In the next two decades, more than $70 trillion in inheritance is expected to be passed down to family members or charities in the United State, much of it likely through various types of trusts. How well those trusts achieve their purpose will vary greatly, depending on how well they are structured and managed.
At LNW, we believe that the creation and management of trusts should never be strictly transactional, akin to a private ATM for dispensing assets. Trusts at LNW are grounded in relationships forged with our clients (who are usually the trust creators), their family members and other beneficiaries, and their outside advisors, including sometimes their business partners. Having worked on trusts for more than two decades, I have seen that for trusts to work well, especially over many generations, assets, aspirations, abilities, and even unspoken fears and concerns for the future all need to be addressed.
Below I describe the ways we work with clients, their families, and their outside advisors to put in place trusts that function as intended often over many generations.
1: Exploring What a Trust Can Do for YOU
Your specific needs and goals should determine the type of trust. There are many inherent benefits to transferring ownership of assets to a trust (see box at right). The tricky part is deciding what type of trust will work best for your given situation and defining the terms of the trust. This revolves around two foundational questions:
1. Whom do you want the trust to benefit,
how, and when
2. Which assets will you put in the trust
and when
Our in-house trust and estate planning experts work closely with LNW advisors to help our clients answer these key questions. Well-thought-out answers take time and lay the foundation for future success.
That is why we are not in any hurry at LNW to rush clients into a trust or a particular type of trust. The process is akin to building a house. Lots of advance planning is required to make sure the structure will serve your needs for decades and even generations. Ultimately, it will not matter if your trust is making distributions in a timely manner if the money is being squandered by the people receiving it, or if the distribution levels are too high and deplete the trust or too low to be useful. The great thing about trusts at LNW is that we advise you on how to customize the terms of the trust based on a thorough understanding of your situation and life goals. With a Laird Norton trust company as the trustee, we can then see to it that the terms are carried out you intend.
2: Advising the Attorney(s) Drafting the Trust Document
Trust documents should not be drafted without the end result in mind. LNW trust and estate planning experts, knowing what you want to accomplish and how, will then work with your estate planning attorney. They will collaborate on which trust(s) will work best for your situation, the general terms of the trust, and whether the final document addresses all your wishes and concerns. This can save a great deal of time in drafting and more importantly, it assures that the final trust document is aligned with your finances, wealth plan, estate plan and legacy goals.
What a Trust Can Do
Depending on its structure, a trust can do all these things.
- Allow you to control which assets go to whom, when, and how
- Safeguard assets from creditors and unintended beneficiaries such as ex-spouses
- Take assets out of your estate for tax purposes
- Keep assets and the terms of their distribution private
- Keep assets out of probate after you are gone
- Allow you to control which assets go to whom, when, and how
- Safeguard assets from creditors and unintended beneficiaries such as ex-spouses
- Take assets out of your estate for tax purposes
- Keep assets and the terms of their distribution private
We also often work closely with clients’ CPAs to determine which specific assets are best transferred to the trust and when, based on considerations such as tax levels, cash flow, legacy impact, and beneficiaries’ needs.
3: The Laird Norton Trust Companies as Trustee or Co-Trustee
The trustee is critical to how well a trust performs in virtually all regards. Once any trust is created, a trustee must be named to administer and manage it. LNW clients benefit from access to two trust companies that can serve as trustee, depending on where the trust is based: the Laird Norton Wetherby Trust Co., operating in Washington State since 1967; and the LNW Trust Company of South Dakota, based in Sioux Falls and serviced from our Seattle office. Both trust companies manage client trusts at the highest level of care and professionalism.
As the trustee, we can invest the financial assets within your trust according to an Investment Policy Statement (IPS) developed explicitly for the trust. Each trust’s IPS reflects a specific level of targeted investment risk and return based on the intended longevity of the trust, desired distribution levels, your other sources of income and investments, as well as your wishes and concerns as grantor of the trust, such as a focus on impact investing.
Over time, the trust can contain not just financial assets but also real estate, collectibles and shares of a business or partnership interests, some of which could be located in different states or outside the U.S. As trustee, we are able to manage a wide variety of trust assets, performing income collection, bill pay, accounting, tax reporting, and regulatory filings. In all the work we do for each trust, we abide by the fiduciary standard, which is to act in the best interest of the multiple clients each trust serves (see box on previous page).
One Trust, Three Clients
For each trust, there are three parties involved:
The grantor(s) – person or entity who sets up the trust and funds it. This can be an actual client of ours, a court (if there is settlement) or
an entity (business, nonprofit, LLC
or partnership).
The beneficiary(ies) – person or entity that receives income from the trust.
The remaindermen – person or entity that gets trust distributions after the beneficiary.
Doing what is best for each trust participant takes planning, coordination and experience dealing with family priorities and dynamics.
4. Supporting, Informing, Advising Trust Beneficiaries
A trust should be a positive force in the lives of the people and organizations it is intended to benefit. Making that happen is what I call bringing a trust to life, and a lot of that has to do with how we as the trustee or co-trustee work with the beneficiaries as they navigate opportunities and challenges in their lives. When the beneficiaries include nonprofit organizations, our trust advisors can seek input from our in-house experts on philanthropy and asset management for nonprofits.
It is extremely rewarding for us to see the beneficiaries of trusts mature and come into their own. We discuss their personal taxes (trust distributions impact personal taxes plus the trust has its own tax filing), risk management, investment management, insurance, and also major life decisions if they ask: job offers/changes, starting a business, buying a house, prenuptial agreements. Our trust advisors can draw on all of LNW’s in-house expertise to inform and educate the beneficiaries about their trusts. And I think our clients value that and take comfort in knowing this level of care will continue for many generations.
Staying the Course
I hope you by now have an idea how we work with clients, their families, and their outside advisors to put trusts in place that allow hopes for the future to be realized and fears to be addressed and mitigated. Having started out as a trust company in 1967, we have decades of experience advising on trusts and then managing those trusts over generations. If you want to explore what a trust can do for you and your family, please start by reaching out to our trust advisory team.
When Do You Tell Beneficiaries?
State laws determine when the trustee must inform beneficiaries of their status. For trusts based in Washington State, beneficiaries who are 18 years old or above must be informed of a trust in their benefit; going forward, they are enrolled to receive all trust statements and documents sent out by the trustee. Also, should they enter into a prenuptial agreement, they must disclose that they are the beneficiary of a trust(s). By contrast, trusts based in South Dakota (such as the LNW Trust Company of South Dakota) do not have to notify the beneficiaries, allowing for more flexibility.
There is no easy answer as to when to tell family members and others that they are the beneficiaries of a trust. Many of our clients choose to inform children/grandchildren relatively early (as teenagers or young adults) and involve us in preparing their young people to responsibly handle that inheritance.
