Family Trusts - Keith Whitaker

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writing has also benefited from our reading of many fine works related to trusts, family wealth, and positive psychology. Those that we quote from or reference directly in this book are noted at the end of each chapter. For readers who would like to delve deeper into these topics, rather than providing a static bibliography here in Family Trusts, we have created a regularly updated bibliography online. To access this bibliography, please visit www.wisecounselresearch.org.

      FOREWORD

      Jay Hughes

      In the 1980s Joanie Bronfman, Richard Bakal, and I began a journey that continues to this day. We sought to try to make the relationships among the creator of a trust, its trustee, and its beneficiary comprehensible to all and humane. We set out to determine and define the rules and responsibilities of these three functions, which together shape each trust's culture and structure – the combination of which my co-author Hartley Goldstone later defined as the “trustscape.” The early results of our efforts appeared in 1997 in my book Family Wealth: Keeping It in the Family (Netwrx). Those results have, over the years, been improved upon by many, and they are taken to a much deeper level in this book.

      In the late 1980s Peter White, Joanie Bronfman, Anne D'Andrea, and I convened what I believe was the first gathering exclusively of trust beneficiaries. We had found to our surprise in our professional practices that many beneficiaries felt their trusts were burdens, not blessings. We wondered why a trust, which seemed on its face to be such a benefit, seemed so often to turn out to be the opposite. When we decided to host this gathering, we invited 50 or more people expecting that 10 might accept. To our amazement all accepted. We thought, “What have we started?” On the day of the gathering all 50 or more invitees showed up. Early in the meeting we took a poll asking, “Do you feel that the trust or trusts of which you are a beneficiary are more a burden or a blessing?” Eighty percent of the group raised their hands for “burden,” 10 percent for “blessing,” and the remainder could not decide between the two.

      Perhaps many of you reading this book who are beneficiaries or trustees would not be surprised that in every poll of beneficiaries I have taken since – and I have taken many – the same percentages have consistently appeared: 80 percent or so feel their trusts are a burden, 10 percent a blessing, and the remainder are unsure. These results have given me a purpose ever since to see if my colleagues and I could change these percentages. This book is the result.

      These percentages are a problem not only for beneficiaries. Changing these percentages is also critical to families' long-term flourishing. Among professionals it is well-known that by the third generation of a family around 90 percent of its financial wealth will likely be held in trust. Trusts represent, for almost all dynastic families, an overwhelmingly high proportion of ownership of their assets. Necessarily then these families' trust cultures and structures, their “trustscapes,” and their beneficiary/trustee relations often determine whether the entropy of the “shirt sleeves to shirt sleeves” proverb overtakes them. Those of us in the field refer to this reality in the families we serve as “the trust wave.”

      So, 80 percent of trust beneficiaries declare that their trusts are burdens. And 90 percent of a dynastic family's financial wealth is in or will be in trust by the third generation. The combination of these facts underscores how important it will be to a families' flourishing that its trusts be blessings. It also underscores how important it is for us to learn from the small number of beneficiaries who feel that their trust is a blessing. That is what we have tried to do in this book.

      Before proceeding, I would like to observe one other important demographic trend. The use of trusts continues to increase, not just for transfer tax planning but also for asset protection, reasons of probate, and, above all, control. This is true even in families without the wealth typically necessitating the use of trusts for transfer tax purposes (currently at well over $10 million). Within families with very significant or intergenerational wealth, beneficiaries may find themselves faced with trust distributions in their early 20s or younger. In many other families, as people live longer and longer lives, children or grandchildren may not begin receiving distributions until their middle- or later-middle-age, when their parents or grandparents pass away. However, this delay of the maturity of beneficial interests does not mean that the trusts in question do not exert a powerful force on these future beneficiaries' lives, especially if the trusts contain significant wealth. Nor is it impossible for trusts to enhance (or detract from) the lives of people in their 40s, 50s, or 60s. None of us is born an excellent beneficiary. To achieve this condition requires education and work, no matter how old you are. Indeed, insofar as it is generally harder to adapt to changes in later life, the delay of the maturity of beneficial interests may pose a growing threat to the successful use of trusts. It is a threat that we hope the practices described herein also help trustees and beneficiaries meet and overcome.

      My co-authors and I are each committed to the question of human flourishing, especially in families of affinity seeking to practice seven generation thinking, that is, thinking that considers carefully the consequences of present-day actions on the people who will live seven generations later. These families preserve and grow their four qualitative capitals – spiritual, human, intellectual, and social – supported by their single quantitative capital, the financial. Such families often share a common core vision of what their members can be individually. These families' members decide, in their systems of joint decision making – their governance – to give up freedom to help enhance all other family members' journeys of happiness toward each member's own greater freedom. Such families tend to practice hastening slowly as they know they have to make just a few more seriously good decisions than bad over the next 150 years to succeed. They invest for the long term, with the intention that a later generation will harvest the hard won fruits of their labors. In contrast, we always worry when we see a family who thinks that it possesses only financial capital. Our experience, as well as history, advises that this belief is quite unlikely to lead to flourishing.

      What have we learned about trusts and their functioning or failure from the families we advise? Why are so few trusts seen by their beneficiaries as blessings?

      First, we have come to understand that our focus must start with the beneficiary, rather than with the trust creator or the trustee. Nearly all the writing in our field begins with planning for the trust creator's concerns over taxes, creditors, and control and then turns to the trustee's concerns over administration and investments. This focus on the trust creator easily follows from the fact that most professionals have the trust creator – and not the beneficiaries – as their paying client. It is the rarest of books and articles that treat the beneficiary side of the relationship and the distributive function. When they do often it is to disparage the beneficiary by discussing dependence, entitlement, bad marriages, addictions, or other failed developmental issues apparently caused by being a beneficiary. Clearly, this is a very disappointing point of view if the question of beneficiaries' flourishing is a critical goal.

      In contrast, we came to see that beginning with the beneficiary and his or her responsibilities and goals might open new pathways to his or her flourishing. We first developed this line of thinking in a book that Keith Whitaker, Susan Massenzio, and I wrote called The Cycle of the Gift (Bloomberg, 2013). In that book we described a gift or a transfer as a meteor entering the atmosphere of the recipient to which he or she had to adapt. We asked, “What did the donor or transferor inspirit the meteor with?” Was it inspirited with love and a desire for the enhancement of the life of the recipient? Worry about the recipient's possible creditors? The transferor's tax concerns? The long-term control of the founder's dream? Was the meteor an Ozymandian monument requiring that the recipient genuflect for his or her beneficence? One can see immediately how much the grantor's intention for the beneficiary matters.

      Next we looked at the question of the beneficiary's journey to individuation, which Keith and Susan and I discussed in our book The Voice of the Rising Generation (Bloomberg, 2014). And we reread Hartley Goldstone and Kathy Wiseman's book TrustWorthy (Trustscape LLC, 2012) with its wonderful stories of positive beneficiary/trustee relationships. We realized that a trust that has a deeply developed distributive function (and the distributive function is truly the key) – grounded in aiding the beneficiary's individuation,

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