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Bringing Purpose Into Estate Planning

If you’ve ever thought about the financial legacy you will someday leave behind, you may have also thought about setting up a trust. Historically, trusts have been used to mitigate the impact of taxation on an inheritance and implement some manner of control over the use of the funds. Until recently, however, few have focused on providing more than a financial legacy for the benefactors.

In recent years, purposeful estate planning has emerged to address this issue by encouraging the overall well-being of the recipient through a more detailed and considerate approach to setting up a trust.  

Purposeful Estate Planning, a Focus on Values

All too often a trust is designed to pass on wealth according to state and federal guidelines with too little emphasis on the well-being of the recipient or the values and wishes of the benefactor.

For example, most parents who leave an inheritance hope to provide their children with future financial stability. Unfortunately, their heirs may have a different idea about what to do with inherited wealth. A study conducted by Ohio State’s Center for Human Resource Research for the U.S. Bureau of Labor Statistics revealed that beneficiaries spend half of their windfall, saving only 50 percent for the future.

Much of this disconnect is based on the language used in trust documents, which is typically focused on ensuring compliance with federal and state laws. However, with purposeful estate planning, documents are drawn up to also address how the trust is administered, with a particular thought to preserving the values of the benefactor and the well-being of the recipient. This is usually accomplished through specific clauses and conditions.

For example, an entrepreneur who has accumulated great wealth through hard work and sacrifice is likely to be concerned about leaving a large sum of money to his or her children. He or she may wish for their offspring to remain productive members of society through their own means instead of living solely on an inherited income.

In this case, certain restrictions may be written into the trust governing the distribution of funds. For instance, the child may be required to use funds first to pay for college, start a business or buy a house before they are permitted to draw money for other purposes.

However, the language of the trust is not the only way that you can assure your values are passed along for the benefit of your beneficiary. Much of the success of Purposeful Estate Planning is determined by how the trust is administered.

Preparing a Generative Trustee to Administer Your Trust

To ensure that trusts are handled according to the spirit of the law as well as the letter, generative trustees are assigned to administer the trust. In this position, a generative trustee takes on an important role in the life of your heirs, by helping them to understand your values and to make wise decisions regarding the use of funds.

To ensure that your selected trustee is prepared to administer the trust according to your intent, it’s a good idea to include them in the planning process. It is also helpful to discuss your concerns for your beneficiaries with the generative trustee as well as those preparing the trust. You may have a particular worry regarding a child in a bad marriage, for instance, or whether the beneficiary is equipped to manage the legacy you are leaving.

Bringing these issues to the attention of your trustee opens the door for frank and honest discussions where you may impart with details about how you wish for disbursements to be handled after your passing. Sometimes even the simplest or most mundane fact results in an eye-opening revelation. For example, while you may want your children to continue their education or have a career, you may also want them to enjoy once-in-a-lifetime experiences, like traveling.

Details like these give the trustee a glimpse into the things you value, making it easier to administer your trust when the time comes.

Supporting the Administration of Your Trust

Once the discussions with your estate planners and trustee are complete, it’s important for beneficiaries to be brought into the conversation. Discussing your expectations and intents with your heirs will help to avoid misunderstandings down the line and ensure that the benefits and restrictions of the trust, as well as your reasons for creating them, are well understood.

To facilitate this level of cooperation between your heirs and the generative trustee, you may also want to consider leaving behind written statements as a reminder of your position and your intent, including:

  • A family vision statement: This document describes your family history and culture as well as how you view your place within a community. A statement or explanation like this helps trustees and heirs to understand your position from a historical perspective and provides insight into the values you hold dear.
  • A family constitution: Conflicts can arise during trust administration between trustees and beneficiaries as well as co-recipients of the trust. Leaving a written description of how the family is governed and the processes to be used to resolve disputes helps trustees and heirs to work together.
  • Recipient vision statement: It is important for trust fund beneficiaries to understand the purpose of the legacy you are leaving them, why you are imparting this gift, and how you hope they will use it, as well as any goals you hope to support. Leaving behind this information levels the playing field and ensures that both trustees and beneficiaries have the same understanding regarding the intent of the trust.

Initially, these statements can be drawn up on your own, but it is always wise to have your estate planner and attorney review them before committing the documents as part of the trust. These professionals will have a clear idea of how to promote your wishes and ensure that your intent is accurately described.

Preparing for Future Generations

Benefactors choose purposeful estate planning to ensure the continued well-being and productivity of their beneficiaries. However, to leave a lasting legacy that meets your goals, generative trustees will need to hold a trusted position in the lives of your beneficiaries to explain the complexities related to your gift. This level of support could easily extend to guidance on the sound financial management of your legacy in addition to clarifying your values and intents.

If you feel that purposeful estate planning is right for you, contact your financial advisor. Your advisor is the best person to help you bring together the required parties and begin to prepare a purposeful estate plan.

About the Author

Marietta is responsible for personal trust services across the division, and leading the trust teams in assisting clients with wealth and estate planning, trust administration and charitable giving. Prior to joining First National Bank of Omaha, she spent 18 years as an attorney in private practice, specializing in estate planning and trust administration. Marietta has a passion for helping people, whether that be giving back to the community through volunteering or helping clients create legacies for their family and communities.