorsfaceinselectingatrustee.
It'stemptingtowishforatrusteewhoembodiesthewisdomofSolomon,Buddha,andNasrudinallrolledintoone.Ifyouknowthatpersonandhe(orshe)isavailabletoserveyourfamily—byallmeans,signthemup.
Theclosestyou'llfindtoanyonewhohaspulledthatoffisanelderlyJewishgrandfatherwholivedinNewYorkCitymanyyearsago.1Hescouredthecountryforjusttherighttrusteeforhisgrandson,whoatthatpointwasonlyeightyearsoldandlivingintheMidwest.Thisgrandfather'ssearchendedwhenhemeta30-somethingMormonattorneyinUtah.
Followingthegrandfather'sdeath,thetrusteeregularlyvisitedtheyoungman'smother(whowasco-trustee).Eachvisit,this“friendofyourgrandfather's”spenttimegettingtoknowthebeneficiary—longbeforetheyouthwastoldoftheexistenceofhistrust.Thisroutinecreatedthefoundationforalifelongrelationship.
“Thelittlethingsthatmytrusteeasanadultdidtoreachouttomeasachildwerecriticalinthedevelopmentofarapportbetweenthetwoofus,”thebeneficiarylaterreported.Thatbeneficiary—todayinhis50s—isgratefulforthecarehisgrandfathertookinselectingatrusteewhobynowhasbeenamentorandfriendfor40-plusyears.
Fortherestofus,thechoiceofatrusteeusuallycomesdowntoafamilymemberormaybeafriend,attorney,accountant,orprofessionaltrusteeofonestripeoranother(orsomecombination)whocanadequatelyperformthetrustee'sthreeprincipalfunctions:
1. Performingadministrativetaskslikepayingtaxesandpreparingstatements.
2. Investingthetrust'sassets.
3. Distributingfundsandgenerallyrelatingtobeneficiaries.
Ifatrusteeneedsahandpreparingataxreturn?Noproblem—hireacertifiedpublicaccountant(CPA).Lackinvestmentexpertise?There'saworldoftalentedinvestmentadvisersreadytohelp.
Butwhatifatrusteedoesn'thavetheskillorinterestthatthatyoungattorneyhadtorelatewellwithbeneficiaries?
We'lladdressthatquestionandmore.
First,anExerciseforTrustCreatorsBeforeyoumeetwithyourattorney,youraccountant,oryourfinancialadvisertotalkabouttruststructures,there'saweightyquestionforyoutocontemplate—onethat'smoreimportantthananyothertrust-relatedquestion.Forsomeofourreaders,thiswillbeyourmostdifficulttaskwhenputtingtogetheranestateplan.Askyourself:“WhoarethepeoplethatIcancountontoadvocateformytrust'shighestpurpose,especiallyifthathighestpurposeistopromotethebeneficiary'struefreedom?”
Agoodplacetostartistosearchyourmental“mycontacts”databaseforsomeonewho'ssuccessfullynavigatedareallygoodmidlifecrisis.That'snottosaysomeonemuchyoungercouldn'tbejusttherightfit.Goodjudgmentandcompassionarewhatyou'relookingfor.ThinktooabouttheprinciplesthatwesharedintheIntroduction,andthelistofquestionsinChapter9thataprospectivetrusteeshouldask.
Butoverthecourseofseveraldayskeepcomingbacktothisquestion:whocanyoucountontoadvocateforyourtrust'shighestpurpose?Beonthelookoutfor
candidatestofillapositionthathasthisjobdescription:someonehavingthewisdom,thestrength,thecompassion,andthetimetotakeontheadvocacytask.
Wouldithelptobrainstormwithafamilymember,afriend,oratrustedprofessionaladviser?
Whenyou'reready,listthenamesthatyoucomeupwith.
Tosomeofourreaders,thinkingaboutpeoplebeforethinkingaboutdocuments,jurisdictions,andtaxeswillseemverydifferentfromwhat'susuallyexpectedorwhat'susuallydone.
Here'sanothersurprise.Thepeoplethatyoulistedarenotnecessarilycandidatestofillthetrustee'srole.Infact,itmaybewisetofindplacesforsuchindividualsinrolesotherthanthetrustee,and,foratrustee,touseaninstitutionratherthananindividual.Whatwehaveinmindforthetrustedpeopleonyourlistandwhywethinkitmaymakesensetouseaninstitutionaltrusteewillbecomeclearoverthenextthreechapters,especiallyinChapter21.
Note
1.Adaptedwithpermissionfrom“MyGrandfather'sGift,”inTrustWorthy.©TrustscapeLLC.
CHAPTER19THEHIGHESTDUTYOFTHETRUSTEEANDTHECORRESPONDINGRESPONSIBILITYOFTHEBENEFICIARY
Tobegintopaintthepictureofamodeltrustscape,we'llstartwithanothertruestorythatshowshowtwowealthcreatorsplustwoadvisers,timestwoyears,canequalzero,atleasttemporarily.
Thetrustofficerarrivesatamodesthouseataround9:30A.M.—30minutesbeforethemeetingisscheduledtobegin.He'sgreetedatthedoorbyhishosts,acouplewhoownaranchandarenowwellintotheir80s.Thewifeescortshimintotheir“sittingroom.”Thehusbandfollows.
Theywaitfortheattorneyandcertifiedpublicaccountant(CPA)toarrive.Thehusbanddoesn'tsaymuchashiswifeexplainstothetrustofficerthattheybuiltthishomemanyyearsago.Theyraisedtheirtwosonshereandneversawareasontobuildalargerone.
Theirattorneywastheonewhoinvitedthetrustofficertositinonthemeeting.Duringthepasttwoyearsorso,thiscouplehasmetregularlywiththeirattorneyandCPAtodesignanestateplan.Husbandandwifewanttheranchtostayinthefamilyandeventuallygototheirtwosons,nowintheir50s.Thesonshavehelpedtoruntheranchsincetheywereteenagers.
Aftertwoyearsofconversationsabouttheestateplan,andmultipledraftsofdocumentsprovidingfortrustshereandpartnershipsthere,nothinghasbeensigned.
Theattorneyknowsthatthetrustofficerhashelpedothercouplesmiredinsimilarcircumstances.Maybehecouldhelpbreakthisimpasse.
TheattorneyandCPAarrive.Themeetingwilltakeplacearoundthediningroomtable.Astheywalkfromthesittingroomtothediningroom,thewifewhisperstothetrustofficer,“I'mworriedaboutmyhusband.Hestillspendsasmuchtimeasheeverhasattheranchoffice.I'veaskedhimtocutback.He'snotasyoungasheusedtobe.”
Here,we'llcondenseaconversationthatplayedoutatthediningroomtable.
“Yourwifetoldmethatyou'reattheofficeforalotofhours.”
“That'strue.”
“Isthatbecauseyou'reworkingasmuchaseverorbecauseyouliketohangoutwithyourboys?”
“No,I'mworking.I'mstillrunningtheranch.”
“Whatwouldhappenifyouwereoutofthepicture?Couldyoursonsruntheranchwithoutyou?”
“Well,neithercouldbyhimself.Buttogethertheycould.”
“Theycould,butwouldthey?”
Thehusbandtiltshisheaddownwardandcloseshiseyesforwhatseemslikeaverylongtime,althoughinrealityit'sprobablyfewerthan30seconds.
“No,theywouldn't!”(Anotherpause.)“Here'swhatIwanttodo.ItwilltakemeabouttwoyearstowrapupacoupleofdealsthatI'mworkingon.ThenIwanttoselltheranch,keepenoughtosupportmywifeandme,andsplitwhat'sleftbetweenmysons.Therewillbeplentyforeachofthemtobuytheirownranch,ifthat'swhattheywanttodo.”
IWroteTheseGreatDocs,butMyClientsWon'tSign…What'sthemostcommoncomplaintofattorneyswhocreateestateplans?Youcanprobablyguess:“Iwrotethesegreatdocuments.Eachisstateoftheart,protectingagainsttaxes,creditors,andspendthrifts.Butmyclientswon'tsignthem!”
Ifyou'renewtotheworldoftrusts,thatsituation—andtheauthorshaveseenmanylikeit—mightseemridiculous.Howcanallthatprofessionaltimeandtalentbewrong?Butperhapsyoucanempathizeifyouhaveevertriedtocaptureacomplexbusinesscollaborationorevensomethingliketheconstructionofanewhomeintoabindinglegaldocument.Therearetheexperts,offeringwonderfuldocuments,andthenthere'syou,withyouruniqueperspectiveandconcerns.
Theestateplanningdisconnectoftenbeginswiththequestionsthatafamilyanditscounselbringwiththemtotheplanningprocess.Arethequestionsaboutpreventingbadthingsfromhappening,drivenbyworry?Abouttaxes?Aboutcreditors?Aboutdisputes?Aboutsecond-ratetrustees?Ifyougothere,yougetquicklystuckinthequagmire.
Ordothequestionsseekpositiveoutcomes—inparticular,aconcernwithenhancingthelivesofbeneficiaries?Thesefamilieswillspendthetimenecessarytounderstandthecharacteristicsofahighlyfunctionaltrustscapeandwillsay:“Iwantthat.”
Togetoutofthemireandstayout,werecommendbeginningbybecomingfamiliarwiththehighestdutyofthetrusteeandthecorrespondingresponsibilitiesofthebeneficiaryinatrustscapethat'sworkingwell.Themodelforathoughtfultrustscapethenflowsfromthesestartingpoints.
TheHighestDutyoftheTrusteeandtheCorrespondingResponsibilityoftheBeneficiaryInChapter1,weintroducedanunconventionalideathatmayhaveleftmorethanafewreaderswonderingwhatwemeant:
Thehighestdutyofatrusteeistobeabletosaytothebeneficiaries:“Youcouldtakethismoneytomorrowandyou'dbefineifthetrustweretoend.”Andthecorrespondingresponsibilityofthebeneficiaryistoreceivethosefundswell.
Thisboldstatementiscontrarytowhatisusuallyexpectedbytrusteesandbeneficiaries.It'sa“highestduty”thatmostpeoplehaveneverseenbefore.
Putanotherway,tobeanablepartnerwiththeirtrustee,beneficiariesmustbeknowledgeableaboutthesamethreefunctionsthatthetrusteemustmaster.
1. Performingadministrativetaskslikepayingtaxesandpreparingstatements.
2. Investingthetrust'sassets.
3. Distributingfundsandgenerallyrelatingtobeneficiaries.
Anythingshortofthatandtherelationshipbetweentrusteeandbeneficiaryisatriskofbecomingrigidandunresponsive,andoflosingmuchofitsabilitytoadapt.Andunfortunatelythat'showmosttrustscapesoperate.TheylooksomethinglikeFigure19.1.
Figure19.1TheTraditionalTrustscape
Inthissimpledepictionofthetraditionaltrustscape,theco-trustees(aninstitutionandanindividual)arethecenterofthetrustscape.Theyfloatabovethebeneficiary.Thetwotrusteesmayormaynothaveacloseandcommunicativerelationship(anambiguityrepresentedbythedottedline).Buttheydefinitelyruleoverthebeneficiary,withtop-downcommunication(representedbytheone-wayarrow).Insometrustscapesatrustprotectorhoversoverthewholesystem,itsfunctionbroad,vague,maybeevenmysterious.
Isthisacollaborativesystem?Definitelynot.Collaborationcan'texistwhenthetwopartiesarenot,atleastforthemostpart,onthesamepageaboutfunctionsandendresults.Thispointisdecisive.There'snowayaroundit.
So,ifthetrusteeistofulfillitshighestduty,thequestionforthetrusteebecomes:IfI'mnotcompetenttoperformoneormoreofthethreefunctions,towhomdoIturn?
Andifthebeneficiaryistofulfillhisorherfundamentalresponsibility,heorshemustask,“Whowillmentorme?”
Thesequestionspointtothepiecesthataregenerallymissingeveninthemostsophisticatedtrustscapes.
SupportfortheTrusteeAsmentionedearlier,thisbookdoesn'tneedtodetailoptionsforperformingtrustadministrationandinvesting.Anindividualwhoisservingastrusteewilloftenretainattorneysandaccountantstohelpwithlegalcompliance,recordkeepingandpreparingstatements,preparingtaxreturns,andotheradministrativetasks.
Thatsametrusteecanalsohireoneormoreadviserstohelphimmakeinvestmentdecisions.Ofcourse,absentdirectionotherwise,responsibilityforthedecisionsandtheirprocess(andliabilityifthingsgowrong)remainswiththetrustee.
Institutionaltrusteesoftenhavein-housestafftoperformtheadministrativeandinvestmentfunctions.What'slackingareresourcestoassistthetrustee—whetherthetrusteeisanindividualoraninstitution—withthedistributivefunction.Thisisonemorereasonthatthedistributivefunction,thehighestfunctionofatrust,isoftenstill-bornfromthemomentofitscreation.
Whatcanhelpfillthisgapandbegintobringaboutatrulythoughtfulandhumanetrustscape?AsolutionthatwehaveseensomefamiliesadoptistocreateaDistributionCommittee.Ideally,thisisacommitteecreatedwithinthetrustinstrument,thoughevenifnotinthetrustdocumentaDistributionCommitteecanstillbeformed.Thecommittee'ssoleresponsibilityistoadvisethetrusteeaboutabeneficiary'srequestsfordistribution.Thecommitteeisproactive,notreactive,becauseitsmemberstaketimetoknowthebeneficiarywell.Whenabeneficiaryiscontemplatingarequestforfunds,committeememberswillaskquestionsofthebeneficiarytoascertainwhetherapprovingthedistributionisinthebeneficiary'sbestinterest.Followingtheirconversationswiththebeneficiary,committeememberswillenlightenthetrustee.
AsFigure19.2reveals,theDistributionCommitteeservesthetrustee,notthebeneficiary.Butitallowsthetrusteetohaveaclearerandmorecollaborativerelationshipwiththebeneficiary,onethatbeginstomovethebeneficiarytowardsthecenterofthesystemandmaketheircommunicationbidirectionalratherthanone-way.
Figure19.2TheDistributionCommittee
ItmaybehelpfulforsomereaderstocomparetheDistributionCommitteetothecommoninstitutionofaninvestmentcommittee.Aninvestmentcommitteereliesonitsknowledgeofinvestingtoadvisethetrusteeaboutwhattobuyandsell,butitdoesnotdotheactualbuyingandselling.It'sameansofhelpingthetrusteefulfillhisorherduty.ThesamewouldgofortheDistributionCommittee.Itwouldnotdecidewhattodistributeornot.Butitwoulddevelopknowledgeaboutthebeneficiaryandusethatknowledgetoadvisethetrusteeregardingthismostimportantfunction.
SupportfortheBeneficiarySomepeoplewouldsaythatthetrustee'sjobdescriptionincludesmentoringbeneficiaries.Andforcertaintrustees,suchastheyounglawyermentionedearlier,that'sawelcomepartofthejob.However,there'snoendoftrusteeswholacktheskill,theinterest,orthetimerequiredtomentorwell.
Forsomefamilies,thesolutionistosendtheirbeneficiariesofftooneormore“bootcamps”tolearnaboutinvestingandothertechnicaltopics.
Questionsforreflection:
Whatisgainedandwhatislostwhenabeneficiaryattendsaprogramthatisexcellentwhenitcomestoteachingtechnicalskills,butdownplaysrelationships,self-awareness,andpersonalgrowthissuesspecifictobeneficiaries?
WhodoIknowwhocanhelpmelearnaboutdifferentprogramsthatareavailabletoeducatebeneficiaries?
Nowimagine…
Youareateenor20-something(andifyouareabeneficiaryreadingthis,youmightverywellbe).Grandpatellsyouaboutthethree-dayprogramforbeneficiariesthathe'senrolledyouinthissummer.Heassuresyouthatthetimespentwillbeagreatinvestmentinyourfuture.Youwilllearnallaboutinvesting,budgeting,andawholerangeofotherfinancialsurvivalskills.
Readbetweenthelinesandthemessagebecomes:Youwillattendifyouhaveanyhopeofreceivingfundsfromyourtrust!Formanybeneficiaries,thismessageisalltheycanhear.Andthat'scompletelyunderstandable.
Whataretheoddsthatyouwillshowupbutdolittlemorethangothroughthemotionsforthreedays?
Nowbacktoyou,thereader.Overtheyears,youhavenodoubtenrolledinworkshops,seminars,andmaybenowandthenafullcourse.Perhapsyourprofessionrequires“continuingeducation.”Ormaybeyousignedupforpersonalgrowthreasons.
Nowimaginethattheprogramyouattendedwasterrific—greatmaterialandagreatpresenter.Youcomeawaythinkingaboutallthethingsthatyoucandowiththisnewinformation.Itallmakessomuchsense!
Ifyou'reliketheauthors(whohaveattendedmanyaprofessionalprogramovertheyears),here'swhathappens—andmoreoftenthanwe'dcaretoadmit:
1. Ileavetheprogramalljazzedup.
2. Acoupleofweekslater,IrememberthebigideasthatIlearned.
3. Amonthlater,IrememberthatIreallyenjoyedtheprogram.Butremindme:whatwasitthatIlearnedthatwassocompelling?
4. Andthreemonthslater,Ican'trememberwhereIstashedthecoursematerials.
Whywouldabeneficiarybeanydifferent?
Asolutiontothis“businessasusual”stateofaffairsisbeingpioneeredbytheauthorsandasmallnumberoffamilies.ItistoestablishanewentitycalledtheOfficeoftheBeneficiary(OTB).ThesolepurposeoftheOTBistoassistthebeneficiarytocomeuptospeedinareasnecessarytosuccessfullyaddressthequestion,“Ifmytrustweretoterminatetomorrowandtheassetsdistributedtome,whatwouldIneedtoknow,andwhatskillswouldIneedtomaster,totakethateventinstride?”AsFigure19.3shows,justastheDistributionCommitteeservesthetrustee,sotheOfficeoftheBeneficiaryservesthebeneficiary.
Figure19.3TheOfficeoftheBeneficiary
TheOTBandthedistributioncommitteearethetwokeyelementsweseeasformingtheheartofathoughtfultrustscape.Welookatthemmorecloselyinthenextchapter.
CHAPTER20THEDISTRIBUTIONCOMMITTEEANDTHEOFFICEOFTHEBENEFICIARY
InChapter19,wepreviewedtheDistributionCommittee(DC)andtheOfficeoftheBeneficiary(OTB).Sincethesetwoconceptsareunfamiliartomostpractitioners,nottomentiontrustcreatorsandbeneficiaries,theynodoubtraisemanyquestionsinthemindsofourreaders.Thischapteraimstoshedmorelightonthesegroundbreakinginnovations.
DistributionCommitteeAswedidinChapter19,let'sfirstrecallthecomparisonofthisnewmodelwiththetraditionaltrustscape(Figure20.1).
Figure20.1TheTraditionalTrustscape
Inthetraditionalmodelthetrusteeorco-trusteesformthecenterofthetrustscapeandtheygivedirection(includingapprovalordisapprovalofdistributionrequests)tothebeneficiary.ThecasestartstolookquitedifferentwhenaDistributionCommitteeentersthescene(Figure20.2).
Figure20.2TheDistributionCommittee
ThefirstimpactoftheDCisthatthebeneficiarystartsmovingtothecenter.Afterall,theDC'ssolefunctionistofullyunderstandthebeneficiary,befamiliarwiththethinkingbehindhisorherrequestsforfunds,andadvisethetrusteeaccordingly.
ThisCommitteeshouldbemadeupofoneormoreindividualswhohavethewisdomtoaskthekindsofquestionsthatbroadenaconversation.Forexample,“Canyoutellmealittlemoreaboutwhatthisdistribution,ifit'sapproved,woulddotoenhanceyourlife?Howwoulditaddtoyourhumancapital?Ifyoudidn'thaveaccesstothistrust,howwouldyougoaboutpursuingthissamegoal?Whatareyourdreams,andhowwouldthisproposeddistributionfurtherthem?”
