“When it comes to divide an estate, the politest men quarrel.”
– Ralph Waldo Emerson
For many families, the transfer of wealth from one generation to the next can be a subject that creates a great deal of anxiety, confusion or other unintended emotional outcomes. Previous generations seemingly have had an aversion to discussing finances within their family as it was seen as being a private matter only to be discussed between spouses and their most trusted professional advisors. In fact, many families had no insight at all about the financial status of their parents or grandparents until death or diminished capacity created the circumstances to transfer wealth or make financial decisions on a loved one’s behalf.
Opinions and attitudes about wealth transfer have evolved in recent years as more families have embraced the idea of passing wealth to younger generations earlier in life. Many families have decided that they would rather enjoy watching their children and grandchildren meet financial milestones, like owning their own home, than transfer wealth after their death.
When to Establish a Trust
Many families understandably delay establishing a trust for younger generations until they see some evidence of financial responsibility demonstrated by their heir. One of the benefits of establishing a trust, however, is that the trust can set parameters for when and how much the beneficiary is able to access funds for their benefit. For example, the trust may allow for a certain amount of money to be distributed on an annual basis for educational expenses or a down payment for a first home. By drafting the trust to allow the distribution of funds for certain expenses, the grantor can have confidence that younger beneficiaries are directing the funds to their intended purpose. In addition, these previsions for distributions can also serve to guide younger generations as to the family’ values on spending and caring for money.
Naming a Trustee
As previously mentioned, one of the negative reasons families avoid conversations about wealth transfer is that they can often lead to confusion or anxiety among family members. However, another benefit of a trust is that the grantor can name a third party as trustee. By naming a third party- or corporate trustee, such as a bank or trust company, the grantor can remove themselves from conversations involving distributions from the trust. As an example, if a trust has been established for a child who is recently married and buying a first home, the parents (grantors) may not wish to put their child in a position to have to ask them for funds from the trust during a home purchasing process. Instead, the parents (grantors) may decide to name a trust company as trustee and have the child work directly with a personal trust administrator to access and distribute funds in accordance with the detailed parameters of the trust. This allows for the parents (grantors) to set the guidelines for the distributions, while also saving themselves and the child from any uncomfortable conversations about the details of accessing the funds. They can simply enjoy watching their child enter a new phase of their life with the confidence of knowing responsible financial decisions have been supported.
Ongoing Financial Support and Expertise
While assistance with major financial decisions is certainly a benefit of professional trust management, so is the ongoing financial support and education of the beneficiary. As mentioned, trusts that are established for young people may allow distributions of funds for major financial milestones such as the purchase of the home or the planning of a wedding. Many trusts may also include provisions for annual distributions of income. The amount may be a percentage of the overall assets within the trust, or fixed amount specified by the trust. In addition, the trust may allow for larger distributions to be made at certain ages, such as age 25, 30 or 40. This allows for the beneficiary to gain maturity and experience in managing their finances before the trust may allow for more discretionary distributions to be made over time.
Consult with your Great Plains Trust Team
At Great Plains Trust Company, our team of trust attorneys offers decades of experience in working with families on wealth transfer strategies. Our attorneys are available to review your existing estate planning documents to ensure that your intentions are properly documented. In addition to our estate plan review services, Great Plains also offer investment management solutions to turn your family’s financial intentions into actions.
For further information for how we can assist your family with your ongoing wealth management needs, contact our office at 888-529-2776.