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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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.

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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.

http://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?



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?



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

http://wealthmanagement.com/estate-planning/tale-two-trustees

http://www.viacharacter.org/www/Research/Research-Findings#nav

5.AstrengthsassessmentthattheauthorslikeistheVIASurvey,foundat(www.viacharacter.org/www/The-Survey#nav)

http://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.”

http://www.billmessinger.com

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

http://www.jamesehughes.com

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.

http://www.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.

http://www.wiley.com/go/eula

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