AsecondcharacteristiccommontoDCmembersistheskilltolistendeeplybeforeresponding.TheDCdoesnotstartwitha“yes”ora“no,”butrathera,“Tellmemore…”
ServingontheDCwouldbeagreatroleforyourmosttrustedadviseroratrustedfriend,orforafamilymemberwhounderstandstheconflictinherentinthedualrolesoffamilymemberandcommitteemember.
“Holdon,”wehearanarrayofreaderssaying:“IthoughtthattheseverysamequalitiesareonesthatI'dbelookingforinatrusteeoratrustprotector!”
Correct—withinthetraditionalmodel.Therealityisthatapersonhavingthesecharacteristicsoftenwilldeclinetoserveastrusteeforanyoneofanumberofreasons.Sometimesit'sthetimecommitment.Sometimesit'salackofknowledgeorskillsassociatedwithperformanceofthetrustee'sresponsibilities.Sometimesit'saconcernwiththepotentialliabilityfacedbytrustees.
FiduciaryliabilityformembersoftheDCshouldnotbeaproblemifthetrustinstrumentisproperlydrafted.(IfthetrustinstrumentdoesnotmentiontheDC,andthetrusteesimplyconvenesaDCoutsidethetrusttogivehimorheradvice,thenitisevenlesslikelythattheDCwouldhavetakenonafiduciaryrole.)TheDCdoesnothaveresponsibilityformakingdecisions.Thefinaldecisionaboutdistributionslieswith
thetrustee.So,justastheinvestmentcommitteeadvisesthetrusteeonwhattobuyandsell—butdoesnotactuallybuyandsell—thedistributionfunctionultimatelyrestswiththetrustee.
Thisisacrucialpoint.TheDCisnotthedecisionmaker.Theauthoritytomakedistributionsremainswiththetrustee.TheDCisaresourceforthetrusteeinordertofulfillthatfunction,thedistributivefunction,wiselyandwell.
Inputtingthismodelintopractice,peopleoftenwonderabouttherelationbetweentheDCandatrustprotector.Afterall,atrustprotectormayalsoseektogettoknowthebeneficiary,understandhisorherdistributionrequests,andtalksuchrequestsoverwiththetrustee.However,whilethequalitiesdesiredinaDCareverysimilartothequalitiesthatyoumightlookforinatrustprotector,thetworolesarenoteasilycombined.Thatisbecauseinthemodelthatweareadvocatinghere,thetrustprotectorwillhaveasingle,clearlydefinedjudiciaryrole,whichwewilldiscussatmorelengthinthenextchapter.Servinginthislimited,judiciaryrolewouldbeatoddswithgettinginvolvedinthesysteminthewayaDCmust.
BecausetheDCconceptwillbenewtomanyattorneys,andifitistostandaspartofthetrustdocument,thetrustcreatormaybetheonlyonewhocanmakesuretheconceptisonthetable.Inadditiontowhat'salreadybeenmentioned,pointstomakeclearinthetrustinstrumentinclude:
AllcostsassociatedwiththeDCaretobepaidbythetrust.
Beneficiarieswillnothaveauthoritytoaddmembersto,orremovemembersfrom,theDC.TheDCservestrustees,notbeneficiaries.
TheDCexistsforthedurationofthetrust.
Ofcourse,ifanexistingtrustdoesnotincludetheDCrole,itisperhapspossibletouseasettlement,reformation,decanting,orevenabroadlyempoweredtrustprotectortoaddaDCtothetrustinstrument.(Formoreonmakingchangestoexistingtrusts,recallChapter17.)Again,itisalsopossiblethatatrusteemaywanttoconveneaDConhisorherowninitiative,justasatrusteemayhireaninvestmentadviserwithouthavingan“InvestmentCommittee”rolewrittenintothetrust.Ofcourse,insuchacasethetrusteewillhavethepowertodowith(orwithout)aDCasheorsheseesfit.
TheDCcantakeavarietyofforms.Itmayincludeseveralmemberswithvaryingterms.Itcouldstartoutasacommitteeofone.Itcouldevenbecomposedofofficersfromacompanythatthetrusteehiresbecausetheypossesstherequisitepsychologicalandtrustscapeknowledge,justasofficersofaninvestmentadvisorycompanyhiredbythetrusteemay,inessence,serveastheinvestmentcommittee.WhatevertheexactformoftheDC,thekeyisitsfunction:todevelopknowledgeaboutthebeneficiarythatallowsittoadvisethetrusteeonmakingwisedistributionsfromthetrust,thatis,distributionsthattrulyhelpthebeneficiarygrowandbecomeafreeandflourishingindividual.
TheOfficeoftheBeneficiaryJustaswedidwiththeDC,let'sremindourselvesofthebasiclookoftheOTB(Figure20.3).
Figure20.3TheOfficeoftheBeneficiary
TheprincipleoftheOTBisthis:beneficiariesshouldhavetheirownofficemadeupofpeoplequalifiedtotakethemthroughaprocessofbecomingexcellentbeneficiaries.By“excellentbeneficiaries”wemeanpeoplewhohavedevelopedthecapacitytothriveeveniftheirtrustweretoterminateandthefundsbedistributedonshortnotice;suchbeneficiariescouldintegratethat“meteor”withoutitthrowingtheirlivesoffbalance.(Formoreonexcellentbeneficiaries,recallthediscussioninChapter7.)Anotherwaytoputthissamepointisthis:becauseheorsheisnotdependentontrustdistributions,anexcellentbeneficiarycouldthriveevenifhisorhertrustweretodisappeartomorrow,alongwithallitsassets.
Tothatend,theOTBwillmentorbeneficiariesintheareasoftrustadministration,investingtrustassets,anddistributions.Justasimportantly,theOTBwillmentorbeneficiariesindevelopingtheircapacitiesinsuchareasaswork,relationships,andcommunication.
TheOTBisnotacollege.Asamentor,itwillexpectthateachbeneficiarywillbeactivelyinvolvedindevelopinghisorherindividualdevelopmentprogram.Notwosuchprogramslookalike.
Forthissamereason,everyOTBistransitoryinnature.It'sdeliberatelydesignedtoreducethelikelihoodofmorphingintoanongoingmechanismthatcreatesdependency.Itgoesawaywhenit'snolongerneeded.
UnliketheDC,theOTBisoutsidethetrust.Beneficiarieshavetheresponsibilitytoconvene,staff,anddecidewhentodisbandanOTB.Withthatresponsibilitycomesaneconomicobligation:costsarepaidbythebeneficiaries.Ofcourse,ifasked,atrusteemightdeterminethecoststobeavalidexpenseofthetrust.But,ultimately,costsaretobebornebythebeneficiaries.
Akeyprinciplehereisthatbeneficiarieshavefinancial“skininthegame.”Ifa
beneficiarybelievesanOTBwillbeuseful,theproofistheirwillingnesstopayforit.
TheOTBisnotsomeinformalgroupoffriendsanddiscussants.Rather,itneedstobeaformalrelationshipacknowledgedbythetrustee.So,forexample,thetrusteewillprovidetheOTBwithdocumentsandreports.(Todosothetrusteemayneedtohavedirectionfromthetrustdocumentoratleastagreementbythebeneficiary.)Inthatrespect,italsodiffersfromabeneficiarysimplydecidingtoretainamentorortwo.
Andunlikeworkingwithamentortoimproveone'sgolfswingorsharpenone'swritingability,theOTBwillfocusonthreespecificareas.
TrustAdministrationThebeneficiarywillbecomefamiliarwiththelanguageofthetrustagreement,therelevantlaw,andthetrustee'spoliciesandprocedures.Thebeneficiarywillunderstandthetruststatementsthatarepreparedbythetrustee,whichwillrequiregeneralknowledgeofinvestmentsandtrustaccounting.
Rarelywillabeneficiarywanttospendtimeonmattersoftrustadministration.SoiftheOTBreviewstrusttaxreturns,reviewstrustaccountings,reviewstheinvestmentreports,reviewslegalquestions,confirmscalculationoffees,andthenreportstothebeneficiary,thebeneficiaryisonthewaytofulfillingthedutytounderstandtrustadministration.
Oncethebeneficiaryhasagoodgraspoftheadministrativefunctions,heorsheislikelytopasstheday-to-daytaskstohisCPA.Atthattime,thisadministrativefunctionoftheOTBwillbediscontinued.
InvestmentofTrustAssetsOntheinvestmentside,thebeneficiaryhasaresponsibilitytounderstandstrategicrisk.ThebeneficiarywilllikelyhavecontinuingconversationswiththeOTB'strustinvestmentexpertaddressingquestionssuchas:Whatisthenatureofthetrustproperty?Isfurthereducationrequiredaboutstocks,bonds,mutualfunds,partnerships,investmentrealestate,closelyheldbusinesses,oilandgasinterests,orothertypesofassets?Whatistheinvestmentplanforthetrust?Arethecurrentinvestmentsconsistentwiththeinvestmentplan?Istheresufficientliquidityintheinvestmentportfolio?Theanswerstothesequestionswillrequireageneralknowledgeofmodernportfoliotheory,theprudent-investorrule,andtrustaccounting.
Oncethebeneficiaryfeelscompetentinthisarena,theexpertwillnolongerbeneeded.
DistributionsfromTrustHere,thementoringprocessishardertodefine,sowe'lltakeamoredetailedlookat
someofthegroundthatmaybecovered.
Thetrustbeneficiarywilladdressthefactofhisorhertrust'sexistenceanditsimplicationsforhisorherlifeatincreasinglevelsofunderstanding.Heorshewillmovefromassimilatingfundamentalinformationtosuccessfullyattendingtorelationships,toseekingpersonalwell-beingandfulfillment.Asheorsheintegratesthislearning,thebeneficiarywillreframethetrust.Thetrustwillbeseenlessasafocalpointoflifeandmoreasaresourcetohelphimorherrealizehisorherpotential,atwhateverlevelthatmightbe.
Atthemostconcretelevel,thetaskofthebeneficiarywillbetounderstandtherolesandresponsibilitiesofthebeneficiaryandthetrustee,aswellastherulesthatgovernthetrustrelationship.
Atthenextlevelofunderstanding,thebeneficiarywillrecognizethetrusttobearelationshipamongthetrustcreator,thetrustee,thebeneficiary,andperhapsothertrustscapers.Hisorhertaskshiftsfromassimilatinginformationtoattendingtotheserelationshipswell.Heorshewillbecomeproficientatunderstanding,nurturing,andtakingfulladvantageoftherelationships.
Atthehighestlevelofunderstanding,thebeneficiarywillreachanewlevelofmaturitywithrespecttothetrust.Heorshewillviewhertrustasagiftoflove,thatis,asfinancialcapitaltobedeployedintheserviceofherjourneytowardafulfilling,productive,meaningfullife.Heorshewillalsobereadytointegratethetrustintothemajorareasoflife,includingwork,otherrelationships,andcommunicationswithfriendsandlovedones.
Abeneficiarycan'tgettothispointwithoutaskingsomebigquestions:HaveIreachedapointinmylifewhereIwouldliketolivewithmoremeaningandpurpose?Whatwouldlivingmylifewithauthenticitylooklike?Whataremydreams,passions,andambitions?WhatwouldIliketoaccomplish?DoIhaveavisionforthenextphaseofmylifeorbeyond?
Theimportantnuancehereisthatthefocusisnolongerjustonthetrustanditsattendantrelationships.Thetrustisproperlypositionedasaresourcecontributingtoasatisfyinglife.
Formostbeneficiariesthisjourneyoflearningandpersonaldevelopmentisnotlinear.Thepathmayfoldbackuponitself.Thetrustbeneficiaryislikelytomoveinandoutofthelevelsofunderstandingdescribedabove.Tasksrelatedtothedifferentlevelswillbeundertakensimultaneouslywithvaryingdegreesofoverlapandvaryingdegreesofsuccess.Thebeneficiarywillfinditusefultobeawareatanygiventimeofthetasksinwhichheorsheisengaged,wherethetasksfitwithintheprocess,andwheretoseekassistancewhenneeded.
Tofurtherthiswork,someOTBsuseassessmenttoolstounderstandeachbeneficiary'slearningandsocialstyles.Howmuchtimecanbesaved(andfrustrationavoided!)ifabeneficiarycanlearnhowbestheorshelearns.Suchassessmentscan
alsobecrucialforhelpingabeneficiarythinkthroughwhattypesofcareerorotherworktopursueandtohelpbeneficiariesbegintofitintothefamily'sgovernancestructure,ifthatissomethingdesirable.
Asthebeneficiarysuccessfullypursuesandcompletesgoals,heorsheincreasesherconfidence,gainslifesatisfaction,andbuildsmomentum.Heorshewillcometounderstandthatthejourneyisasimportantasthedestination.Heorshewillbeleadingthelifethatheorshewasmeanttolive.
Again,theOTBwillnotonlyteachthebeneficiaryaboutallthesemattersbutwillalsoguidethebeneficiarythroughhisorherowndiscoveryasamentor.ThismeansthatthepersonneloftheOTBmaychangeovertime.AtonepointtheOTBmaydrawupontheexpertiseoflawyersoraccountantswhocanteachandwhocanhelpthebeneficiarydiscoverthequestionsheorshereallyneedstoask.AtotherpointstheOTBmaydrawupontheskillsandknowledgeofpersonnelmoreskilledinthepsychologicalaspectsofexploringthetrustscape,ofplanningacareer,orofnavigatingrelationships.Amentor-leadermaybeaconstantintheOTB,remainingbythebeneficiary'ssideanddrawingothersintotheprocessasneeded.AswiththeDistributionCommittee,theOTBcouldalsobestaffedbyofficersofacompanyspecificallydevotedtodoingthisworkwithbeneficiaries.Theformsaremany.Thepurpose—toguidethebeneficiarytowardsafullerunderstandingandamoreflourishinglife—remainsthesame.
InestablishinganOTB,itmaybetemptingtotreatitasafunctionofanestablishedfamilyoffice.Thefamilyofficelikelyhasemployeeswhocouldeducatebeneficiariesinsomeoftheseareas,includingtrustadministrationandinvestments.Thefamilyofficealsohasaninterestingettingtoknowbeneficiariescloselyandhelpingthemdevelopinhealthyways.
Forthereasonsmentionedearlier,weseeitascrucialthatbeneficiariesfeel“ownership”over“their”OTB,includingpayingfortheOTB'swork.MakingtheOTBpartofthefamilyofficemaymakethissenseofownershipimpossible.Thatdoesnotmean,however,thatabeneficiary'sOTBcouldnotcalluponresourcesfromthefamilyofficetodoitswork.Forexample,whyshouldtheOTBhavetohireanoutsideaccountantorinvestmentmanagertohelpinabeneficiary'seducationintheseareasifexcellentprofessionalsareavailableclosetohome?IftheOTBdoesdrawuponthefamilyoffice'sresources,thekeyisthatthebeneficiaryfeelthattheOTBisworkingforhimorherinmarshalingthoseresources.
ConclusionHereiswhatthemodelofahumantrustscapebeginstolooklike,withtheDCandOTBbothintegrated(Figure20.4).
Figure20.4ModelTrustscapewithDCandOTB
TheDCservesthetrustee;theOTBservesthebeneficiary.Thetrusteeandthebeneficiaryhaveanopenandtrustinglineofcommunication.Theentiresystemputsthebeneficiaryatthecenterofthings.
AparticularlypowerfulcombinationthatwehaveseensomefamiliescreateinvolvesusingaDCandOTBinconjunctionwithaprivatetrustcompany(PTC).TolearnmoreaboutthiscombinationoffunctionsandPTCsmoregenerally,pleaseseeAppendix4.
Aswementioned,theDCandtheOTBarerelativelynewdevelopmentsthatwehaveinitiatedwithafew,far-seeingfamilies.Butthepurposesthattheymeetareenduring.ThecreationofaDCorOTBisnotforeverytrustscapeandtrustee.ButourexperiencehasbeenthatmanytrusteeswelcomeOTBsandDCsoncetheconceptisunderstood.Afterall,beneficiarieswhoareunderstoodandwhoshowinterestintheirowndevelopmenttendtoworkwellwiththeirtrustees.Isn'tthatwhataflourishingtrustscapeisallabout?
CHAPTER21THETRUSTEEANDTHETRUSTPROTECTORREVISITED
Wehavenowfilledoutsomeofthemainpartsofourpictureofatrulyhumanetrustscape.Thatpicturebeginswithatrustcreatorwhowantshisorhertruststofulfillthehighpurposenotofjuststewardingfinancialassetsbutratherofdevelopinggreatbeneficiaries—thatis,humanbeingswhowillflourishwhetherornottheseassetsareheldintrustforthem.Fromthisintentionflownotonlythetrustitselfbutalsotwocriticalinstitutions:aDistributionCommittee(DC)thatseekstounderstandeachbeneficiaryandtoadvisethetrusteeondistributionsthatwillpromotethatbeneficiary'sgrowth,andanOfficeoftheBeneficiary(OTB)thatwillworkwitheachbeneficiarytomapoutapathofpersonallearninganddevelopment,oftensupportedbyandinconcertwiththeeffortsofthetrustee.Thisintention,embodiedinthesetwoinstitutions,canbegintocreateatrulyhumanetrustscape(seeFigure21.1).
Figure21.1InitialModelofaHumaneTrustscape
Themodelofatrulyhumanetrustscapenaturallybringswithitchangestotheroleofthetrusteeandparticularlyofthetrustprotector.WereviewedthebasicsofthesetworolesinChapters6and8.Whatwewanttoshareheredoesnotcontradictanyofwhatwesaidthere.Instead,itbuildsuponthosepoints,torefinetheserolesandbringouttheirpossibilitiesinthisnewmodel.Again,theseinnovationswillnotbeforeverytrusteeandeverytrustprotector.Butwehaveseenthesechangesplayoutwithpowerful,positiveimplicationsinseveralthoughtfultrustscapes.
Tobegintoreconsidertherolesoftrusteeandtrustprotector,recallforamomentthetypicaltrustcreator'sstressasheorsheconfrontsthequestionofwhotonameastrustee.“DoIaskafamilymember?Areliableadviser?Abankorotherinstitutionaltrustee?”
Thesearchcan'tgoonforever.Oncethesearchturnsintoarequestofaparticularpersontoserve,theanxietygenerallybecomessharedbythatperson:“DoIhavetheskill?Theinsight?Thepatience?”Intheremainderofthischapter,wehopetosharesomethoughtsthatcanfocusthetrustcreator'ssearchandnarrow,ifnoteliminate,thepotentialtrusteeandtrustprotector'sanxiety.
WhichCap'sonTop?1
Imaginethatallthepeoplewhoareunderconsiderationtobenamedtrusteeforyourfamily'strustsareseatedatatable—familymembers,friends,trustedadvisers,representativesofvariousinstitutionaltrustees,andsoforth.
Scatteredonthetableisacollectionofbaseballcaps.Everycapdisplaysaclearlyvisiblelabelthatdescribesaninterpersonalrelationshipfromthebeneficiary'spointofview.Soonecapismarked“Mom.”Anotherislabeled“Uncle.”Othercapsread“Dad'sBusinessPartner”or“Mom'sClosestFriend.”
Thefinalcapbearsthecaption“Trustee.”
Astheexercisebegins,everyoneseatedatthetableisaskedtodon—oneontopofanother—thedifferentcapsthatdescribetheirrelationshipstothebeneficiary.Sinceeveryparticipantispotentiallyatrustee,eachwillweara“Trustee”capinadditiontoothers.SoMomiswearingbotha“Mom”capanda“Trustee”cap.AndUncleJoemighthaveperchedonhisheadan“Uncle”cap,anotherthatsays“Dad'sBusinessPartner,”andathirdlabeled“Trustee.”
Recallthedutyoffidelitydescribedintheintroductiontothisbook.Thatdutytranslatestothisreality:atalltimeswhensomeoneisactingintheroleoftrustee,theTrusteecapmustbeplacedontopofthealltheothers,takingprecedenceoverallthecapsthatarepiledupbelowit.
Thequestionforeachpersonseatedatthetableis:AtthosemomentswhenIamactinginmyroleastrustee,canItemporarilykeepincheckalltheother“caps”thatIwear?CanIshiftfrom“Momrelatingtodaughter”to“trusteerelatingtobeneficiary”?
