In Estate Planning, Your Values Can Play a Key Role

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Being a parent of five independently minded and capable children who are now at the dawn of adulthood has been the most challenging endeavor that my wife and I have undertaken. The stress and late nights of conquering graduate school and building our careers pales in comparison to building a home for our family and helping our children reach their diverse goals. Learning to be good parents is the most important job that we will ever have, but the one with the least formal training. When newer parents ask us, “What is the secret sauce?”, we reply that clear expectations and consistent values are prime ingredients.

With Holistic Estate Planning, Everything’s Under Control

Lawyers are trained to be observant. Experienced estate planning counsel readily see the dynamics and the driving forces within a family. Some families value formal education, thrift, individual responsibility, strong faith formation and self-reliance. Others value unstructured environments, sharing collective resources and self-discovery. Observant estate planners frequently see how parents’ and grandparents’ personal values and morals drive their estate planning.

I have previously written about how assets can transfer at death directly to your heirs through probate and non-probate means (see my article The Best Way to Protect a Parent from Scammers). If the wealth that you have accumulated by your hard work and thrift transfers directly to your heirs, you have little control over how their inheritance is spent after you are gone. If you have successfully passed your values to your children or your heirs, you should be confident that they will be good stewards of your gifts.

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However, some parents feel it’s important to maintain a level of control over the inheritance and continue to promote their values by leaving a portion, or all, of their estate in further trust. Under this arrangement, a trustee of the grantor’s choice holds and distributes the estate under terms that the grantor sets forth in a trust agreement or in a will creating a further trust.

Typically, the trust’s terms allow your trustee to hold and invest those assets making up the corpus for later distribution of income or the principal balance, with the trustee having sole discretion to enrich the beneficiary’s health, education, maintenance and support. In these cases, the trustee has discretion to make distributions in your stead to support those you wish to care for.

In other cases, the trust’s terms may provide a broader standard, such as providing for the beneficiary’s comfort in their accustomed standard of living. Some trusts provide only for the distribution of income so that a legacy for the future generation remains.

Is It OK to Rule From the Grave?

The trust’s terms provide your trustee with the instructions needed to fulfill your intentions and perhaps perpetuate your values. In addition to these more typical provisions, you may instruct your trustee to make distributions to promote your beliefs. The possibilities are limited only by your desire and the skills of your drafting attorney.

If you wish to encourage gainful employment, your trust agreement may provide that funds can be distributed only in amounts to match the earned income reflected on the beneficiary’s W-2 or a percentage of his or her earnings.
If you wish to encourage your beneficiary to earn a college degree, your trust agreement may provide that the trustee can pay tuition, fees and expenses for an accredited college or university, with a terminating distribution upon graduation.
If you wish to promote marriage, your trust agreement may expressly provide funds for a wedding.
If you wish to discourage substance abuse or encourage treatment, you can provide that distributions may be made only after the trustee receives a negative drug test or periodic testing. My colleague Timothy Barrett wrote more extensively about this topic in his article Trust Provisions Addressing Substance Use Require Flexibility.
If you wish to encourage entrepreneurial spirit, provisions may be made to support the beneficiary while starting a business or to loan trust funds for this purpose.
Your trust agreement may include a preamble or statement of your intentions supplementing its terms and further explaining the sacrifices that you made to accumulate the financial resources making up your legacy.
A statement of purpose may contain a general declaration that your trustee must apply discretion to make funds available to encourage productive endeavors and discourage indolence, sloth or dependence on the trust for support.
If you wish to encourage relaxation or contemplative pursuits, annual distributions can provide for vacations or financial support of your beneficiary while on sabbatical or for reflective work.
Creating a private foundation or charitable trust or requiring distributions to a church or synagogue may be used to model the importance of your faith, giving back to your community and benevolence.

The trust’s terms can provide a roadmap for your trustee to perpetuate your goals and to instruct subsequent generations about those values that you hold in high regard.

What Is Wealth? Shifting Values Change What It Means to Many

The values you carry through your life made you the person you became. Your message doesn’t need to be lost on future generations. A thoughtful and well-drafted trust agreement can allow you to continue to speak to friends and family for many generations.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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James Ferraro is a vice president and trust counsel in the Shreveport, La., and Kansas City, Mo., offices of Argent Trust Company. Ferraro is a 2003 graduate of the University of Missouri at Kansas City School of Law, past president of the family and the law section of the Kansas City Metropolitan Bar Association, is a member of the Tax and Estate Planning Council of Shreveport and a Regional Ambassador for the Kansas City Estate Planning Symposium.