“Passing Values Through Generations With Family Legacy Trusts”

by | Sep 23, 2020 | Estate Planning

We are fans of giving credit where credit is due when we come across something fantastic. Last week Jerimy (owner and name partner here at Jerimy Kirschner and Associates) found an incredible article by Karen Hube called “Passing Values Through Generations with Family Legacy Trusts.”

If you’d prefer appreciate the author on their server, please feel free to follow that link , however we feel compelled to cite the entire article below.

We hope you enjoy the piece as much as we did.




Passing Values Through Generations With Family Legacy Trusts

By Karen Hube

“At a time when managing money and personal values are often intertwined thanks to the explosive rise of environmental, social, and governance (ESG) investing, it’s no surprise that when it comes to legacy planning, families are increasingly interested in transferring more than just wealth.

The question of how to pass personal values to future generations—and to continue to have some influence long after death—is expanding the traditional parameters of estate planning. “Passing values is a huge priority to families when they’re looking at wealth cascading through generations,” says Donna Trammell , director of family wealth stewardship at Bessemer Trust. “It’s often driven by a fear that wealth will demotivate future generations.”  A starting point is the common family legacy trust, which is a straightforward legal structure designed to pay assets to heirs in a controlled way after the death of the wealth creator. 

While the basic use of a trust is legally defined by the IRS as providing health, education, maintenance, and support, a trust creator has a lot of flexibility in drafting trust provisions to be an expression of values.

For example, to encourage heirs to pursue higher education or appreciate the arts, provisions can allow special distributions for university costs or to support a creative career or pursuit. 

Someone who wants to support entrepreneurialism may allow for special distributions for an heir starting a business. Or if the wealth builder’s lifelong business pursuits were so absorbing that family time was regrettably sacrificed, the trust may pay out for basic living expenses to give heirs more freedom to choose their own paths. 

Think carefully before trying to instill values by setting conditions that must be met before assets can be distributed, says Lisa Featherngill , head of legacy and wealth planning at Abbot Downing . They can create resentment.  

Narrow provisions can also have unintended consequences. “Trusts are often designed to last for a long time, and the more limited a trust is, the less able it will be to adapt to a changing environment,” says Lynn Halpern , Bessemer’s senior fiduciary counsel. 

Consider a couple wanting heirs to live productive lives who instruct their trust to only pay out distributions equal to what is reported on their W-2 tax forms. Halpern points out that this approach may have worked in a previous era when workers were predominantly salaried, but the gig economy has given rise to a growing percentage of workers whose pay is reported on 1099 forms.

“Even if the tax forms weren’t specifically mentioned, do you really want to attach distribution to pay?” Halpern says. “That would incentivize heirs to be an investment banker rather than a lower-paid teacher or social worker.”

To add a deeper personal touch, advisors are increasingly recommending drafting an informal document called a letter of wishes. It is not legally binding, but it can be a great help for heirs to understand intentions for how wealth should be used, and for trustees when faced with difficult decisions about distributions. 

A letter of wishes is a place where a wealth builder can express priorities in how inherited wealth should be distributed. A trustee must legally consider all beneficiaries equal, but if a letter of wishes explains that the spouse is the priority, this can enable the trustee to make distributions to the spouse without concern about how much is left to the kids. “Letters really help heirs, too, when they want to respect the wishes of their parents but don’t necessarily know what those were,” Featherngill says.

These documents can be a heart-to-heart with future generations, a sharing of life lessons, a recounting of family history or life-changing experiences—there is no blueprint.

“It can be bullet points, a mission statement, a personal letter to beneficiaries,” Trammell says. “They’re often really lovely letters that capture a family’s history and become heirlooms in the family.”