Similarly,underordinarycircumstances,Dad'sadvisermaydefertoDad'swishes,muchasMom'sbestfriendwillbeloyaltoMom.ButthemomentthatDad'sadviser,orMom'sbestfriend,putsona“trustee”cap,thatrelationshipmusttrumpallpotentiallyconflictingallegiances.
Canyouseetheinherentconflicts?
Recognizingthesechallengesleadstoaquestionfortrustcreators:whoamongthetrusteecandidateswillbestbeabletoacknowledge,andthensetaside,theirconflictingroles?
Italsoleadstoaquestionforpotentialtrustees:willyoubeabletoacknowledge,andthensetaside,yourconflictingroleswhileactingastrustee?
ADifferentApproachSomefamiliesarefindingsuccessatthetaskofselectingtrusteesbytryingadifferentapproach:theydecideuponatrustprotectorbeforeselectingatrustee.Bydoingso,concernsandanxietiesaboutthebeneficiary'srelationshipwiththetrusteeareimmediatelyeased.
Here'showitworks.Theindividualwhowasgoingtobetrustee—theonewhohasmaturityandpracticalwisdom,theonethatyouthoughtaboutbackinChapter18—isinsteadaskedtoserveastrustprotector.
Thisstepmaybearealattractionforthewould-betrusteewhoisnowaskedtobetrustprotector.Ifstructuredproperly,inmostjurisdictions,thetrustprotectorwillnotbeconsideredafiduciary.Thepracticaleffectisthatsomewhomightdeclinetobenamedtrusteebecauseheorshewouldn'twanttotakeonpotentialliabilitiesthatcomewithbeingafiduciary,orbecausetakingonafiduciaryrolewouldcreateaconflict,canserveasatrustprotector.Forexample,forliabilityreasonsthefamily'slegalcounseloftenremoveshim-orherselffromthetrusteeselectionprocess.Yetyourlawyermayreallyknowandlikeyourfamilyandwanttohelp.Servingastrustprotectormightbetherightsolution.
Inourmodel,thistrustprotectorwouldhaveonlyonepower,whichliesdormantuntilit'sinvoked.Thissinglepoweristoserveasthe“judicial”branchofthatparticulartrustscapeif—andonlyif—thebeneficiary(orperhapsthebeneficiaryortrustee)askstheprotectortoadjudicateadispute.
Duringthetimethathisorherpowerliesdormant,thetrustprotectorwilltaketheinitiativetogettoknowthetrusteeandthebeneficiary.Atleastonceayear,heorshewillaskone,thentheother:“How'sitgoing?”Thetrustprotectorchatswiththebeneficiary.Theprotectorchatswiththetrustee.Heorshewillnotgetinvolvedinday-to-daytrustscapeaffairs,merelystayinginformed.Thatway,intheeventofaclash—unlikeajudgewholearnsofaconflictonlywhenitcomesbeforethecourt—thetrustprotectorwillhavetheadvantageoffamiliarity.
Nowimaginethataconflictarises.Maybethetrusteedeniesarequestforadistributionthat,inthebeneficiary'seyes,shouldbeapproved.Thebeneficiarysaystotheprotector:“Look,Ithinkthetrusteemadeadecisionwithoutconsideringthisandthisandthis.…”
Theprotectorisinapositiontosay,“I'mnotsureyou'rerightaboutthat,butI'llcertainlylookintoitifyouwantmeto.Andbytheway,whathaveyoudone,ornotdone,thathascontributedtothisstateofaffairs?”
Thislatterquestionisthefundamentalquestionfortheprotector.Itisdesignedtoreduceblamingandspreadawareness.Italsocreatesanopportunityforlearning.Thetrustprotector'squestionpromptsbeneficiariestolearnandthenbeabletodecide,“DoIreallywanttoturnthetrustprotector'spoweron?”
Let'stakethiscaseonestepfurtherandimaginethatthebeneficiaryreflectsonthesituationanddecidesthatthetrustprotectorshouldbecomeformallyinvolved.Oncetheprotector'spoweris“turnedon,”hisorherroleistoattempttomediateasolutionthatbothtrusteeandbeneficiarycanlivewith.Failingthat,theprotectorisall-powerfultoremovethetrusteeandappointasuccessor,ortoretainthestatusquo.
Inthismodel,thetrustprotectorispurposefullygivenonlyajudicialauthority.Thetrustprotectorisnotdecidingfororagainstaparticulardistributionoranyothercourseofaction.Bylivingwithintheselimits,theprotectordoesnotbecomeaquasi-trustee.Theselimitsaremeanttomitigateagainstconflictsthatmaycompromisetheprotector'sabilitytofulfillthejudicialfunctionobjectively.
Withtheadditionofthislimitedtypeoftrustprotector,themodelnowlookslikethis(Figure21.2).
Figure21.2ModelofaHumaneTrustscapewithTrustProtector
Thebeneficiaryisnowtrulythecenterofthesystem.Thedottedlinebetweenthebeneficiaryandthetrustprotectorindicatesthelimitedandlargelydormantnatureofthetrustprotector'srole.Ifyouwantboththetrusteeandthebeneficiarytohavethepowerto“turnon”thetrustprotector,thenyouwouldhavetwodottedlines,onefromthebeneficiarytothetrustprotectorandonefromthetrusteetothetrustprotector.
So,toreturntothebeginning,thepersonthatthetrustcreatorhadinmindtoserveasindividualtrusteehasnowbeenslottedtoserveasthetrustprotector.
Nowwhat?Whowillbetrustee?
ReconsideringtheInstitutionalTrustee“Whyaren'tinstitutionaltrusteesusedmoreoften?Whyisthereabiasagainstinstitutionaltrustees?”Thosetwoquestionswereposedtooneofthisguide'sauthorsbyaregionalmanagerofawell-respectedtrustcompany.Themanagerwaslamentingthatinstitutionaltrusteesareoftenselectedbydefault,whenmore
“desirable”candidatesaren'tavailable.
Theresponsetothemanagerwasthattheprobleminstitutionaltrusteeshaveisthattheyareoftenseenasputtingtheirownfeesandriskmanagementaheadoftheirloyaltytotheirclients.
Thequestionofinstitutionalloyaltyisarealone.Butwhatfamiliesdon'trealizeisthatit'salmostimpossibletofindalaypersonwhohastheinterestandwilltakethetimetolearnallthethingsthatgointobeingagoodtrustee:trustadministration,investing,andproperdistribution.Andveryfewlaypeoplefullyunderstandthedutyoffidelity,theinherentconflictsofinterest,andthepotentialliabilityifthingsgowrong.Thisisnottomention,aswedidinChapter6,theadvantagesthatinstitutionaltrusteesbringintermsofsolidity,endurance,andinstitutionalmemory.
Aninstitutionaltrusteethatleadswithfidelitymaybeagoodsolutiontoaddressingtheadministrationandinvestmentfunctions.Butwhataboutthefunctionofgettingtoknowthebeneficiarywellenoughtofulfillthetrustee'shighestduty:preparingthebeneficiarytoreceiveassetswell?
Thisiswherewereturn,inourmodel,totheDistributionCommitteeandtheOfficeoftheBeneficiary.Aninstitutionaltrustee,byitself,mayfinditdifficulttogettoknowabeneficiaryinthewaysrequiredtofulfillthathighestdutyofatrustee.Therealityisthatwhileinstitutionsendure,institutionalpersonneloftenchange,andthedemandsofpresent-daybusinessmanytimesprecludedevelopingdeeppersonalrelationshipswithbeneficiaries.
However,aninstitutionaltrusteethatisinformedbyandworkinginconcertwithaDCandOTBisacompletelydifferentstory.Inthismodel,theinstitutionaltrusteecandowhatitoftendoesbest:maintainasoundandsolidprocessofadministration,investment,anddistribution.Aspartofthelatterprocess,itcanrelyontheinsightsofaDC.AnditcanoutsourcetotheOTBthecrucialworkofhelpingthebeneficiarydevelop.Infact,becausetheyaresocomfortablewithprocessandwithcollaborativeefforts,aninstitutionaltrusteemayinmanycasesbetheperfecttrusteeforpartneringwithaDCandOTB.TheDCandtheOTBbringdeepandthoughtfulattentiontothehumanconsequencesofthetrustrelationships,whiletheinstitutionaltrusteeprovidesasolidandenduringstructuretotheprocessesthatsurroundthoserelationships(Figure21.3).
Figure21.3CompleteModelforaHumaneTrustscape
This,then,istheoutlineofourvisionofahumanetrustscape:aninstitutionaltrusteeworkinginharmonywithaDC,anOTB,andadeeplytrustedandwisetrustprotector.Viewedfromtheperspectiveofchecksandbalances,whiletheinstitutionaltrusteewouldhavemuchoftheformalpower,thatpowerwouldbeinformedbytheDCandtheOTBand,inthecaseofconflict,heldincheckbythetrustprotector.Butlifeismoreaboutflourishingthanaboutcheckingandbalancingpower.Thetruevirtueofthismodelisthatitorientstheentiresystemtowardthetaskofgrowingtrulygreatbeneficiaries.Theinstitutionaltrusteeprovidesthesolidbasisforthisenterprise.Thetrustprotector,thoughrarelyactive,keepsthefocusonthelong-termhumanimpactofthesystem.AndtheDCandtheOTBprovideregularlyupdatedinformationaboutandtothebeneficiaryasheorshechartslife'sjourney.
Ithastakenalongtimefortheprofessionandforseveralfar-seeingfamiliestocometorealizethishumanevision.Butnowthatitiscomingtolife,we,aspractitionersandauthors,hopefornothingmorethanthatmoreandmorefamiliesfindawaytoadoptthismodel.Ithasthepotentialtodountoldgoodforgenerationstocome.
Note
1.TheauthorsthankLeeHausnerforteachingusaversionofthisexerciseyearsago.
APPENDICES
APPENDIX1SAMPLELEGACYLETTER
Thefollowingmultipartlegacyletterisofferedasanexamplemeanttospurreaders'thinking.Besidesremovingpersonallyidentifyinginformation,wehavenotmodifiedit,soitspartsreflectthevaluesandjudgmentsofitsauthors.Wedonotmeantoendorsethesevaluesorjudgments.Wehaveusedthisletterwithgratitudetoandthepermissionofitsauthor.
LETTERTOTRUSTEESDear___________:
I.PurposeIhavespentagreatdealoftimethinkingabouthowtoarrangemyestateafterIdie.IdothismostlybecauseIwanttogivemyfamilythebestopportunitytothriveafterme.
IdonotwishforthemoneyIleavebehindtoharmtheirpursuitofmeaningfullives;rather,Iwouldlikeittobehelpful.
Myplansprovidefortruststobenefit[WIFE]and[CHILD].Theycallforyou,[NAMESOFTRUSTEES]toserveastrustees.TherelationshipsIamcreatingamongyou,onpaper,willendupbeingincrediblysignificantineachofyourlives.Mysincerehopeisthatyourrelationswillbepositive,generative,andhealthy.
Iwritethisletterforthefollowingpurposes:
1. Tohelpyouunderstandwhatmyhopesareforyourrelationshipsnowandinthefuture.
2. Toencourageyou,now,todeepenyourrelationshipswith[CHILD]and[WIFE].Itisimportantthatyouknowthemwell,andtheyyou.
3. Toinspiremeaningfulconversationbetweenandamongyou,andme,abouttheprinciplesthatIwishtogovernthediscretionarydecisionsthetrusteeswillbeaskedtomakeaboutmoneyinthefuture.
Whatfollowsismeanttogiveyousomethingstotalkabouttogetherandwithme.Itisnotmeanttogoonyourshelvesore-mailinboxes,collectingdustuntilmydeath.Let'sgettogetherandtalk.
Withthatinmind,therestofthisletteranditsenclosuresarethingsIwantyoutoknow.Includedarepersonalnotesto[WIFE]andto[CHILD].Ihavechosentoletyoutrustees“listenin”ontheselettersbecauseIthinkitisimportantforyoutoknowmyfeelingsasyoudeepenyourrelationshipswiththemnowandinthefuture.
II.Exhibits1. EthicalWill
2. FiduciariesandAdvisersContactInfo
3. FuneralArrangementLetter
4. StatementofFinancialPosition
5. EstatePlanDiagram
6. FinancialPlanningDocuments
7. CharitableGivingHistory
8. InvestmentPolicyStatement
III.EthicalWillIhaveincludedacopyofthecurrentdraftofmyEthicalWillasExhibitA.MyEthicalWilldescribesmanyofmycorevaluesandlifeprinciples,includingaboutlifeandmoney.Pleasereaditcarefully.
IV.InstructionsatDeathUponmydeath,totheextentnotalreadyhandledinmylifetime,Iwouldlikeyoutoconsidertheseinstructions:
1. Mydesireistoclosemybusiness.Adiminishingnumberofexecutivesandstaffwillneedtoremainasemployeesduringthiswinddownanddissolutionstage,asIexpectforthebusinesstocollectonreceivablesanddistributetheliquidassetstomyestate.Iampresentlyworkingonthesaleofmybusiness.
2. Ihaveincludedaletterto[FUNERALDIRECTOR]withinstructionsregardingmywishesformyfuneral,attachedasExhibitC.Mydesireistohaveasimpleceremonywithnicemusicandacelebratorymood.
[ExhibitV,MessagestoWife,omitted.]
VI.Messagesto[CHILD]Dear[CHILD],
IamwritingthislettertoyoutotellyouwhatmyhopesareforhowyouwillbenefitthemostfromthefundsthatIamleavingintrustforyou.Beingayoungpersonwithfundssetasideforthemisabigresponsibility.Iwantittohelpyoufindameaningfullife.Idonotwantittohurtyou.
WhileIamalive,Iamresponsiblefordecidingaboutyoureducationandmoney.WhenIamgone,thetrusteeswillperformthisrole.
TherearefivethingsIwanttoemphasizeforyoutohelpyouonthispath:
1. Forgeameaningfulrelationshipwithyourtrustees.Ihavesomedearfriendswho
haveagreedtoserveasyourtrustees.Thisisamajorresponsibility.Theywillhavediscretiontodecidewhenandhowtohelpyoufinancially.Iwantyourrelationshipwiththemtobecloseandmeaningful.Youhavearesponsibilitytoseekthemout,toknowthem,tolettheminonyourlife—yourplans,hopes,dreams,andfears.Dothisasearlyandoftenaspossible.Theyhavearesponsibilitytolistentoyou,careaboutyou,andmentoryou.TheyalsohavearesponsibilitytoconsiderthevaluesIhaveaskedthemtoconsider.Pleasegivethemyourrespectandunderstandthattheyhaveanimportantandchallengingjobtoperformforyou.
2. Learntobemoneywise.Iwillhaveleftyoumoneyintrust.Donotletitgetinthewayofyourhappiness.Toomanypeoplewithmoneythinktheydonotneedtowork,donotneedtostruggle,donotneedtoworryaboutunderstandingmoney,spending,budgets,andthelike.Donotbethatperson.Learnaboutmoney.Learnaboutbusinessandbudgetsandbanksandinvesting.Learnhowtoreadabankstatement,afinancialstatement,aninvestmentreport.Becomeasaver.Becomeagiver.
3. Pursueeducationandlearning.Getaneducation.Youarebrightandcurious.Inthemodernworld,ayoungpersonlikeyoushouldpursueagraduate-leveldegree.Beyondthat,lovetolearninallitsforms,particularlythroughexperientialworldtravel.Thetrusteesshouldhelpyoufundthesepursuits.
4. Workandcontribute.Findameaningfulvocationthatallowsyoutouseyourincrediblegiftstotheirfullest.Itmattersfarlesstomethatthisbefinanciallyrewarding,orhowsocietyperceivesitsvalues,andfarmorethatyoufindmeaningandfulfillmentfromit.Donoteverallowyourselftobelazyordependentonothers.Giveofyourownmoneyandyourtime;wehavearesponsibilitytohelpthoselessfortunate.Findsomewaytodothisworkingtogetherwithothers.
5. Dealwithconflicts.Therewillbetimeswhenyourtrusteeswillhavetomakesomereallytoughdecisions.Sometimesthosedecisionswillinvolvebalancingwhatmightbegoodforyouwithwhatmightbegoodforyourmother.Othertimesitmightmeanbalancingwhattheythinkisgoodforyouandyourmotherwithwhattheirbankco-trusteeisdoingwithinvesting.Othertimesitmightmeanbalancingwhattheywanttodoforyouwithwhatthelawormytrustdocumentsays.Pleasebeunderstandingandforgiving.Theyhaveahugelychallengingjob.
Iloveyou.Iamproudofyou.Mytimewithyouhasbeen,andis,mygreatestjoy.Iknowyouwillflourish.
Yourlovingfather.
VII.MessagestoTrusteesDear[NAMESOFTRUSTEES],
Morethananythingelse,mymessagetoyouisthis:gettoknow[WIFE]and
[CHILD];knowthemnow,andforgeacloserelationshipfortheyearstocome.Betheirfriendsandmentors.Therestofwhatfollowsissecondarytothisgrandhope.Ifyouareclose,Iamconfidentthattherestwillfollow.
Beyondthat,herearesomeadditionalthoughtsIwishtosharewithyoutohelpguideyouwiththemanydiscretionarydecisionsyouwillneedtomakeasmytrustees:
Firsttheobvious—followtheinstructionsinthetrustagreements.Myoverridingintentaboutdistributionsisthatthebeneficiarieshavefinancialpeaceandsecurity,notsuperfluousexcess.Beconservativewiththeinvestmentsofthetrustsandmaintainalong-termperspective.IhaveincludedforyoutheInvestmentPolicyStatementthatwasdevelopedwith[INVESTMENTADVISER]tomonitorandassistintheinvestmentguidelinesthatthecorporatetrusteeshouldfollowasmanagersoftheestate.Ishalltalkfurtherwithyouastothefunctionofeachtrustsothatindividualinvestmentpolicystatementsaredevelopedforeachtrust.
Theprimarypurposeofmytrustduringmylifetimewith[WIFE]istosupportourlives.AfterIamgone,itwillbetosupport[WIFE]'slife.Anyremainderwillgoto[CHILD]'strust,whereIwouldlikeittosupporthercareandeducationbutpreserveassetsforeducatingherdescendants.
Mytrustdocumentscallforthreeindividualtrusteesatalltimes,fourwhile[WIFE]isalive.Individualtrusteesshouldretireattheearlierofincapacityoruponreachingtheageof75yearsold.Atrusteemayvoluntarilyrelievehim/herselfoftheresponsibilityaswell.
Youwillhaveanappointedcorporatetrusteetodothe“heavylifting”foryou:investingofassets,legalcompliance/issues,incometaxcompliance,mitigatingrisk,andsafeguardassetsfromcreditors.Yourprimaryfocuswillbetomaintainrelationshipswiththebeneficiariesandtomakediscretionarydecisionsaboutthedistributionsfromthetrusts.AgeneralsummaryoftheestateplanisincludedasExhibitE.Iencourageyoutocultivategoodrelationshipswith[LAWYER]and[TAXADVISER],butyoushouldfeelnoobligationtocontinueworkingspecificallywiththem.
Ihavecalculatedthenumbersandhaveincludedforyoumymostcurrentstatementoffinancialposition(ExhibitD),familybudgetandcapitalneedanalysis(ExhibitF),andcharitablecontributionhistory(ExhibitG).Youwillseethatbasedontheassumptionsintheseexhibits,ifIdieat85yearsoldandthen[WIFE]at85yearsold,thereshouldbe$____millionofinvestmentassets,plushomesremainingat[WIFE]'sdeath.Thisisallcalculatedata(hopefully)conservativelong-termannualizedinvestmentreturnofinflationplus____percent.
Regardingdistributionsfromtruststobeneficiaries:
Alltrusteesmustmakedecisionsondistributionstobeneficiaries,andIencourageyoutomaintaingoodcommunicationwiththecorporatetrustee.Myoverridinghopeisthatthetrustfundswehaveprovidedforthebeneficiarieswillbeusedtoenhancetheirlivesandwillnotserveasanimpedimenttotheirhappinessorsenseof
accomplishmentandself-worth.
