Thinking Beyond Your Trust

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December 10, 2013


A trust can be an effective tool for carrying on the values and causes most important to you — not just into the next generation, but potentially three or more generations out. The Private Client Reserve’s Sally Mullen, Bob Webster and Gary Westeen sat down to discuss how you can “think big” when it comes to trusts and estate planning.

 

About Our Panelists

 

How can clients use their trusts to help carry their values into future generations?

 

Mullen: Because every trust is a customized document crafted with the client’s attorney, it provides the opportunity to create a unique estate plan that can provide for the grantor’s family and community, and perpetuate his or her values into the next generation. Subject to certain requirements that are addressed in all trust documents, a trust can be a reflection of the grantor and allow him or her to influence the next generation for years to come.

 

Webster: I recently worked with a client, the patriarch of his family, who wanted to keep his lake cottage in the family. He saw the cottage as an opportunity for the family to come together and experience fellowship. It was important for this cottage to remain in trust for future generations, with assets to ensure its maintenance. This patriarch wanted everyone to enjoy the cottage, regardless of where the kids lived or whether they had the ability to keep it up. He had an attorney draft a trust that helped him with his goals.

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December 10, 2013


What kind of language can be written into trust documents to achieve specific goals or provide specific instructions?

 

Mullen: It’s common for clients to provide for special types of distributions to the next generation or to their grandchildren if they want them to pursue certain goals. There may be language in the trust that specifically supports someone’s college education, for example.

 

Westeen: You may also see actual incentives written into trust documents. For example, upon a certain event occurring — the beneficiary landinghis or her first job or completing college — thebeneficiary will receive a special distribution. As an incentive for beneficiaries to work and be productive, some trust documents even

enhance the distribution if the beneficiary is working and decrease it if he or she is not working.

 

Webster: Within reason and within the realms of legality, you can be as creative and flexible or as restrictive as you want within the trust instrument. The clearer the language in the trust document, the easier it is to ensure we do exactly what the grantor wants.

 

How can clients start to determine what instructions they want to include in their trust or what values they want to pass down via their trust?

 

Westeen: First, pull together what’s important to you and your family. Then determine how you can pass along those things. For example, entrepreneurship and creativity might be important to a client. So he or she could use a trust to incentivize beneficiaries to start their own businesses.

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December 10, 2013


Webster: I would add that when parents sit down and talk to their children about their intent, things often go a lot smoother and there might be fewer surprises and misconceptions down the road.

 

I recently worked with a family in which there was a son who was very successful financially, and a daughter who was a widow with no experience handling financial affairs. The family agreed that while the brother would receive his share outright, the daughter’s share would be put in trust. This potentially could protect her from creditors and help her from an investment standpoint. There was no animosity because the parents sat down and talked to everybody.

 

Mullen: It’s also important to review your ideas with your Wealth Management Advisor and your attorney. Many clients have a real sense of what they want to do but aren’t sure how to accomplish it. Your Wealth Management Advisor can work with your attorney to help determine how that gets documented and put into place over time.

How can clients use trusts to carry on what’s important to them beyond just the next generation?

 

Webster: The grantor might have a desire to use his or her wealth to create a legacy in the family for generations to come. If that is the case, clients might establish a dynasty trust in a jurisdiction that allows trusts to continue for long periods of
time without state income taxes, such as Washington, Nevada, South Dakota or Florida.

 

Remember that U.S. Bank and its representatives don’t provide tax or legal advice. Consult your tax or legal advisor for advice and information about your particular situation.

 

Westeen: I’ve worked with a client where the grantor wanted to pass along a philanthropic legacy for many years to come, so he structured a charitable trust to keep the family involved in making decisions for the trust for multiple generations.

 

I’ve experienced other scenarios where grantors want to pass on an education legacy. They have used dynasty trusts to ensure many generations would have funds available for education.

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December 10, 2013


What happens when the beneficiary’s goals don’t align with the grantor’s goals?

 

Webster: We had a client who wanted to preserve a closely held business he created and managed. He wanted the business to be in trust for future generations, but the next generation preferred to sell the company and use the proceeds for other goals. This situation required some interesting family meetings and discussions about how to compromise.

 

Mullen: That drives home the importance of communication and dialogue with family members so there aren’t surprises down the road. Clients should also reflect on whether their vision for the family is realistic, which can be difficult to do. But your Wealth Management Advisor can, in a very professional manner, ask questions to help you think twice before you tie up things in a way that might cause problems in the family.

 

Webster: It’s our role as a fiduciary, as much as we can, to help clients understand potential issues before damage is done or before a trust becomes irrevocable.

Can generation-skipping trusts help clients further extend their wealth?

 

Westeen: Some clients with significant wealth might feel that they’ve gifted enough to the next generation during their lifetime or that the next generation has sufficient wealth. They might use a generation-skipping trust to pass their wealth to the third generation to ensure the great-grandkids have the wealth needed to fulfill their own goals. These trusts also provide potential tax benefits.

 

What’s the main benefit of using a trust to carry on your values rather than to just pass down your wealth?

 

Mullen: It’s only natural for clients to want to preserve and grow their wealth for the benefit of their families and their communities. Using trusts to achieve that objective makes a lot of sense. Of course, that doesn’t rule out clients doing other things like making direct gifts to children during their lifetime. But trusts can enable families to continue enjoying the opportunity to work toward their unique goals — whether those are to continue their education, buy a home, start a business or give back to the community.

 

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