Bewiseanddiscerningwithdistributions:
1. Donotenablelong-termdependencyonthefundsthataredistributed.Iwantthemtobeproductivepeoplewhohaveafullydevelopedsenseofself.Ifsomeonechoosesacareerthatisalow-payingjob,itisokaytounderwritethemandsupportthemwithfinancialdistributions.
2. Beawareofanypossiblesubstanceabuseandavoidfundingdestructivebehaviorofthissort.Payforrehabilitationservicesandpromotereconciliationandrecovery.
3. Begenerousforeducationalexpensesandtocovermedicalcarecosts.
4. Besupportiveofinternationaltravel.Thereissomuchtolearnintheworldoutsideofourdailylives.
5. Supportentrepreneurialendeavors,butbewiseinmitigatingrisksandrequireprovisionofabusinessplantotheTrusteeswitharequestoffunds.
6. Considerdistributionsforthepurchaseofaprimarypersonalresidence.
Mydesireisfor[CHILD]andanychildrenshemayhavetobeeducatedinfinancialmattersandbementallyengagedintheoperationsofher/theirtrust(s).Thegoalisforhertomakeinformedfinancialdecisions,soasnottopurchasemoreshoesorfrivolouslyspendmoney.Iwouldlike[CHILD]toworkforthings.Donotdistributelargeamountsofmoneywithoutsupportivereasoning.Ifshewantsmoneyforanentrepreneurialventureorinvestment,encouragehertohaveamaterialinvolvementinit.
Ihaveadonoradvisedfundat[INSTITUTION]andwouldlikeforittobedividedintotwoseparatedonoradvisedfundsuponmydeath.[NAMEDPEOPLE]willbethesuccessorsofoneDAFandwilldistributethosefundsattheirdiscretiontocharitableorganizations.TheotherDAFwillhave[NAMEDPEOPLE]namedsuccessorsandwillhavediscretionofthedistributionsforthesamepurposes.
VIII.ReflectionsandEncouragementIfthereweren'tmoneyinvolved,Iwouldnotbeaskingyoutoformrelationships.EventhoughmoneyisthereasonIamaskingyoutobuildarelationship,myencouragementisthatyourrelationshipsnotfocusonmoney,butonwhatreallymattersinlife.Dothisaspartofyourlargerplansforbuildingmeaningfullives.ThenIwilllookdownandsmile.
Now,lettheconversationsbegin.YoucannotknowhowmuchIlookforwardtosittingwitheachofyoutotalk.
Allthebest,[SIGNATURE]
APPENDIX2SAMPLELANGUAGEREGARDINGADDICTION
ModelLanguageforFamilyGovernanceDocumentsforSubstanceUseDisordersand/orMentalHealthConcerns,fromWilliamMessinger,TheTrustee'sHandbookforAddressingAddictioninBeneficiaries(allrightsreserved,usedwithpermission).
SuggestedLanguageRestrictingAccesstoPrincipalandIncomeWhenaBeneficiaryorFamilyMemberMayHaveProblemswithAlcohol,Drugs,OtherBehaviors,andActivitiesorMentalHealthConcerns
TrusteeAuthorityRegardingSubstanceUseDisorders,OtherDisorders,andMentalHealthConcernsinaBeneficiary1. SoleDiscretionofTrusteetoWithholdIncomeorPrincipal,NotwithstandingAny
OtherProvisionofThisTrustAgreement
a. Notwithstandingtheforegoingastodistributionsofincomeandprincipal,theTrusteeinhis/hersolediscretion,shallwithholddistributionsofprincipal,income,orotherwithdrawalsfromanyBeneficiarywhohasormayhave:asubstanceusedisorder(s),(addiction),otherdisorders,compulsiveordestructivebehaviors,mentalhealthconditionsorconcerns,oranycombinationoftheforegoing,asdefinedinparagraph9,below.
b. Suchprincipal,income,orspecifiedwithdrawalsshallberetainedandheldbytheTrusteeuntilsuchtimeastheTrusteedetermines,inhisorhersolediscretion,thattheBeneficiaryisinrecovery(asdefinedbelowinparagraph6)fromasubstanceusedisorder(s),(addictions),otherdisorders,compulsiveordestructivebehaviors,mentalhealthconditionsorconcernsoranycombinationoftheforegoing,asdefinedinparagraph9,below.AnyamountssowithheldandaccumulatedmayberetainedintheTrustratherthandistributed,attheTrustee'ssolediscretion.However,theTrusteeisauthorizedtoexpendincomeandprincipalforthepurposessetforthinthisappendix.
c. IftheBeneficiarydiesbeforemandatorydistributionsorrightsofwithdrawalareresumed,theremainingbalanceofthemandatorydistributionsthatweresuspendedwillbedistributedtothealternatebeneficiariesoftheBeneficiary'sshareasprovidedherein.
d. Whilemandatorydistributionsaresuspended,thetrustwillbeadministeredasadiscretionarytrusttoprovidefortheBeneficiaryaccordingtotheprovisionsofthetrustprovidingfordiscretionarydistributionsintheIndependentTrustee'ssoleandabsolutediscretionandasmandatedbytheappendix.
2. AuthorizationtoHireandRelyonProfessionalExpertisetoImplementThis
Appendix
a. TheTrusteeisauthorizedtoemployandretainexpertson:substanceusedisorder(addictions),otherdisorders,compulsiveordestructivebehaviors,mentalhealthconditionsorconcerns,andresultantfamilyconflictoranycombinationoftheforegoing,asdefinedinparagraph9below,toadvisehim/herregardinganymatters,issues,ordeterminationsinthisappendix.TheTrusteemaydesignatesuchexpertstoreceiveinformationorperformtasksonhis/herbehalfinordertoimplementthisappendix.
Further,theTrusteemayemployexpertstorecommendcomprehensivetreatmentandposttreatmentrecoveryprograms(meetingthestandardsinsubparagraphsbandcbelow)andtooverseeandimplementsuchprograms.TheTrusteeisalsoauthorizedtousetherecoveryprogramsforaddictedpilotsandphysiciansaspartofanoversightprogramfortheBeneficiary(orsimilarprogramsintheeventthepilotorphysicianprogramisunavailable).
Inaddition,theTrusteeisauthorizedtoemployandbeadvisedbyexpertsregardingenteringintoandpreparingagreements(RecoveryContracts)betweentheBeneficiaryandTrusteespecifyingrecoveryactivitiesbytheBeneficiary,includingsuchactivitiesthatarefundeddirectlyorindirectlybythetrust.
b. TheTrusteeisfurtherauthorizedtoutilizeandrelyontheprofessionaljudgmentofareputabletreatmentcenter,utilizinganabstinence-basedchemicaldependencytreatmentmodelandrecognizedbytheJointCommissiononAccreditationofHealthCareOrganizations,forevaluations,recommendations,andtreatmentregardingtheBeneficiary'ssuspectedoractualsubstanceusedisorders(alcohol/drugdependenceandabuse).TheTrusteeissimilarlyauthorizedregardinganyotherdisorders,compulsiveordestructivebehaviors,mentalhealthconditionsorconcernsoranycombinationoftheforegoing,asdefinedinparagraph9below.
c. TheTrusteehassolediscretionregardingtheemployanduseofanysuchtreatmentcentersorotherresourcessuchassupervisedlivingfacilities,halfwayhouses,soberhomes,andwildernessprogramsasneeded;however,allsuchresourcesshallbelicensedorcredentialedasperapplicablestateguidelinesandstandardsdescribedintheprecedingparagraph.Anyexpertsutilizedbythetrusteeshallbelicensedandcredentialasperapplicablestatestandardsandguidelines,withanyprofessionalauthorizedtoprescribemedicationscertifiedbyASAM(SocietyofAddictionMedicine)orunderthedirectsupervisionanddirectionofanASAMcertifiedprofessional.
3. AuthorizationRegardingtheExpenditureofFundsforIntervention,Treatment,andRecoveryActivities
TheTrusteehasfullauthorityanddiscretiontoexpendfundsforadviceregarding
implementationofthisappendix,todevelopandimplementplansforinterventionintheeventtheBeneficiarymayhaveasubstanceusedisorder(dependentonorabusingalcoholordrugs)ormaybeactivelyusingalcoholordrugsaftertreatment(relapse).Suchauthorityincludesexpendingfundsforevaluations,treatmentandallrelatedcosts,forposttreatmentrecoveryprograms,andanyandallrelatedmattersdeemedappropriatebytheTrusteeinhis/hersolediscretion.Thisparagraph(3)isfullyapplicabletootherdisorders,compulsiveordestructivebehaviors,mentalhealthconditionsorconcerns,oranycombinationoftheforegoing,asdefinedinparagraph9below,includingnoncompliantbehaviorwithtreatmentplansandbehavioralrelapses.
4. AuthorizationtoReceiveReports/Beneficiary'sConsenttoReleaseInformation
a. InmakingdeterminationsastowhethertheBeneficiaryisparticipatingin,hassuccessfullycompletedanapprovedandapplicabletreatmentprogramand/orisengagedinanactiverecoveryprogram,theTrustee(and/orher/hisdesignee)isauthorizedtoreceivereportsfromcounselorsandstafffromtreatmentprogramsofanykind,sponsors,andallhealthcareprofessionalsorothersprovidingassistancetotheBeneficiary.
b. Inaddition,theBeneficiarymustfullycomplywithallrecommendationsoftreatmentprogramsandhealthcareprofessionals,asapprovedbytheTrustee(and/orhis/herdesignee.TheBeneficiarymustsignconsentsforfullreleaseofinformationtotheTrustee(and/orhis/herdesignee)inordertobeincompliancewiththisparagraph(4).FailuretosignallrequestedauthorizationsmeanstheBeneficiaryisnotin“recovery”asthattermisusedinparagraph6.
5. AlcoholandDrugTesting
a. TheTrustee(and/orher/hisdesignee)shallutilizetheservicesofareliableandlicenseddrugtestingcompanytorandomlydrugtesttheBeneficiaryduringthefirsttwoyearsofrecovery(asdefinedinparagraph6above),and/oriftheBeneficiarymaybedisputingwhetherhe/sheisusingalcoholordrugs.TheTrustee(andher/hisdesignee)isauthorizedtorequirecontinueddrugtestingforaslongastheTrusteedeemssuchtestingtobeadvisable,regardlessofanyotherprovisioninthisappendix.FulldisclosureofresultsfromsuchtestsshallbemadeinatimelymannertotheTrustee(and/orher/hisdesignee).
b. Suchtestsmustbeconductedundertheobservationofpersonnelfromthedrugtestingserviceortheirdesignee,andmayincludebutnotbelimitedtolaboratorytestsofhair,tissue,orbodilyfluids.ThephysicianinchargeofthePhysician'sHealthProgramisthepreferredresourceforsuchtesting.
c. TheTrustee,intheexerciseofsoleandabsolutediscretion,maytotallyorpartiallysuspendalldistributionsotherwiserequiredorpermittedtobemadetotheBeneficiaryuntiltheBeneficiaryconsentstotheexaminationandcomplieswithfulldisclosureoftheresultstotheTrustee.
6. Recovery—Two-YearMinimuma. Recovery,asusedherein,isdefinedasnolessthanaminimumoftwoyears
ofcontinuoussobriety(includingabstentionfromnarcoticprescriptionmedicine,drugs,alcohol,orotheraddictiveorcompulsivebehaviorsorusedisorders)and/ortwoyears'continuousadherencetotreatmentplansinthecaseofmentalhealthconditions.OnlymedicationsprescribedandapprovedbyASAMcertifiedprescribersandconsistentwiththeBeneficiary'sRecoveryProgramwillbeconsideredasmeetingtheforegoingdefinition.ThedefinitionofRecoveryalsoincludes,butisnotlimitedto,ongoingparticipationinaRecoveryProgram,asdeterminedbytheTrusteeorhisdesignee:Activitiesaddressingissuesrelatingtosubstanceusedisorders(addiction),otherdisorders,compulsiveordestructivebehaviors,mentalhealthconditionsorconcerns,oranycombinationoftheforegoing,asdefinedinparagraph9below.(Examples:attending12-steporotherself-helpgroups,therapy,casemanagementmeetings;avoidinghigh-riskrelapseenvironments;andadheringtorecoveryplans,recommendations,oragreements).
b. Thetwo-yearminimumshallbeextendediftheBeneficiaryhasahistoryofrelapse,isnotcompliantwithtreatmentplans,orfailstoactivelyengagedinarecoveryprogram,withsuchtimeextension(s)determinedatthesolediscretionoftheTrustee.
c. IntheeventtheBeneficiaryhasnotcompletedthetwo-yearminimumofrecoveryorextensionsthereof,theTrusteehasthediscretiontodisburseincomeand/orprincipalonbehalfoftheBeneficiaryinamountstosupporttheBeneficiary'srecoveryprogram.Conversely,theTrusteeshallnotdisbursefundsforactivitiesthatmightleadtorelapse.TheTrusteeisauthorizedtorelyontheadviceofexpertsinimplementingthisSection6andotherwiseexercisingdiscretionaspermittedinthisappendix.
7. DateWhenRecoveryBegins
ThecommencementofanytimeperiodofrecoverybeginsaftertheBeneficiaryhassuccessfullycompletedchemicaldependencyinpatientprimarytreatment(orotheraddictionormentalhealth–relatedtreatment)andanysubsequentlong-term,halfway,soberhouse,orwildernessprogram.(Suchtimedoesnotcommenceuponenteringtreatment,butwhensuccessfullycompletingoutpatienttreatmentorleavingasupervisedorotherwiserestrictiveenvironment.)Successfulcompletionofanysuchprogramisdeterminedbythetreatmentproviderandasapprovedbythetrustee,whomayrelyontheadviceandopinionorexpertsindependentofanytreatmentcenter.
8. DistributiontoSpouse,Children,orOtherFamilyMembers
IntheeventofwithholdingoforrestrictionondistributionstotheBeneficiary,theTrusteeisauthorizedtomakedistributionsforthebenefitoftheBeneficiary,
includingthoseowedadutyofsupportbytheBeneficiary,suchastheBeneficiary'sspouse,ex-spouse,children,orotherfamilymembers.
TheTrusteeisauthorizedtomakearrangementsforthesupportofsuchindividualsthroughdistributionsbyalternativemeans,astheTrusteedeterminesinhis/hersolediscretion,withtheintenttomaintainsuchindividuals'lifestyle,includingpayingsupportstaffandthird-partyvendors.
Intheeventanysuchindividualmeetsthedefinitioninparagraph9,thetrusteeisauthorizedtoprovideservicesassetforthinthisappendixherein.Intheeventanysuchindividualsareinneedoftherapy,treatmentorotherformsofassistanceduetotheconductofaBeneficiarymeetingthedefinitioninparagraph9,theTrusteeisauthorizedtoprovideservicesassetforthinthisappendix.
9. DefinitionofSubstanceUseDisorderorAbuseandOtherAddictions/Disorders
Thephrase“Beneficiarywhohasormayhaveasubstanceusedisorder(formerlydependentonand/orabusingdrugsoralcohol),otherdisorders,compulsiveordestructivebehaviors,mentalhealthconditionsorconcerns(includingmentalillnessandmentaldisorders)oranycombinationoftheforegoing,”shallhavemeaningasdefinedintheDSM-V-TR(DiagnosticandStatisticalManualofMentalDisorders).TheDSM-Vcriteriafor“AlcoholUseDisorder”areattheendofthisappendix.Thesedefinitionsmayberevisedtoreflectnewmedicalinformationand/orcredibleresearchbyrecognizedprofessionals,asdefinedinparagraph2.
10. Indemnifications,ExonerationProvision,andDualCapacity
a. TheTrustee(andanyprofessional,adviser,assistant,orotherpersonincludingtheirbusinessentities,hiredand/orretainedbytheTrustees)willbeindemnifiedfromtheTrustEstateforanyliabilityinexercisingtheTrustee'sjudgmentandauthorityinthisappendix,includinganyfailuretorequestaBeneficiarytosubmittomedicalexaminationandincludingadecisiontodistributesuspendedamountstoaBeneficiary.ThisindemnificationclauseincludesanyallegationsofanykindbroughtbytheBeneficiary,oronbehalfoftheBeneficiary,directlyorindirectlyagainsttheTrusteeandthosehiredand/orretainedbytheTrustee.Ifsuchallegationsoccur,therespondenthastheoptionofrequestingthetrusttoprovidethedefenseoraskingthetrusttopaytotherespondentfundsforhis/herdefense.
b. ItisnottheGrantor'sintentiontomaketheTrustee(oranyprofessional,adviser,assistant,orotherpersonincludingtheirbusinessentities,hiredand/orretainedbytheTrustees)responsibleorliabletoanyoneforaBeneficiary'sactionsorwelfare.
c. TheTrusteehasnodutytoinquirewhetheraBeneficiaryusesdrugsorothersubstance,butisexpectedtoinitiatetheprocessspecifiedinthisappendixifcircumstantialordirectevidencecomestotheTrustee'sattentionthatthe
Beneficiaryisengaginginconductspecifiedinparagraph1,towit:theBeneficiaryhasasubstanceusedisorderormayhaveotherusedisorders(addictions),compulsiveordestructivebehaviors,otherdisordersormentalhealthconcernsoranycombinationoftheabovementioneddisorders,asdefinedaboveinparagraph9.
d. ATrusteeactinginthedualcapacityasTrusteeandfamilymemberisauthorizedtodiscusswiththeBeneficiaryandtheBeneficiary'srelatives,informationthefamilymemberobtainsinhiscapacityasTrustee,forthepurposeoffurtheringthewelfareoftheBeneficiary.
11. OtherProhibitionsduringWithholdingofDistributions
a. IfdistributionstoaBeneficiaryaresuspendedorwithheldasprovidedaboveinthisappendix,thentheBeneficiaryshallautomaticallybedisqualifiedfromserving,andifapplicable,shallimmediatelyceaseserving,asaTrustee,TrustProtector,orinanyothercapacityinwhichtheBeneficiarywouldserveas,orparticipatein,theremovalorappointmentofanyTrusteeorTrustProtectorhereunder.
b. ThewithholdingorsuspensionofbenefitstotheBeneficiaryissufficientevidencetosuspendorterminatetheBeneficiary'sroleinotherfamilypositionsoractivities.IftheBeneficiarycontestssuchsuspensionortermination,theTrusteeisauthorizedtoreleaseinformationrelatingtotheBeneficiary'saddictiontotheappropriatefamilygoverningbodyorauthority.
(Thislanguagecanbemodifiedforuseinbusiness,succession,management,realestateownership,familyoffice,andphilanthropygoverningdocuments.)
TrustProtectorProvision:ItisadvisedtouseaTrustProtectortopermitthisappendixtobemodifiedduetochangesinaddictiontreatmentorasotherconditionswarrant.AlcoholUseDisorderDSM-VAsdefinedintheDiagnosticandStatisticalManualofMentalDisorders,FifthEdition(DSM5,p.490)
DiagnosticCriteriaAproblematicpatternofalcoholuseleadingtoclinicallysignificantimpairmentordistress,asmanifestedbyatleasttwoofthefollowing,occurringwithina12-monthperiod:
1. Alcoholisoftentakeninlargeramountsoroveralongerperiodthanwasintended.
2. Thereisapersistentdesireorunsuccessfuleffortstocutdownorcontrolalcoholuse.
3. Agreatdealoftimeisspentinactivitiesnecessarytoobtainalcohol,usealcohol,orrecoverfromitseffects.
4. Craving,orastrongdesireorurgetousealcohol.
5. Recurrentalcoholuseresultinginafailuretofulfillmajorroleobligationsatwork,school,orhome.
6. Continuedalcoholusedespitehavingpersistentorrecurrentsocialorinterpersonalproblemscausedorexacerbatedbytheeffectsofalcohol.
7. Importantsocial,occupational,orrecreationalactivitiesaregivenuporreducedbecauseofalcoholuse.
8. Recurrentalcoholuseinsituationsinwhichitisphysicallyhazardous.
9. Alcoholuseiscontinueddespiteknowledgeofhavingapersistentorrecurrentphysicalorpsychologicalproblemthatislikelytohavebeencausedorexacerbatedbyalcohol.
10. Tolerance,asdefinedbyeitherofthefollowing:
a. Aneedformarkedlyincreasedamountsofalcoholtoachieveintoxicationordesiredeffect.
b. Amarkedlydiminishedeffectwithcontinueduseofthesameamountofalcohol.
11. Withdrawal,asmanifestedbyeitherofthefollowing:
a. Thecharacteristicwithdrawalsyndromeforalcohol(refertoCriteriaAandBofthecriteriasetforalcoholwithdrawal,pp.499-500).
b. Alcohol(oracloselyrelatedsubstance,suchasabenzodiazepine)istakentorelieveoravoidwithdrawalsymptoms.
Specifyif:
Inearlyremission:Afterfullcriteriaforalcoholusedisorderwerepreviouslymet,noneofthecriteriaforalcoholusedisorderhavebeenmetforatleast3monthsbutforlessthan12months(withtheexceptionthatCriterionA4,“Craving,orastrongdesireorurgetousealcohol,”maybemet).
Insustainedremission:Afterfullcriteriaforalcoholusedisorderwerepreviouslymet,noneofthecriteriaforalcoholusedisorderhavebeenmetatanytimeduringaperiodof12monthsorlonger(withtheexceptionthatCriterionA4,“Craving,orastrongdesireorurgetousealcohol,”maybemet).
Specifyif:
Inacontrolledenvironment:Thisadditionalspecifierisusediftheindividualisanenvironmentwhereaccesstoalcoholisrestricted.
Specifyif:
305.00(F10.10)Mild:Presenceof2–3symptoms.
303.90(F10.20)Moderate:Presenceof4–5symptoms.
303.90(F10.20)Severe:Presenceof6ormoresymptoms.
Becausethefirst12monthsfollowingaSubstanceUsedeterminationisatimeofparticularlyhighriskforrelapse,thisperiodisdesignated“EarlyRemission.”
APPENDIX3THEDISTRIBUTIONCOMMITTEE
OneofthemostimportantnewideaspresentedinthisbookisthatoftheDistributionCommittee(DC).Becauseofitsnoveltyandsignificance,wehaveincludedthisappendixtodiscussingreaterdepthkeyelementsoftheconceptandofferdraftingpointsforneworexistingtrusts.
Morethananysingleelementofthetrustscape,theDCtiestogetherthemajorthemesfoundthroughoutthisbook:
Thesinglemostimportantreasonforcreatingatrustistomakeagiftoflovethatpromotesthebeneficiary'struefreedom.
Giventhispurpose,itfollowsthatthehighestdutyofthetrusteeistohelppreparethebeneficiarysuchthatifthetrustshouldendandtheassetsbedistributedtothebeneficiarytomorrow,thebeneficiarywillhavetheknowledge,thematurity,andthecompetencytoreceiveandstewardthefundswell.
Thepracticalquestionbecomes:howcanthetrusteeandotherresponsiblepartiesensurethatthistrust,andtherelationshipscreatedoralteredbythistrust,enhancethebeneficiary'slife?
TheCoreConceptAswediscussedinChapters19and20,thepurposeoftheDCistoaugmentthedistributivefunctionsothat(onehopes)thetrustscapeaccomplishesitsultimategoal:toenhancethelivesofthebeneficiaries.
TheDC'ssoleresponsibilityistoadvisethetrusteeregardingabeneficiary'srequestsfordistribution.Tofulfillthisresponsibility,themembersoftheCommitteemustbeproactive.Thatis,theywilltaketimetogettoknoweachbeneficiarywellinadvanceofaparticularrequestforfunds.Thisiscontrarytothereactivepostureofmanytrustees.(“Ibegintoconsiderarequestwhenitlandsonmydesk.”)
Whenabeneficiaryiscontemplatingarequestforfunds,Committeememberswillseektounderstandthecontextandunderlyingreasonsfortherequest.Theconversationmaybebrieforunfoldovertime,accordingtothecomplexityoftheissuesathand.Dependingontheneedsofthebeneficiary,thismaypresentanopportunityformentoring.InChapters13and14,weofferedideasforstructuringproductiveconversations.
TheCommitteemember'sgoalis(1)tohelpthebeneficiaryclarifyhisorherthinkingand(2)toformanopinionastowhetherapprovingthedistributionwouldenhancethe
beneficiary'slifeinsomemanner.Wediscussedthemeaningof“enhance”inChapter14.It'sworthreemphasizingthatthetrustee'sviewofenhancingwillchangeaccordingtothebeneficiary'sstageoflife.
Informingtheiropinionaboutagivendistributionrequest,weurgecommitteememberstobecognizantoftheirown“narratives”thatmaybeinfluencingtheiranalysis.Aboveallelse,beopen,honest,andtransparentwithbeneficiaries.
Followingtheirconversationswiththebeneficiary,committeememberswillenlightenthetrusteeaboutthebeneficiary'sthinkingandmakearecommendation.
It'simportanttonotethattheDC'sdutyistothetrustee,notthebeneficiary.Inthisrespect,theDCisanalogoustoanInvestmentCommittee.AnInvestmentCommitteereliesonitsknowledgeofinvestingtoadvisethetrusteeaboutwhattobuyandsell,butdoesnotdotheactualbuyingandselling.It'sameansofhelpingthetrusteefulfillhisorherduty.ThesamegoesfortheDC.Itdoesnotapproveordenyparticularrequestsfordistributions.Thatauthorityremainswiththetrustee.TheDCdevelopsknowledgeaboutthebeneficiaryandusesthatknowledgetoadvisethetrusteeregardingthismostimportantfunction.
CommitteeMembersThekeycriterionformembershiponaDCisnottechnicalknowledgeoftrusts,thoughcertainlysuchknowledgecanhelpinthebackground.Instead,theDCshouldbemadeupofoneormoreindividualswhohavethewisdomtoaskthekindsofquestionsthatbroadenaconversation.Thesearequestionsdesignedtoleadtocreativeperspectivesandeitherconvergentordivergentthinking,asappropriate.
AsecondcharacteristicthatshouldbecommontoDCmembersistheskilltolistendeeplybeforeresponding.
Athirdcharacteristicisself-awarenessandemotionalintelligence.
ServingontheDCwouldbeagreatroleforyourmosttrustedadviseroratrustedfriend,orforafamilymemberwhounderstandstheconflictinherentinthedualrolesoffamilymemberandcommitteemember.
Thesesamequalitiesmaylook,tomanyreaders,astheidealqualitiesforanindividualtrustee.Buttherealityisthatapersonhavingthesecharacteristicsoftenwilldeclinetoserveastrusteeforanyoneofanumberofreasons.Sometimesit'sthetimecommitment.Sometimesit'salackofknowledgeorskillsassociatedwithperformanceofthetrustee'sresponsibilities.Sometimesit'saconcernwiththepotentialliabilityfacedbytrustees.
Ifthecommitteeisstructuredaspurelyadvisorywithoutresponsibilityformakingfinaldecisions,membersshouldnotfacefiduciaryliability.Thefinaldecisionaboutdistributionslieswiththetrustee.Thisisacrucialpoint.TheDCisaresourceforthe
trusteetofulfillthedistributivefunctionwiselyandwell.Theabilitytrulytobringthedistributivefunctiontolife,withoutincurringfiduciaryliability,makestheDCaveryattractiveplaceforafamily'smosttrustedleaders,friends,orcounselors.
TheDCcouldstartoutasacommitteeofone;itmayincludeseveralmembers.Itcouldevenbecomposedofofficersfromacompanythatthetrusteehiresbecausetheypossesstherequisitepsychologicalandtrustscapeknowledgedescribedabove.
DraftingPointsWewanttosharesomeguidancetopotentialdraftersbasedonwhatwehaveseenworkwellinourpractice.Thefollowingcommentsarenotmeanttoconstitutelegaladvice,norshouldtheytaketheplaceofcompetentcounsel'srecommendationstoyoubasedonknowledgeofyourfamily'sparticularcircumstances.
Ideally,theformationoftheDCisauthorizedwithinthetrustdocument.Thatway,therewillbenoquestionthatthetrusteecanshareinformationwiththeDCandcompensatemembersoftheDCfortheirwork.
AnotherreasonforincludingtheDCinthedocumentistoconnecttheworkoftheDCwithlanguagethatspecifiestheoverallintentofthetrust.Forexample,werecommendthattrustcreatorsbegintheirtrustswithsuchlanguageas,“Thistrustisagiftoflove.Itexiststoenhancethelivesofthebeneficiaries.”ThislanguageprovidesthetrusteeandDCtheauthoritytobegenerousandventuresomeinmakingdistributionstoenhancebeneficiaries'lives(ratherthantosubsidizethemwith“safe”annuities).
Finally,includingtheDCinthetrustdocumentclarifiesthattheDCexistsforthelifeofthetrust.Aslongasthetrusthasadistributivefunction,thetrusteeshouldhaveaccesstoaDC.
IfanexistingtrustdoesnotincludetheDCrole,itmaybepossibletouseasettlement,reformation,decanting,orevenabroadlyempoweredtrustprotectortoaddaDCtothetrustinstrument.(Formoreonmakingchangestoexistingtrusts,seeChapter17.)ItisalsopossiblethatatrusteemaywanttoconveneaDConhisorherowninitiative.Again,thetrusteeisnotcedingtotheDCanyofhisorherfiduciaryresponsibility.
Thetrusteemaynothaveoccasiontoevaluatediscretionarydistributionrequestsformanyyears,sothenamesofthemembersoftheDCdonothavetobespecifiedinthetrust.Asthetimeformakingdistributionsapproaches,thetrustdocumentmaygivethetrustcreator,thetrustee,oranindependentthirdpartytheauthoritytoappointmemberstotheDC.Wesuggestthatthisbedoneinconsultationwiththeprimarybeneficiaryorbeneficiaries,astheDCworksforthetrustee,butitsgoalistogettoknowthebeneficiaries.
OncetheDCisupandrunning,itiscustomaryforeachmembertonominatehisor
hersuccessor,again,inconsultationwiththetrusteeandtheprimarybeneficiaryorbeneficiaries.ForthecoherenceoftheDC,authoritytoapproveappointmentofanomineerestswiththeexistingmembers.IftheexistingmembersoftheDCfailtoapproveanominatedsuccessor,thentheauthoritytoappointasuccessorrevertstothetrusteeinconsultationwiththeprimarybeneficiary,andthetrustee'sappointmentthereafterisfinal.
ThetrusteeisgiventhepowertoremoveamemberoftheDCattherequestofaprimarybeneficiary,orattherequestoftheothermembersoftheDC.
ItmaytaketimeformembersoftheDCtogettoknowabeneficiary;wefindthat5-yeartermsprovidecontinuityandstability.Atthesametime,changesinthelivesoftheCommitteemembersandinthebeneficiary'sownlifemakeitwisetolimitthetermsofeachmembertotwo(atotalof10years).Itisalsowisetorequirememberstoageoutat70.ItisnotunusualforDCstoincludedifferentmembersatdifferentstagesofthebeneficiary'slife.TheDCshouldevolvealongsidethebeneficiary'sownevolutionanddevelopment.
WerecommendthattheDCreceiveaformalreviewatleasteverythreeyearsfromapanelmadeupofthetrustee,thetrustprotector(ifthereisone),andtheprimarybeneficiaries.Thisreviewcanbepartofanoverallreviewbytheprotectorofthehealthofthetrustee-beneficiaryrelationshiporitsown,stand-aloneactivity.Suchareviewisahelpfulfoundationforthetrustprotector'sjudicial/mediativefunctioninthesystem.
OnecanimagineascenarioinwhichatrusteeconsistentlyignoresorrejectstheadviceofaDC.SincetheDCisstrictlyadvisory,itwouldnothavethepowertooverrulethetrustee.Thisiswhere,inourmodel(describedinChapters19–21),thejudicialfunctionofthetrustprotectorbecomesimportant.IfthetrusteeisignoringtherecommendationsthattheDChasdevelopedthroughitsconversationswiththeprimarybeneficiaries,thenitislikelythatabreakdownhasalsooccurredbetweenthetrusteeandthebeneficiaries.Thiswouldbethetimeforthebeneficiariesto“turnon”thetrustprotectortoinvestigatethesituationand,ifnecessary,removethetrustee.
Inourmodel,thetrustprotectorwillalsoseektogettoknowthebeneficiary,understandhisorherdistributionrequests,andtalksuchrequestsoverwiththetrustee.However,whilethequalitiesdesiredinaDCareverysimilartothequalitiesthatyoumightlookforinatrustprotectorinthemodelthatweadvocate,thetworolesshouldnotbecombined.Thetrustprotectorwillhaveasingle,clearlydefinedjudiciaryrole.
IfitturnsoutthataDCsimplycannotbeorganized,thenitmaymakesenseforsimilarfunctionstotheDC'storestinanOfficeoftheBeneficiary(asdescribedinChapters19–21).TheOTBcanbestaffedwiththesamepeopleorsimilaronesaswouldstaffaDC.ThebeneficiarycanalsoaskthetrusteetoworkwiththeOTBon
allissuesrelatedtodiscretionarydistributions.
APPENDIX4PRIVATETRUSTCOMPANIES
Forsomefamilies,thedesiretocontroltheirwealthmanagementandtoensurethattheirwealthplaysapositiveroleinthefamily'slifeextendsbeyondtheuseofindividualtrusts.Forsuchfamilies,aprivatetrustcompany(PTC)mightbeanappropriatetool.ThisappendixwillshareanoutlineofwhataPTCis,itsmajorelementsandfunctions,andsomepossibleusesofPTCs.Aswithtruststhemselves,aPTCisacomplicatedstructurewhoseformandfunctionwilldependverymuchonitsjurisdictionandthespecificsofitsoperatingagreement.PleaseconsultlegalcounselwithexpertiseinPTCsformoreonhowtoadaptsuchatooltoyourfamily'scircumstances.
DefinitionsAsthenameimplies,aPTCisacompanyratherthanatrust.Itspurposeistoserveastrusteeforafamily'strusts,therebyreplacingorsupplementingindividualtrusteesorotherinstitutionaltrustees.The“private”initsnameimpliesthatthecompanyexistsforthesakeoftrusteeingaspecificfamily'strustsandthatitis(mostlikely)ownedbythatsamefamily.Itisthusdistinguishedfromothercommercialtrustcompaniesthatservemanyfamiliesandthataremosttypicallyownedbyavarietyofstakeholdersorshareholders.
Likeanyotherbusiness,aPTCmustregisterforoperationsinastatethatallowsPTCs.SeveralstateshavemadelawsthatgoverntheprocessofapplyingforachartertocreateaPTCinthosestates.Thedetailsoftheprocessdependonthestate.ItusuallyinvolvesensuringthatthePTCwillhaveatleastonemanagerwhoisaresidentofthestate.ItgenerallyalsorequiresthattheapprovedPTCholdsuretyofseveralmilliondollarstoprotectclientsandotherstakeholdersinthecaseofasignificantlossordamage.PTCsfaceadditionalregulations,heavyorlight,dependingonthestateinwhichtheyarecreated,includingregulationsaroundreportingontheirfinancesandbusinessactivitiestotheappropriatestateoffices.APTCmayalsohavefederalsecuritiesorbankingreportingrequirements,dependingonitsoperations.
Inshort,thoughprivateandfocusedonthewell-beingofasinglefamily,aPTCisabusinessoperatingwithinthehighlycomplicatedandregulatedworldoffinance.Itneedstobemanagedasabusinesswithappropriatecounselandoversightifitistoachieveitsdesiredobjectives.
PTCsversusIndividualTrustees
FamiliesmostoftendecidetosetupaPTCforthesakeofcontrol:aPTCallowsafamilytoreplaceindividualtrusteeswithaninstitutionaltrustee—thePTC—thattheyfounded,own,andcontrol.ThePTCbecomesthefamily's“go-to”trustee,andthefamily'strustsbecomethePTC's“trustclients.”
ThespecificreasonsfamiliesmaychooseaPTCoverindividualtrusteesarevarious:
1. Itisextremelydifficulttofindindividualtrusteeswhoaredeeplytrustedanddeeplyknowledgeableaboutafamilyanditsvaluesandethos.
2. Oncefound,individualtrusteeshavelimitedlifespans—theycanbecomediminishedorotherwiseincapacitated,andtheydie.
3. Whenatrusteeisremovedordies,thesearchforanewtrusteebeginsanew.Thenthenewtrusteemustbeeducatedaboutthetrustsandthefamily,whichtakestimeandoftendilutesthestrengthofthefamilyconnectionenjoyedwiththeprevioustrustee.
4. MostfamilieswhochoosetouseaPTChavemany,manytruststotrustee.APTCcantakeadvantageoftheeconomiesofscaleinoverseeingdozensorevenhundredsoftrustsinawaythatnoindividualcan,nomatterhoworganized.
5. Individualtrusteesarealsoexposedtolitigationbyunhappybeneficiaries.Manyindividuals—particularlythosemostqualifiedbylongexperienceandbusinesssuccess—arereluctanttoserveastrusteesforjustthisreason.
6. Individualtrusteescanbestronglyswayedbythepleasofabeneficiary,evenabeneficiarywhoismisdirectedabouthisorherowngood.
Incontrast,PTCsdon'tdieorbecomedisabled.AfamilywithaPTCdoesneedtofindtrustedindividualstoserveasmanagersofthePTC.Butwhenonemanagerleavesandanewmanagerisintroduced,thePTCitselfretainsthe“institutionalmemory”thatensuresasmoothtransition.PTCs'limitedliabilitystatusshieldstheirownersandtheirmanagersfromtheliabilityoflawsuitsallegingbreachoffiduciarydutyfrombeneficiaries(exceptincasesoffraudorwillfulnegligence).SincePTCsaregovernedbyaboardofmanagersindependentofthefamily,theyarelesslikelytobeswayedbythepersonalagendasofmisdirectedanddisconnectedbeneficiaries.
ThelegalstatusofaPTCanditsmanagersunderscoresthislastpoint.Individualtrusteesaresubjecttoawholerangeofemotionalresponsesthatcancloudtheirjudgment.Itsseparatestructural,legalexistenceallowsthePTC,asanentity,tofunctionwithoutemotion.Further,individualtrusteeshaveafiduciarydutytothebeneficiariesofthetruststheytrustee:thisdutyisthesourceoftheindividualtrustees'liabilityandhencethefeartheymayhaveaboutlawsuitsfromunhappybeneficiaries.Incontrast,whileaPTC(astrustee)hasafiduciarydutytothebeneficiariesofthetrustsofwhichitisthetrustee,theindividualswhoserveasmanagersofaPTCdonothavesuchaduty.TheirfiduciarydutyistothePTCitself.
Assuch,themanagersofaPTChavelittleornoliabilitywithrespecttobeneficiariesand,hence,arelesslikelytoactoutoffearofsuchliability.True,angrybeneficiariesmaysuethePTCitself.Butitlikelyhaslittleinthewayofassetsthatwouldbesubjecttoadjudicationinsuchasuit.
Asmentioned,aPTCisaninstitutionaltrustee.Butthatdoesnotmeanthatithastoserveallthefunctionsoftrusteealone.APTCmaychoosetopartnerwitha(commercial)institutionaltrusteethatisdirectedtohandletheadministrativefunctionsoftrustee.ThePTCthencanfocusoninvestmentmanagementandthedistributivefunction.Thiskindofpartnershipcannicelyalloweachinstitutionalco-trusteetodotheworkitdoesbest.
GovernanceAPTCisgovernedbyaboardofmanagersthatcanincludefamilymembersaswellasindividualsindependentofthefamily(thatis,whoarenotcloserelativesorotherwisesubjecttocontrolbythefamily).ThemanagersoverseeallthevariousfiduciaryfunctionsofthePTC,includingtheacceptance,management,orterminationofthePTC'strust“clients.”Theindependentmanagers(notthefamilymanagers,ifany)alsohaveauthorityandresponsibilitywithrespecttothegovernanceofthePTC,thegovernanceofentitiesownedbythePTC'strustclients,and,veryimportantly,discretionarydistributionsfromtrustclients.TheabilitytoselecttheboardofmanagersisoneofthemainreasonsthatafamilymaychooseaPTCoverotherinstitutionaltrustees.Inparticular,thisfreedomallowsthefamilytoappointmanagerswhohaveadiversityofspecializedskillsandknowledge,includingexpertiseinthequalitativeaspectsoftrustrelationships.
Oneofthemainquestionsanybeneficiaryislikelytoaskis,“WhodecideswhetherornotIgetadistribution?”Exceptinthecaseoffullymandatorydistributions,theanswerinthecaseofaPTCwouldbetheindependentmanagersofthePTC.
Asacompany,aPTCitselfhasanowner.InthecaseofmostPTCs,thatownerisatrustwhosesolepurposeistoownthePTC.Thetrusteeofthis“ownertrust”would,astheownerofitsPTC,havethepowertoappointandremovethePTC'smanagers.Asaresult,thattrusteeholdsaveryimportantpositioninthePTC-familysystem.Inaddition,thetrusteeofthe“ownertrust”usuallyhasthepowertoappointhisorhersuccessor,therebyensuringthetransferofcontrolandgovernancefromonegenerationtothenext.
Becauseofthisclearcorporateownershipstructure,aPTCoffersfamiliesthebenefitoftransparencyintheirgovernance.Asfamiliesgrowandtheirbusinessesortrustsbecomemorecomplicated,itisoftenhardtoknowwhodecideswhatandhow.APTCdoesnoteliminatethepossibilityofdisagreementsthatmightobstructdecisions.Butifstructuredcarefully,itwouldhelpensurethatallinterestedparties—beneficiaries,officersofthePTC,managersofthePTC,andthetrusteeofthe
“ownertrust”—understandtheprocessfordecisionmakingandknowwhothedecisionmakersare.
BestPracticesAgain,asabusiness,aPTCneedstoberuninabusiness-likefashion,includingwithproperaccountingandfinancialsafeguardsandwithcloseattentiontotaxandinvestmentlaws,rules,andregulations.ThemanagersofthePTCneedtounderstandthetraditionaldutiesofatrusteeandbeabletoexerciseindependentdiscretion(iftheyareoverseeingdistributions).Wearenotgoingtodwellonthesematters,whicharecommontoeveryfinancialbusiness,butratherwehopetosharesomebestpracticesthatwehaveseenfamiliesuseeffectivelywithPTCsinparticular,toensurethattheyplayapositiveroleinfamilies'livesovergenerations.
First,becauseaPTChasmanystakeholders,onebestpracticeistoholdanannualorbiennialmeetingofthebeneficiariesofthePTC'strustclients,managersofthePTC,andtrustee(s)ofthe“ownertrust.”Thepurposeofthismeetingwouldbeforthemanagersandownerstosharesomeunderstandingoftheirworkintheprioryearandtoaskthebeneficiariesandotherfamilymembersfortheirquestions,concerns,andthoughtsonhowthePTCcouldbemadeevenmoreeffective.Inturn,themeetingwouldalsobeanoccasionforthebeneficiariesandotherfamilymemberstoaffirmthemanagers'workintheprioryear.Becauseofitsformalstructure,itiseasyforthemanagersofthePTCandthebeneficiariesoftheclienttruststobecomedisengagedfromeachother.Thisdisengagementcanbreedsuspicioninbeneficiariesandcansaptheenergyofthemanagers.Holdingthistypeofannualorbiennialmeetingcankeepbeneficiariesinformedandmanagersenergized.
Asecondhelpfulpracticeistocapturethefamily'svaluesandethosinwaysthattheindependentmanagersofthePTCcanusethisinformationwhenmakingimportantdecisions,includingdecisionsaboutdiscretionarydistributions.Often,thefamily'sownhistorycanbearichresourcefromwhichtodrawanunderstandingofitsvaluesandethos.WhenmanagersofthePTCunderstandthathistory,theycanapplythosevaluesintheirdecisions,alongwiththeirowngoodjudgmentandexperience.Intheappendix,wedescribeaprocessbywhichafamilycancaptureitshistoryandphilosophyinjustsuchaform,inatoolwecallaFamilyTrustReview(whichwedescribeatmorelengthinAppendix5).Whateverformworksbest—aFamilyTrustReview,aletterofintentionsorwishesfromthecreatorofthewealth,an“ethicalwill”orvideotestament—itisimportanttomakesurethatfamily'svaluesandethosfindtheirwayintothegovernanceandmanagementstructureofthePTC.
Third,itiscrucialnottoignoretheroleoftheownertrust'strustee,whichgovernsalltherestofthePTC.GiventherightsandresponsibilitiesofthetrusteeofthetrustthatwillownthePTC,thatindividual(orgroupofindividuals)wouldlikelyserveasthefamilyleaderineachgeneration.Asabestpractice,familieswithaPTCshouldmake
surethattheownertrusteeissteepedintheethosandvaluesofthefamilyandshouldunderstanditshistory.Insomefamilies,astimegoeson,fewifanyfamilymembersserveasmanagersofthePTC;instead,familymemberstakeresponsibilityattheleveloftheownertrust.
Fourth,andbuildinguponthelastpoint,eventhemostsoundlyconstructedPTCwillnotfunctionwellifagreatmajorityoffamilymembersfeeldisconnectedfromitsoperationsanddecisions.Thatiswhytheannualorbiennialmeetingisthefirstbestpracticewedescribed.Tobuildonthatpractice,itisalsoimportanttomakesurethatfamilymembersarenotonlyknowledgeablebutalsoengaged.AkeystepinpromotingengagementistoinvitefamilymembersintotheprocessofarticulatingthemissionorvisionofthePTC.Thisisnotsomethingthatneedstohappeneveryyearoreveneveryfewyears.Buteverygeneration,atleast,shouldhavethesensethatithasaddeditsvoicetothePTC'smissionorvision.Liketheproverbialreed,whichcanbendwiththewindwhileasturdyoaksnapsinhalf,aPTCshouldbeflexibleenoughtoadapttothenewviewsandattitudesofeachgenerationratherthanrigidlysuppressingnewideasuntillitigationarises.
Fifth,andinthesamespiritasthefourthbestpractice,awiselymanagedPTCwillserveasthelocusforfamilyeducationgenerally,asitcanservetodesignandpromoteafamilyeducationalprogram.Afamilywealtheducationalprogramcancovermanyareas,including:
Thepurposes,governance,andmanagementofthePTC.
ThedifferencesbetweenthefamilyandthePTC,includingtheexpectationsfortheperformanceandcompensationofmanagers,includingfamilymemberswhoaremanagers.
Sixthandfinally,thecreationofaPTCcouldallowfortheintroductionofapowerfuleducationagentintothesystem,namely,theOfficeoftheBeneficiary.WehavedescribedtheOfficeoftheBeneficiary—alongwiththeDistributionCommittee,whichcanveryeffectivelyserveaPTC'sboardofmanagers—indetailinPartFourofthisbook,sowewillnotrepeatthatdescriptionhere.WementionthisOfficeandtheDistributionCommitteebecausetheyfitparticularlyeffectivelywithinthestructureofaPTC.Itisimportanttorememberthateachbeneficiarymustchooseto“activate”(andpayfor)hisorherOTB.ButthePTCcankeeptheplansandresourcesreadyshouldaspecificbeneficiarymakethatchoice.
Asanaside,withaPTCinplaceitmayseemunnecessarytohaveatrustprotectorservinginthejudicialrolethatwedescribedinChapter21.Afterall,thePTCiscontrolledbythefamily,andpresumablycentraltoitsmissionisthelong-termcultivationoffamilystrength.However,since“thefamily”andsothePTCdonotnecessarilyrepresenteachandeverybeneficiary'sindividualpointofview,wedobelievethatitremainsimportanttohaveawiseandtrustedtrustprotectoravailabletoadjudicatedisputesbetweenabeneficiaryandthePTC.Beneficiaries'voicesmust
beheardiftheyaretoflourish,andthe“judicial”trustprotectoristheultimateprotectionofthosevoices.
Tosummarize,forsomefamilies—usuallywithsignificantbusinessventuresandadesiretoexertcontrolovertrulymultigenerationalwealth—aPTCcanserveasahighlyeffectivetool.Itis,intheend,onlyatool.Thetimethatfamilymembersandindependentmanagersspendondevelopingtheirownunderstandingandabilitytoworktogetherwilldeterminewhetherthattoolservesapositiveandfulfillingfunction.
APPENDIX5FAMILYTRUSTREVIEW
PurposeWiseCounselResearchAssociates'FamilyTrustReviewguidesfamilyleadersindesigningorredesigningcomplextrustsystemsinordertointegratefamilyvaluesandhistoryandtocreateastructurethatwillsupportthefamily'sflourishingfordecadestocome.Itisparticularlyapplicableforfamilieswithmultigenerationaltrusts,familyoffices,and/oraprivatetrustcompany(PTC).
ContentThecontentofaFamilyTrustReviewwillvarybyfamily,butitgenerallyincludesthefollowingcomponents:
Summaryofthefamilyhistory,includingshortbiosoffamilyleaders,pastandpresent.
Historyofthefamilyenterpriseandphilanthropy.
Summaryofprominentfamilyvalues.
Descriptionoftheexistingsystemoftrusts,includingtheirarchitecture,interactions,andcosts.
Recommendationsfortrustsystemdesignandforfamilyeducation.
ProcessTocreateaFamilyTrustReview,ourconsultants:
Interviewfamilyleaders.
Studypublishedandunpublishedaccountsofthehistoryofthefamilyandthefamilyenterprise.
Reviewexistingstructuresanddocuments.
Ourrecommendationsarebasedonourseveraldecadesofexperienceworkingwithfamilieswithsignificantwealthaswellasourongoingresearchintothebestpracticesoffamilyenterprisesthathavesucceededovermultiplegenerations.Wealsodrawrecommendationsfromourbooks,includingFamilyWealth,CycleoftheGift,andVoiceoftheRisingGeneration—allpublishedbyBloombergPress—andTrustWorthy,publishedbyTrustscapeLLC.
WhyCommissionaFamilyTrustReview?AFamilyTrustReviewhelpsenterprisingfamiliesmeetthemajorchallengesthatthreatentheirlong-termsuccess.
Over70percentoffamiliesfailtoretaincontrolovertheirwealthwhentheygothroughagenerationaltransition.Why?
15percentduetopoortaxplanningorlacklusterinvestmentperformance.
25percentduetoinadequateeducationofheirs.
60percentduetopoorfamilycommunicationandconflict.
Conversely,the30percentoffamiliesthatdosucceedinmaintainingfamilycontroloverthewealth:
Committomanagingwealthasafamilyenterprise.
Integratethewishesofindividualfamilymembersintoafamilymission-statementtoguidedecisionmaking.
Educatefamilymembersintheskillsimportanttomaintainingfamilyunity.1
ThesefindingsarecorroboratedbyrecentresearchthatwehaveconductedatWiseCounselResearch,focusedonfamiliesthathavesucceededinpreservinglarge-scalefamilyenterprisesthroughatleasttwogenerationaltransitions.Thefollowingpracticescontributetothesefamilies'success:
Identifyingasharedsenseofpurposeandvalues.
Buildingfamilycommunityacrossgenerations.
Professionallymanagingbusinessandfinancialactivities.
Continuallyadaptingtonewcircumstancingandbuildingresilience.
Freelychoosingtoremainpartnersinbusiness.
Activelydevelopingfamilymembers'skillsandknowledge.
Sharingacommitmenttogivebackandcreateafamilylegacy.
Bycombiningfamilyhistoryandvalueswithathoughtfuldesignofafamily'strustsystem,theFamilyTrustReviewmarriesculturewithstructure.
OpportunitiesforCommissioningaFamilyTrustReviewThereareseveralreasonsthatcanpromptthecommissioningofaFamilyTrustReview:
Toreviewexistingtruststructuresaspartofagenerationaltransition.
Toeducatetrustees,beneficiaries,andmanagersofPTCsorfamilyoffices.
Toprepareforatransitioninfamilyortrustleadership.
Toprepareforaneventualtrustterminationorsignificantdistributionofprincipal.
Toguidetrustdecantingorreformationortoredesignthearchitectureofcomplexandcostlytrustsystems.
ToinformthecreationofnewtrustsoraPTC.
Note
1.ThesefindingsareadaptedfromRoyWilliamsandVicPreisser,PreparingHeirs(SanFrancisco,CA:RobertReed,2003).
APPENDIX6REFLECTIONSONTHEOFTENUNEXPECTEDCONSEQUENCESOFTHECREATIONOFAPERPETUALTRUST1
ByJamesE.HughesJr.,Esq.
Duringthepast30years,manyattorneysandfinancialplannersintheUnitedStateshaverecommendedthattheirclientscreateperpetualtrusts.Thesetrustsarefrequentlyreferredtoasdynastytrusts.Whilethereareanumberofindividualandfamilyreasonsthatmightpropelanindividualtocreatesuchatrust,inlargemeasurethemotivatingfactorhasbeentoavoidthefederalgeneration-skippingtaxontheassetsoftrustsforlaterfamilygenerations.Spurredbythismethodoftaxavoidance,acottageindustryinperpetualtrustshascomeintobeing.Ithasnowreachedsufficientscalethatanumberofstatesinterestedincompetingforthistrustbusinesshaveeliminatedtheirrulesagainstperpetuities2topermitthecreationofperpetualtrustswithintheirboundaries.Indoingsotheyjoinedanumberofstatesthathadneveradoptedthis“rule.”Thesenewstatutesareoverturningsome300-plusyearsofstatutesandcommonlawprecedentsinEnglandandAmericafoundedontheprinciplethattrustsforindividuals,asopposedtocharities,shouldnotbepermittedtolastindefinitely.Itismyobservationthatthisemphasisontaxsavingasthemotiveforthecreationofperpetualtrustsandtheresultingchangesinstatutoryandprecedentiallawtomeetthismotivehavefrequentlyobscuredcriticalthinkingbyplannersandtrustfoundersonhowthelivesofthebeneficiarieslivingwithinsuchtrustswillbeaffectedbytheirexistenceandofhowsocietyasawholemayviewtheexistenceofsuchtrusts.Inthisreflection,Iwillendeavortobringtolighttheseissuessothatplannersandfoundersmayconsiderthemindetermininghowtheperpetualtruststheyareintendingtocreatewillbeofthegreatestbenefittotheindividualsforwhomthetrustsarebeingcreated.
Beforemovingtothespecificissuesofhowaperpetualtrustaffectsthelifeofitsbeneficiaries,Ibelieveareviewofthehistoryofperpetualtrustswillbehelpful.Thetrust,asweknowit,evolvedinEnglandandontheEuropeancontinent,particularlyinFrance,outoftheRomanideaof“use.”Thisisthelegalconceptthatprovidesthatapersonmayhavetheuseofathing,orres,foraperiodoftimewithoutalsohavingtheunderlyingownershipofthatthing.ThisideatookrootintheEnglishandFrenchcommonlawsasthetrust,andbythetimeoftheCrusadesitwaswellestablishedinlandtitles.Atthistimethelawmadenodistinctionregardingthetermsoftrusts,thuspermittingtruststolastindefinitelyor,ifyouwill,perpetually.Ratherquickly,thenobilityofEnglandandFrancesawthatbyplacingtheirlandsinperpetualtruststheycould,theoretically,perpetuatetheirclasspositionindefinitely.It,therefore,became
commonthatmuchofEngland'sandFrance'slandfounditswayintoperpetualtrusts.3
Unfortunatelyfortheeconomiesofthecountrieswherethissystemdevelopedthereweretwounintendedconsequences.First,thelandintrustcouldoftennotbealienatedeventhoughthenoblefamilyhadneedofmoneyorinsomecaseshaddisappeared.Second,suchlandswereoftenpoorlyadministered,astheyhadnoownerwhocaredabouttheirimprovementsinceheorshewouldneverownthemoutright.Manybeneficiariesofthelifeinterestsinthetrustssoughttoreceivethemaximumannualreturnpossiblewithoutregardtosuchapolicy'slong-termeffectontheland'sproductivity.TheresultoftheseunintendedconsequenceswasthataportionofEngland'sandFrance'swealthwasseenbyitsrisingcommercialclassestobewasted.Equally,thosewhohadmoneyandthecreativityoftheentrepreneurwerefrustratedastheycouldnotbuyandimprovethisland,thusfurtherexacerbatingtheperceivednegativeaffectoftheperpetualtrustontheeconomy.Inaddition,thesuspensionofvestingofproperty,asaresultofperpetualtrusts,oftenledtocertainmembersorevenwholegenerationsofnoblefamiliesbecoming“trustfunders”andfallingintothesamelassitudeorremittanceaddictionasweoftenseetodayinsomeofthethird-andfourth-generationmembersofthegreatfamiliesofnineteenth-centuryIndustrialAmerica.Oftenthen,asnow,thecauseofthislassituderesultedfromthefactthatnomemberofthat“noble”familyeverownedorwouldownthecapitallockedupinthetrustfromwhichtheyreceivedtheirmonthlystipends,norwouldanyfamilymembereverberequiredtolearntomanagetheseassets.Infact,workincommerceofanykindwasseenasbeneaththedignityofsuchpersonages.TheresultoftheseperpetualtrustsinEnglandwasthatbytheendoftheseventeenthcentury,theperpetualtrustcametobeseenbylawyers,merchants,andeconomistsasasubstantialdragoncommerce(sincesomuchlandcouldnotbepurchasedorsold)andasanabuseoftheoriginalideaoftrust,that,aperiodofsuspensionofownershipwhileanother“used”somethingcouldbebeneficialtocommerce.TheresultoftheseconcernswastheadoptioninEngland,inthelate1600s,oftheruleagainstperpetuities.Atthetimethis“rule,”firstbycaselawandthenbystatute,wasadopted,lawyers,judges,economists,andparliamentarians,therefore,sawitasagreatreform.
ThehistoryoftheperpetualtrustinFranceisalsoinstructional.Francehad,historically,awell-understoodperpetualtrustprovision.However,untilitsrevolutionin1789,FrancemadenosuchreformastheEnglishmadewiththeirruleagainstperpetuities.InFrancetheabsenceofsuchareformandtheresultingrestrictiononthegrowthofFrance'seconomy,causedbytheinabilitytopurchaseandsellland,slowedthecountry'sdevelopmentasamoderneconomy.Theperceivedabuseoftheeconomy,throughtheuseoftheperpetualtrustbythenobility,wasseenbyNapoleonandthejuristswhoadvisedhimtobesoseriousthatin1805intheCodeNapoleonheeliminatedthetrustaltogetherinFrance.Today,anumberofFrenchlawyersareattemptingtoreintroducethetrustthroughalegalentitycalledthe“fiducie,”asthey
feelthelackofthisvehiclehasheldbacktheirclients'abilitytoproperlyplantheirestates.However,noneoftheadvocatesofthe“fiducie”aresuggestingthatsuchanentitybeperpetual.
Sowhatcanwesayhistoricallyaboutperpetualtrusts?Wecansaythatatleastatonetimeintheevolutionofthelawoftrusts,theperpetualtrustexisted,hadahistorythatwecanstudy,andthatthathistoryshowsthatsuchtrustswereperceivedbytheirrespectivesocietiestohavehadasignificantnegativeimpactonthemarketplaceandtohaveperpetuatedanonproductiveclassofpeople.Astothefirstofsociety'sobjectionstotheperpetualtrust,thereisnodoubtaboutsuchtrusts'historicallynegativeimpactonlandsalesandacquisitions.4Astothesecond,thehistoriesofFranceandRussiahavenotbeenkindtoaclassofpeoplewhosocietyperceivesasneverneedingtoearntheirownlivings,and,particularlyunkindtothosewhoenjoysuchastatusjustbecauseanancestorwhotheyoftenneverevenknow,butfromwhomtheyhappentohaveluckilydescended,createdaperpetualtrustforhisorherdescendants.
AsImovetowardadiscussionofthesupposedlynewideaofaperpetualtrust,IamremindedoftheextremelywiseadmonitionbyGeorgeSantayanathat“thosewhocannotrememberthepastarecondemnedtorepeatit.”Iwonderhowmanyofthemultitudeoffinancialplannerswhogliblyadvertise“dynasty”trustsasaproductandrushthemofftheshelftosolveataxproblemhavestudiedandknowthehistoryofthe“first”chapterinthelifeoftheperpetualtrustasdiscussedabove?Iwonderhowmanyofthemunderstandthatmanyprevioussocietieshavefoundthecreationofaperpetualleisureclassunacceptable?Itisnotmypurposeinthisarticletoofferanopiniononthesequestionsbutrathertoraisethemsothatwe,asplanners,canmeetthiswiseman'sadmonitionabout“rememberingthepast”andformathoughtfulviewaboutthem.Ifwedoso,Ibelievethatwecanbestadviseourclientsonthepossibleoutcomesoftheplanstheyarecreating.
Turningnowtotheissuesaffectingthelifeofabeneficiaryofaperpetualtrust,let'sfirstlookatthreeissuesthatwouldnotnormallybefirstthoughtsinthemindsoftaxplannersbutareoftenthefirstthoughtsofcaringprofessionalsconcernedaboutthelong-termeffectsoftheiractionsonthelivesoftheirclients;onthefamiliesofwhichtheyareapart;andonthesystemswithinwhichtheyliveandoperate:Heisenberg'slawofunintendedorunexpectedconsequences;theinterestofsocietyintheoutcomesoftheindividualdecisionsofitsmembersandsociety'sabilitytoimpactthesedecisions;andtheSecondLawofThermodynamics,thelawofentropy.WernerHeisenbergsuggestedthatmodernphysicsinformsusthatthereareoftenunintendedorunexpectedconsequencesofactstheuniverseperforms.Increasingly,moderneconomists,socialscientists,andpsychologistsareseeingthissamerealityintheirfieldsandapplyingHeisenberg'sprincipletothem.TheancientGreeksunderstoodthisrealitylongbeforeHeisenbergandhismoderndisciplesandexpresseditwhentheywerepreparingyoungmenandwomentoentertheserviceprofessionsbyadmonishingthemto“donoharm.”TheancientGreeksrecognized
thatrushingtodogoodbeforeunderstandingthewholesystemandalltheissueswithinitthatrelatetotheproblemattemptingtobesolvedoftenledtodoingmoreharmthangood.IwouldsynthesizeHeisenbergandtheGreeks,then,bysuggestingthat,asthereareoftenunintendedorunexpectedconsequencesofwhatwedoandsomeofwhatwedomaydoharm,aswebeginanyplanningproject,webeginwiththerule“firstbesuretodonoharmbeforeyouattempttodogood.”Thisruleisparticularlyapplicabletothecreationofaperpetualtrust.Why?Becausetheplannerismortalandthetrustheorsheiscreatingistheoreticallyimmortal.Certainly,insuchacase,manyquestionsregardingthenaturesandexperiencesofthedescendantsofthetrust'sfounder,andtheenvironmentinwhichtheyandthetrustwillexistwillnotonlynotbeknownordiscernablebythefounderbutwillalsonotbeknownbyordiscernablebytheplanner.Theplannerinassistingthefounderincreatingsuchatrustmustrecognizethatheorshewillbesignificantlyimpactingthelivesofeachofthetrustee'sbeneficiaries,aseachbeneficiaryinturnintegratesthetrust'sexistenceintohisorherown.Iwouldsuggestthatitoughttobeahumblingexperiencefortrustplannersandtrustfounderstoimaginewhatlifemightbelikeforthesebeneficiariesevenjusttwoorthreegenerationsfromthosealivetoday,muchlesstheseventh,eighth,andninthandthosegenerationsthereafter.Perhaps,theadmonitionoftheIroquoiselderstoeachotherastheybeganimportanttribalworkthat“itshouldbeourhopethatthemembersofthetribesevengenerationsfromnowwillhonorusforthecareandthoughtfulnessweexerciseinourdecisionmakingtoday”wouldbehelpfultoplannersandfoundersofperpetualtrustsastheybegintheirwork.Rightly,thecreationofaperpetualtrustaffectingsomanygenerationsofafamilyoughttobedoneandenteredintowithgreathumilityandplentyofpatience.Thethought“hastenslowly”comestomind.
Movingtoplanningforaperpetualtrust'screation,Istronglysuggestthateveryplannercarefullyconsiderallthepossibleimpactsthetrustmayhaveonthelivesofitsbeneficiaries,particularlyitsunintendedconsequences,andbringthosethoughtstotheattentionofthetrust'spotentialfounder.Bysoalertingthetrust'sfoundertheplannerwillbetryingtoeliminatetothegreatestextentpossiblethenegativeimpactthetrustmighthaveonthesebeneficiariesandmeethis/herhighestresponsibilitytothefounderandthebeneficiariesto“donoharm.”Strangely,intherushtogetthetaxworkdoneandto“getthepapersout,”alltoooften,Iobservethatthetrust'simpactonthelivesofitsbeneficiariesisneverdiscussed.Thisfailuretotakethetimetoconsidertheseissuesmaybe,fromthefounder'sstandpoint,andhisorherintentiontobenefitthebeneficiaries,byenhancingtheirlives,thegreatestunintendedmistake.Why?Becauseitmayleadtothecreationofatrustwhichdiminishesthelivesofitsbeneficiaries.Shouldsucharesultoccur,thefounderwouldhavebeendeprivedbythetrust'splanneroftheadviceheorshemostneededinattemptingtoaccomplishhisorherenhancementgoals.
We,asplanners,oweadutytoourclientstobringalltheissuesthatmayimpactaclient'sdecisionstothatclientsothatheorshemaymakethemostinformed
decision.Itismyhopethatwhenoneofourclientsisthinkingofcreatingaperpetualtrustthatitwillbesuchissues:
1. asitspossiblenegativeimpactonitsbeneficiariesbycausingthemtobecome“remittanceaddicted,”and
2. byitsdeprivingthemofachancetodreamandthefreedomtobringtheirdreamstolife,
thatwillbetheissueswewillchosetodiscussmostdeeplywithhimorher.Why?Becausetheyaretheissueswherethegreatestriskofunintendednegativeconsequenceslietothelivesofthebeneficiariesandtotheenhancementgoalsofthetrusts'founder.
Turningtothesecondofmyquestions:society'sinterestinthedecisionsitsindividualmembersmake.AsIexplainedearlier,English,French,andRussiansocietiesatearlierperiodsofhistoryfoundtheperpetualtrustandtheperpetualleisureornon–workingclassitcreatedunacceptable.InAmerica,thatsameanxietyabouttheexistenceofsuchaclassledtotheadoption,inthecolonies,firstbyinheritanceoftheEnglishcommonlawandthenbyindividualstatestatutes,ofrulesagainstperpetuities.Thesestatutesexpressedsociety'sviewthatthesuspensionoftheownershipofpropertyperpetuallywasanunacceptablehindrancetotheeconomyandtothemovementofwealthwithinsocietyasawhole.The“rule”mayalsoexpressaconcerninthesocietyasawholeaboutaperpetuallylandedclassthatdidnotneedtowork.Again,asabove,Ioffernoopiniononthecorrectnessofanyearliersocieties'viewsonthesesubjects.Isimplywishtopointouttoplannersthatthishistoryexists,andinthecaseofFranceandarguablyRussia,helpedleadtorevolutions.Ibelieveitisourdutyasplannerstoadviseourclientsofthesehistoriessothattheymayconsiderallpointsofviewbeforeactingtocreateanentitythat,atothertimesinhistory,certainsocietieshaveseenasunacceptable.Ibelieveitisalsoimportanttoconsiderthatnosocietyknowntohistoryhaseveracceptedwithinitsmidstaperpetuallyleisuredornon–workingclass.Imustsay,asahistorianandamateursociologist,IcringewhenIseethosemasterfulstatisticalanalysescreatedbytrustplannersprojectingtheenormousbuildupsofwealthwithintheseperpetualtrustentities,alldesignedtoencouragepotentialtrustfounderstogetonwithbuyingsuchaproductfromtheplanner.Iwonderwhethertheplanneriscurryingfavorwiththefounder'segobysuggestingthecreationofsuchamonumenttothefounderallthewhiledisguisingthisfactbysuggestinghowhappythebeneficiarieswillbe?5Inanyevent,thehistoryoftheevolutionofmodernhumansocietiesandtheirchildren,theculturesandcivilizationsformedwithinthem,showsthatsocietyhasneverpermittedsuch“monuments”tolastverylong,allasreflectedinthehistoryoftheriseandfalloffamiliesanddynastiesandinpoetry;remember“Ozymandias”?Isuggestthatsociety,likebiology,seekscreationandchangetomeetnewcircumstancesandtoallownewformsofcommunitytoarise,asHeraclitussaid,“Everythingisinflux.”Iwouldsuggestthatsocietydislikestheprofoundorderfoundinmonuments.Giventhis
history,Iwouldsuggestthatsociety'sconcernshavetobetakenintoaccountinguidingfoundersonthelong-termlikelihoodthattheirplannersprojectedmonumentalfinancialresultswillturnouttobetrue.Finally,Icautionmanyreadersofthispiecewhoarenowjustbeginningtoimaginelifewithoutfederalestatetaxationandfederalgeneration-skippingtaxationtoconsiderhowlikelyitisthatAmericansocietywillbringbothofthesetaxesbackifitperceivesthattheyareneededasawaytoavoidaperpetualleisureornon–workingclass.Comingagaintothelawofunintendedconsequences,arewe,asplanners,re-creatingtheenvironmentwithinAmericansocietyforthereenactmentofthefederalestatetaxandgeneration-skippingtaxsometimeinthefuturebythecreationofperpetualtrusts?
Finally,thethirdissue,theSecondLawofThermodynamics,thelawofentropy.Thislawofphysicsremindsusthateverythingthatismaterialwillovertimebewornawaybyentropy.Physicsteachesthatenergyformsmateriality,andmaterialitythroughtheactionofentropydematerializesbacktoenergy.Iamnotaphysicist,andIapologizetothereaderswhoareforthisparaphraseofthisdeeplycomplicatedconcept;however,Ihopetheywillacceptitassufficientforothernonphysiciststoappreciatewhatentropyisandhowentropyworks.Whatdoesthelawofentropyhavetodowithperpetualtrusts?Isuggesteverythingsinceitsuggeststhatanythingmanmadethatwebelieveisperpetualisanillusion,amirage,orwhateverothertermforfalsevisionyoumayprefer.Thislawofphysicsteachesusthatnothingisperpetualexceptperhapsthenever-endingprocessofenergyinflux,ordertochaostoordertochaosindefinitely.Whileitmaybehearteningtotrustfounderstothinktheyareperpetuallyendowingtheenhancementofthelivesoftheirdescendants,Istronglysuggestthattheybedisabusedofsuchanideabyaquickdoseoftheantitoxintothesedreams,thelawofentropy.Plannerswhopandertothehubrisoftheirclientsbysuggestingthecreationofaperpetualtrustasamonumentthatwillendureforeverarepanderingtotheirclients'worstinstincts.Rather,bringingthelawofentropyintotheconversationbringsbothplannerandfounderbacktohumilityandtheawarenessthatintheirworktogethertowardthecreationofalegalentitythatwillimpactothers'lives,andparticularlyaperpetualtrustwithitsintendedextendedperiodoflife,theymustbesuretheywilldonoharmbeforetheytrytodogood.
Icannoturgemorestronglythatplannersbringbeforeanddiscusswithpotentialfoundersofperpetualtruststhesethreeimportantrealities:
1. Therewillbeunintendedconsequencesofthisperpetualtrust,sohaveweconsideredasmanypossibleoutcomesofthecreationofthistrustaswecanimagine,withourgreatestfocusbeingonthosethatmaydecreaseratherthanthosethatincreasethepursuitsofindividualhappinessofthebeneficiariesofthetrust?Haveweusedtheseventh-generationwisdomoftheIroquois?Havewehastenedslowly?Haveweasked:“Whatharmwillwedobeforewetrytodogood”?
2. Societywillhaveaviewaboutandanimpactonthisperpetualtrust,so:Havewe
consideredwhatsociety'sviewandimpactmightbe,andhaveweconsidereditnotjustfromtheviewpointthatsocietyisadversetowhatwemayfirstperceiveasourgoalofhavingatrustlastperpetuallybutthatperhapssocietymayhaveavalidpointofviewthatmightcauseustomodifyhowwegoforward?Haveweatleastconsideredthatsocietyasasystemwillinsomewayimpactandevenconstrainourgoalsofhavingatrustlastperpetually?
3. Thelawofentropyisaliveandwellandinformsusthatnothingmaterialisforeverso:Havewebroughtthislawofphysicsintoourconsciousnessasweplanandhaveweimaginedhowitwillimpactthelifeandoperationoftheperpetualtrust?
Arguably,mostoftheimpactsofthethreecorequestionssetoutaboveappeartobeexternalforcesbearingonthefounder'sdecisionsregardingtheperpetualtrust.Iwouldargue,however,thatthemostsignificantrisktothesuccessofaperpetualtrust(whichsuccessIdefineasatrustthat,overalongperiodoftime,actuallyenhancesthelivesofitsbeneficiaries)isinternal.Itistheriskthatbecauseofalackofinternalgovernanceoftherelationshipbetweenthebeneficiariesandthetrustees,thetrustwillnotenhancethelivesofitsbeneficiariesbutratherwilldiminishthem.IsuggesttheproblemliesinWaltKelly'sPogo'sastuteobservationaboutmuchofthedysfunctioninhumanbehavior,whichisthat“hewentsearchingfortheenemyandfounditwasus”;inotherwords,thetrust'splanners,thetrust'sfounders,anditsbeneficiariesthemselvesarethecauseofthetrust'sfailuretoproveenhancingtoitsbeneficiaries.Inmypractice,itiscommontomeetbeneficiariesoftrustswhotellmethatthetrusthasbeenanetnegativeintheirlives.Inanearlierbook,FamilyWealth:KeepingItintheFamily,andintwopapers,“TheTrusteeasMentor,”and“TheTrusteeasRegentwithinaFamilyGovernanceSystem,”co-authoredwithPatriciaAngus,Idiscussedatlengththeissuesfacedbybeneficiariesoftrusts.Inthoseworks,Ipointedoutthattherelationshipbetweenatrusteeandbeneficiaryislikeanarrangedmarriagesinceneitherchoosestheotherwhentherelationshipisformed.Necessarily,forWesternHemispherereaders,suchrelationshipsarelikelytobevolatileandnotoneswewouldchooseifgivenachance.Certainly,theywouldfailmytestforanypartnership,anaffirmativeanswertothequestion,“CanIbeyourpartner?”Thatis,canIgivemyselfwhole-heartedlytoyou,mypartner?Ialsopointedoutthatintheserelationshipsitisararebeneficiarywhohasanytrainingonhowtobeanexcellentbeneficiary.Itisnot,therefore,surprisingthatmostbeneficiariesdonotgovernthisrelationshipwell.Often,infact,thebeneficiaryhasnorealunderstandingoftherolesandresponsibilitiesheorsheistoassumeasabeneficiaryandwillbeexpectedtoperforminthebeneficiary-trusteerelationship.Almostnever,inmyexperience,canthebeneficiaryunderstandthatheorsheisexpectedtocomprehendthatattheheartofthisrelationshipistheconceptthatheorsheshouldcontrolthisrelationshipwithoutowningtheunderlyingassets.Separatefromtherelationshipdifficulties,andofteninmyexperiencemuchmoreserious,istheveryrealpossibilitythatthebeneficiarywillfallvictimtobecoming“remittanceaddicted.”Thisisastateoflifeinwhichahumanbeing'shumanandintellectual
capitalsareinentropy.Itisthelifeofabeneficiaryofatrustwheretheindividualisunabletoimagine,metaphorically,alifewithoutthecheckfromthetrusteeatthebeginningofthemonth.Suchpersonsareseenbythepsychologicalprofessionasexhibitingthesamedysfunctionalcharacteristicsaspersonsaddictedtoalcohol,drugs,gambling,andsoon.Anyonewhoisaddictedisbydefinitionnotfree.Itishardtoimaginethatanyfounderofaperpetualtrust,makingagiftoflovebytransferringhisorherownershipoffinancialcapitalintothecareofatrusteeforthepurposeofenhancingthelivesofthetrust'sbeneficiaries,wouldchoosetocreateanentitythatmight,andsadlyoftendoes,createexactlytheoppositeeffectandoutcome.Everytrust,perpetualorwithafixedterm,carrieswithittheriskofthisoutcomeforitsbeneficiaries.Plannerswhoareseekingtotrulyguidetheirclientswillalwaysofferthisenlightenedandeducatedviewofthepossibleoutcomeoftruststotheirclients.Thesharingofsuchviewsisparticularlyimportantinthecaseofperpetualtrusts.Why?Becausethelawsofdemographicprobabilitysuggestthattherewillbeageometricincreaseinthepossiblebeneficiariesofsuchtrustsineachlaterfamilygeneration.Thus,throughthenormalbirthratesexpectedwithinfamilies,suchtrustsaremorelikelytospawnsuchremittance-addictedpersonsthanfixed-termtrustssincemorepeopleovertimewillbeexposedtothepossibilityofbecomingsoaddicted.Thepotentialfoundersofperpetualtrustsareentitledtobemadeawareofthispotentiality.
Anotherrealityoftrustsofallkindsisthatmanybeneficiariesdonot:(a)feelworthyofthegiftofbeingabeneficiaryand(b)findthetrustahindrancetotheirdevelopment,totheirsenseofhowfreetheyaretomaketheirownlifechoices;and(c)totheirsenseofself-worth.Whiletotheaveragepersonwithoutatrustthismayseemastrangethought,itisinfactoneoftherealitiesoftrustlife.Manybeneficiariesfeelthatthetrustsapsthemofcreativityandoftheexcitementofcreatingsomethingoftheirown.Theysincerelywonderwhotheymightbeifthetrustdidnotexist,wouldtheybehappier,andwouldtheybemoreesteemingoftheirownuniqueabilitiesandgifts.Inaddition,theyfeelbeholdentosomeonetheyoftenwillnevermeet,whosehistorytheyareexpectedtoadmire,appreciate,andemulate.Why,theyask,whenitisonlythrougha“DNA”shufflethattheybearanyrelationtohimorher.Infact,theymaybeembarrassedbyhisorherhistorywhilebeinglockedbythetrustintoit.Again,asinotherpartsofthispaper,Itakenoviewontherightnessorwrongnessofbeneficiaries'viewsonthissubject.Itisrathermygoalthattheseoftenexpressedconcernsofbeneficiariesbebroughttotheattentionofpotentialtrustfounderssotheycanincludethemintheirthinking.
Yetanotherrealityoftrustlifeisnonmentoringasopposedtomentoringtrustees.Inmyexperience,manytrustsfailtheirfounders'hopesthattheywillenhancethelivesoftheirbeneficiariesbecausethetrusteesofsuchtruststhemselvesgointoentropy.Often,trusteesfailtochangewiththetimesandbringoutdatedthinkingtonewproblems.Worse,sometrusteesbegintoseethemselvesastherealownersofthetrust'sproperty,actingasiftheyarethefounders'alter-egosratherthanthe
beneficiary'srepresentatives,andbegintobelievetheyknowbetterthanthebeneficiarieshowthebeneficiariesshouldlivetheirlives.Theybecomeunchosenparentsand,worse,autocratswheninrealitytheirroleistoservethegrowthanddevelopmentofthebeneficiariesashumanbeingsandasintellectualcreatures.Toooften,andespeciallyinthelateryearsofalong-livedtrustwhenthefounderislongdeadandthetrusteesneverknewhimorher,thetrusteesbegintoidentifythemselvesandtheirstationsinlifebythetrust'sassetsandstartdoingandactingaccordingly,forgettingthattheyaretheservantsofthebeneficiariesandoffuturegenerationsofbeneficiariestocome.
Weturnnowtospecialissuesoftrustgovernanceposedbyperpetualtrusts.Thoughtfulplannerswhosuggesttheformationofperpetualtrustsandthefounderswhocreatethemwillrealizethatthereisaheightenedpossibilityoffailedtrustgovernancewhentherelationshipbetweenthebeneficiariesandthetrusteewilllastforaveryextendedperiodoftime.Alltrustgovernanceisatriskoffailure,onthebeneficiarysidebythebeneficiarybecomingremittanceaddicted,andonthetrusteesidebythetrusteesfallingintoentropyandself-dealing.Unfortunately,whenaperpetualperiodischosenforatrust,theserisksareheightened,sincethereissimplymoretimeforthelawofentropytoworkitswillinthebeneficiaries'andtrustees'negativeexperiencesofthetrustandoftheirrelationshipwitheachother.Happily,todayenlightenedplannershaveanarmentariumofplanningantidotestoprotectbeneficiariesandtrusteesagainstfailedtrustgovernance.Ibelieveoneinparticularisrelevanthere.Ibelievethemostimportantantidotetofailedtrusts'governanceisselectingmentoringtrusteeswhowillactivelyworkwiththebeneficiariestoachievethefounders'goalsofenhancingthebeneficiarieslivesthroughthegrowthoftheirindividualhumanandintellectualcapitals.Unfortunately,nothingwillprotectbeneficiariesfromthemselvesifthelawofentropyactingthroughthetrust'snegativeforceshavemadethemdependentpersons,aprocessthatnonmentoringtrusteeswillalwaysaccelerate.Mentoringtrusteesworkingtocreateexcellentrelationshipswiththeirbeneficiariesandbeneficiariesworkingtobecomeexcellentbeneficiariesinmanagingtheirrelationshipswiththeirtrusteeshaverealpossibilitiesofsuccess.Itisinthegoodmanagementoftheserelationshipsthatthetrust'spurposetoenhancethelivesofitsbeneficiaries'hasareasonableprospectofsuccess.Asthetrusteesandbeneficiariesbeginthisprocessofself-government,whataresomeoftheoutcomesforthebeneficiariestheymightconsidersothatthetrust,whetherperpetualorfixedterm,willprovidethegreatestenhancementforitsbeneficiaries'lives.Iwouldsuggestthatbeneficiariesandtrusteesbeginbyrecognizingthatphilosophyteachesthatforeachbeneficiary,thegoals
1. ofbecomingfullyself-awareandachievingpersonalfreedomsoastobeabletoliveanindependentlife;
2. ofachievingthefulfillmentofhisorherlife'sdreamsthroughknowingandfulfillinghisorherlife'scalling;and
3. ofbeingabletotakefullresponsibilityforhisorheractions
aregoalsofhighvalueandpurpose.Iwouldsuggestthateveryeffortbythetrusteesandthebeneficiariesshouldbetowardtheendofachievingtheseresultsforthebeneficiariesifthetrustistomeetthefounder'soriginalgoalthatthetrustenhancethelifeofeachofitsbeneficiaries.IworrythatinaperpetualtrustthebeneficiariesmaysaywhyshouldIworryaboutbecominganexcellentbeneficiaryandabouttrustgovernance,anddoallthehardworkofmakingthisrelationshipwork,ifneitherInormychildrennormydescendants,inanygeneration,willeverowntheassets?WhyshouldItrytolearntobeagoodsteward?WhyshouldIwork?Beanapprentice?Findmycalling?WhenIcandonothing!Whowillaskthebeneficiarythequestionsthatwillhelphimorherunderstandthatthesequestionsmustbeansweredifheorsheistoachieveafullshareofindependenceandself-worth?Let'shopethatfounderswillbealertedtothesequestionsandrealitiesbytheirplannersandbothprovidelanguagefortheirbeneficiarieswithintheirtruststhatraisethesequestionsandselecttrusteespreparedtoengagewiththebeneficiariestohelpthemfindindividualanswerstothemthatwillleadtotheirtrust'senhancingthebeneficiarieslivesastheyintended.
Perpetualtrusts,asdoalltrusts,havethecapacitytobeenhancingtotheirbeneficiaries'abilitiestobecomeself-awareandindependent,toseekacalling;andtobeabletotakefullresponsibilityfortheiractionsortodonothingandbecomedependent,withallthesadnesssuchentropiclivesengender.Iamparticularlyconcerned,however,aboutperpetualtrustsbecausetheirearlierhistorysuggeststhattheymayhaveagreaterriskofleadingtodependencethanfixed-termtrusts.Whethermyconcernswillbecomerealitywillonlybeknownmanyyearsfromnowwhenthesecondandthirdgenerationsofbeneficiariesofsuchtruststaketheirplaces.Itismyhopethatthisarticleandthequestionsitposeswilloffertoday'strustplannersandtrustfoundersfoodforthoughtabouttheimpactonthelivesofsuchbeneficiariesofthetruststheyworktogethertocreate.Perhapsforsomeofthesefuturebeneficiariesthethoughtandtimeittakestoconsiderthesequestionswillleadtotheirtrustsenhancingratherthandiminishingtheirlives.Shouldsucharesultbeachievedbysomeperpetualtrustsitislikelythatthesetrusts'founderswillhavetakenSantayana'sadmonitionaboutthepasttoheart.Inaddition,Ifeelthatmyworkinwritingthispaperwillinsomesmallwayhavehelpedachievethesetrustsfounders'goal—thegoalthatthroughsettingupsuchaperpetualtrusttheywillmakeagiftoflovetoitsbeneficiaries,themultiplegenerationstocomeoftheirfamilies;agiftthatthetrust'sbeneficiarieswillperceiveasthetrustworkstoenhancetheirlives.Suchagiftwillgivethebeneficiariesrealreasontohonorandappreciatethedepthofthefounder'svision.Thoughtfulgivingbeginswithcarefullyconsideringwhetheragiftwilldoharmandthen,afterconsideringallitspossiblyharmfuleffects,whetheritwilldogood.
Notes
1.OriginallypublishedintheChaseJournal(5:3),2001.©Hughes&Whitaker.
2.Thenormal“RuleAgainstPerpetuities”ascitedinScott,62.10:“Nointerestisgoodunlessitmustvest,ifatall,notlaterthantwenty-oneyearsaftersomelifeinbeingatthecreationoftheinterest.…”
3.Whilenotthesubjectofthisarticle,theperpetualtrustwaswidelyusedbytheChurchtoholditslanduntilincertainpartsofEnglandandFrancetheChurchbecamethelargestlandowner.AsEurope'sbusinessenvironmentmodernizedinthefifteenthandsixteenthcenturies,thisfactcausedmuchdissatisfactionwiththeChurch'ssecularratherthanspiritualrole.Theresultingstultificationofcommerce,landbeingitsprincipalmedium,wasseenbytheTudorsinEngland,ashighlyprejudicialtoEngland'sdevelopment.Asaresult,manypeopleintheeconomicclasseswarmlywelcomedHenryVIII'sdecisionaspartofhis“Reformation”tosequesterandredistributechurchpropertyasanecessaryreformneededtoacceleratethedevelopmentofEngland'seconomy.
4.Iamawarethatsomereadersmayfeelthatthishistoryisnotapplicabletothemoderneconomicenvironmentwherewealthisrepresentedfarmoreinmovablethanimmovableproperty.Thisarticleisnottheplaceforaneconomicdebate.Iwillobserveonlythatthetrusteesofnearlyeverytrustarerequiredbythestatelawsthatgoverntruststobe“prudentintheinvestmentstheymakeofthetrust'sassets.”Equally,theymaymakenoinvestmentthatisnotprudent.Creativityisdefined,inthecommercialarea,asentrepreneuringandisallabouttakingrisks.Itismyviewthatcreativityandtherisksitentailsisnotincludedwithinthesestatelawdefinitionsofprudenceandrightlysosinceitissomeoneelse'sassetsthatthetrusteeisadministering.Thisrealityprovesunfortunateovertimefortrustbeneficiaries.Why?Becauseitisasimplefactofthelawofcompetitiveriskandrewardthat,overtime,thetrusteecarryingouthisresponsibilitiestobeprudentcannottaketherisksthatanentrepreneurusinghisorherownresourcescantake,andso,overtime,thereturnachievedbythetrusteeincompetitionwithinthemarketplacewithallotherinvestorsshouldandwillbeless.Thislogiccarriedoutoverthemultiplegenerationsassumedbyaperpetualtrustsuggestsstronglythat,assumingthemarketisneutral,atrust'sassetswillfailtogrowatthesamerateasthemarketasawhole.Shouldthislogicbetruethensuchtrustswilleventuallyfindthemselvesinthesamenegativepositioncommerciallyasthosethatownedbutcouldnottradeinland.Atalaterpartofthemainarticle,Iwilldiscussentropy.PleaseapplythelogicIexpressthentothisproblemoftheriskandrewardinthemanagementofassetsperpetuallyinthehandsofnonentrepreneurialpersons.Myfatheralwaysadvisedhisbusinessownerclientsthatwhileputtingthesharesoftheircompaniesintotrustmightappeartobethebestsolutiontotheirdesirefortheircompany'sperpetuation,itwashisexperiencethattrustees,whohadnot
electedtoinvestinthecompanybut,rather,hadreceivedthesesharesonthecreationofthetrust,madepoorshareholderssincetheyhadn'tmadethesamerisk-takinginvestmentdecisionsthatthebestshareholdersmake.Hewouldalsoaddthatsincetrusteesareobligedbylawtoadoptapolicyofdiversificationofrisk,howwellcouldtheybeexpectedtoachievethegrantor'sobjectivesinthefaceofthelaw'sdemands?Ofcourse,“drafting”mayhelp,butintheendjudgesmeasuringtrusteeperformancewillhavethebenchmarksofprudenceanddiversityastheirmeasuringsticks.Isuggestthattheseareveryrelevantpointstoconsiderinassessingthelikelysuccesstodayofperpetualtrustsachievinglong-termmarketsuccessinthelightofhistory'smeasureofthemandourcurrentknowledgeofhowthemarketworks.
5.IalsowonderwhethertheseplannershavestudiedAristotle'sviewofhowdifficultthejourneyisforWesternmantobehappyandhowmuchofthatjourneyisaboutknowingone'sself,findingusefulworkincallingandlivingoutone'sowndream,andhowlittleisaboutinheritanceofotherdreamsasreflectedbysuchmonuments?IsuggestConfucius,Socrates,theBuddha,Gandhi,andmanytwentieth-centuryfigureslikeJung,Maslow,andEricksonhavemuchalsotosayaboutthisjourney,eachofwhominhisownwaycomestomuchthesameconclusionaboutwhatprocessesenhancepeople'slivesandwhichdiminishthem.
ABOUTTHEAUTHORS
HartleyGoldstoneJD,MBA
Following25yearsasattorney,seniortrustofficer,andseniorstaffofamultifamilyoffice,HartleyfoundedTrustscapeLLCin2009tohelpclientsbuildtrustscapesthatharnessthebestinpeopleforthegreatestgood.Asanadviser,heoffersfield-testedapproachesandtoolstoidentify—andthenachieve—positivepossibilitiesintherelationshipbetweenbeneficiaryandtrustee.
Clientsincludeinstitutionalandindividualtrustees,familyoffices,andbeneficiariesinallstagesoflife.
HartleylaunchedtheongoingBeneficiaryandTrusteePositiveStoryProjectin2010tocollectstoriestoldbybeneficiariesandtrusteesthatreflectcompassionandwisdominthemidstofcomplexity.Twoyearslater,heco-authoredTrustWorthy,acollectionof25ofthereal-lifestories.In2013,thePositiveStoryProjectbecamethethemeofhisonlinecolumnforthejournalTrusts&Estates.
HartleyisaresearchfellowatWiseCounselResearch,afoundingmemberoftheCollaborationforFamilyFlourishing,deanoftheTrustscapeforthePurposefulPlanningInstitute,andamemberoftheInternationalPositivePsychologyAssociation.
HehasspokenaboutflourishingtrustscapesatconferencesoftheFamilyOfficeExchange,theAmericanCollegeofTrustandEstateCounsel,theInstituteforPrivateInvestors,theAmericanBankersAssociation,thePurposefulPlanningInstitute,andmanyothers.HeisapresenterforShakingtheTree,anot-for-profitorganizationwithauniquetheatre-basedapproachtoenrichingintergenerationalconversationsaboutwealthandpurpose.
HartleyreceivedhisB.A.degreefromtheUniversityofPennsylvania,andMBAandJurisDoctordegreesfromtheUniversityofDenver.
JamesE.HughesJr.,Esq.
Jay,aresidentofAspen,Colorado,isaretiredattorneyandtheauthorofFamilyWealth:KeepingItintheFamilyandFamily—TheCompactAmongGenerations,co-authorofTheCycleoftheGiftandofTheVoiceofTheRisingGeneration,andnumerousarticlesonfamilygovernanceandwealthpreservationaswellasaseriesofReflections,whichcanbefoundontheArticlessectionofhiswebsite,www.jamesehughes.com.HewasthefounderofalawpartnershipinNewYorkCityandhasspokenfrequentlyatnumerousinternationalanddomesticsymposiaontheavoidanceofthe“shirtsleevestoshirtsleeves”proverbandthegrowthoffamilies’human,intellectual,social,andspiritualcapitalassupportedbytheirfinancialcapitaltowardtheirfamilies’flourishing.Heisamemberofvariousphilanthropicboardsandamemberoftheeditorialboardsofvariousprofessionaljournals.Heisagraduateof
theFarBrookSchool,whichteachesthroughthearts;thePingrySchool;PrincetonUniversity;andtheColumbiaSchoolofLaw.
Dr.KeithWhitaker
KeithisfoundingpresidentofWiseCounselResearch—athink-tankfocusedonwealthandphilanthropy—andanadjunctprofessorofManagementatVanderbiltUniversityOwenGraduateSchoolofBusiness.Healsoservesasanindependenttrustee,trustprotector,andmanagerofprivatetrustcompanies.
Keithhasmanyyears'experienceconsultingwithadviserstoandleadersofenterprisingfamilies.Hehelpsfamiliesplansuccession,developnextgenerationtalent,andcommunicatearoundestateplanning.
KeithservedasaManagingDirectoratWellsFargo,wherehefoundedtheinnovativeFamilyDynamicsPractice.HehasalsoservedasaresearcherattheBostonCollegeCenteronWealthandPhilanthropy;adirectorofaprivatefoundation;andanadjunctassistantprofessorofphilosophy.
WithDr.SusanMassenzioandJamesE.Hughes,Jr.,KeithpublishedTheVoiceoftheRisingGeneration:FamilyWealth&Wisdom(Bloomberg,2014)andTheCycleoftheGift:FamilyWealth&Wisdom(Bloomberg,2013).Keith'swritingsandcommentaryhaveappearedinTheWallStreetJournal,TheNewYorkTimes,TheFinancialTimes,andPhilanthropyMagazine.WithDr.PaulSchervish,healsopublishedWealthandtheWillofGod(IndianaUniversityPress,2010).FamilyWealthReportnamedKeiththe2015“outstandingindividualcontributortowealthmanagementthought-leadership.”
KeithisamemberoftheBostonEstatePlanningCouncilandafoundingmemberoftheCollaborationforFamilyFlourishing.HeholdsaPh.D.inSocialThoughtfromtheUniversityofChicagoandaBAandMAinClassicsandPhilosophyfromBostonUniversity.
InlieuofastaticbibliographyhereinFamilyTrusts,readerscanfindaregularlyupdatedbibliographyofreadingsrelatedtotrustsandfamilywealthatwww.wisecounselresearch.org.
INDEX
AAddictions,workingwith
interviewwithBillMessinger
samplelanguageregarding
BBeneficiariesandtrustcreators
beneficiaries
defined
responsibilityof
transfersvs.giftswithspirit
trustcreators
actingcreatively
communication
makingagiftwithspirit
namingatrust
responsibilitiesof
understandingintendedbeneficiary
CCollier,Charles
“CultureEatsStructureforBreakfast”(Wesley)
TheCycleoftheGift(Hughes,Whitaker,&Massenzio)
CycleoftheGift:FamilyWealthandWisdom(Goldstone,Hughes,Massenzio,&Whitaker)
D
Decanting
Destination,visionof
terminationanddistribution
Discernment
Discretionarydistributions
DistributionCommittee
committeemembers
coreconcept
draftingpoints
FFableoffamilytrusts
FamilyTrustReview
content
process
purpose
opportunitiesforcommissioning
reasonsfor
FamilyWealth:KeepingItintheFamily(Hughes)
Fidelity
GGeneration-skippingtax
HHeisenberg,Werner
IIndividual/laymentrustees
Individuation
Institutionaltrustees
JJudicialmodification
Judicialsettlementagreements
KKeyterms,defined
beneficiary
DistributionCommittee
OfficeoftheBeneficiary
principalandincome
trust
trustcreator
trustdistributions
trustprotector
trustee
trustscape
LLawofentropy
Legacyletter,sample
Liability,intrusteeship
fiduciary
MMarriage,trustsand
prenuptials
secondmarriagesandbeyond
withinmarriage
Messinger,Bill,interviewwith
NNarratives
education
pointofview
NationalConferenceofCommissionersonUniformStateLaws(NCCUSL)
OOfficeoftheBeneficiary
distributionsfromtrust
investmentoftrustassets
trustadministration
PPerpetualtrust,unexpectedconsequencesof
historyof
planningforcreationof
rulesagainstperpetuities
trustgovernance,specialissuesof
Positiveeventsandsupportiveresponses
matchingmind-settotask
strengths,playingto
supportiveresponses
Preambles,creating
purposeoftrust
revisiting
themesandschemes
trustcreator'sintent
bytrusteesandbeneficiaries
wordsthatleadtoideas
Principalandincome,defined
Privatetrustcompanies
bestpractices
definitions
governance
vsindividualtrustees
RRegency
Remainderman,defined
Requestsfordistribution
analysis
enhancement
process
Rulesagainstperpetuities
SSolomon'sRing
TTransfersvs.giftswithspirit
Transitions
changingthetrustee/beneficiary
changingthetrust
endingoftrust
Solomon'sRing
transitionpoints
Trustadvisers/protectors
advisers
choices
protectors
Trustcreators
actingcreatively
communication
defined
makingagiftwithspirit
namingatrust
promiseandchallengefor
challenge
exercisefor
responsibilitiesof
understandingintendedbeneficiary
Trustdistributions,delayed
Trustlaw,recenttrendsin
Trustprotector.SeealsoTrustadvisers/protectors
approachtoselecting
defined
Trustee
administrationofthetrust
approachtoselecting
choices
conflictsofinterest
delegationoffunctions
considerationspriortoacceptingappointmentas
acceptingappointment
initialresponse
interviewingtrustees/beneficiaries
studyingthetrustdocument
technicalside,understanding
defined
distributionofbenefits
duties
dutytoaccount
dutyofcare
dutyofimpartiality
form
individual/laymentrustees
institutionaltrustees
highestdutyof,andcorrespondingresponsibilityofbeneficiary
beneficiary,supportfor
legaldocuments
trustee,supportfor
investmentofthetrust'sassets
“TheTrusteeasMentor”(Hughes)
“TheTrusteeasRegentwithinaFamilyGovernanceSystem”(Hughes&Angus)
Trustee-beneficiarymeetings
agendaitems,samplingof
“appreciative”exercise
first,actionstepspriorto
beneficiary
trustee
premeetingchecklists
Trusteeship,principlesof
courage
discernment
donoharm
fidelity
regency
Trusts
defined
andmarriage
prenuptials
secondmarriagesandbeyond
withinmarriage
overview
closingexercise
description
trustlaw,recenttrendsin
Trustscape
closingexercise
defined
dynamictableau
humane,modelof
complete
withtrustprotector
introducing
model
traditional
TrustWorthy(Goldstone&Wiseman)
UUniformTrustCode(UTC)
VTheVoiceoftheRisingGeneration(Hughes,Whitaker,&Massenzio)
WWarnick,JohnA.
WiseCounselResearchAssociates
WILEYENDUSERLICENSEAGREEMENTGotowww.wiley.com/go/eulatoaccessWiley'sebookEULA.