Transform Your Trust Fund: Discussing Freedom and Responsibility

As a family, it’s crucial to determine how and when to communicate to beneficiaries to ensure the continuity of the family’s wealth and shared ideals. For instance, it’s not uncommon for wealth creators to place guardrails around distributions, aiming to protect the family legacy and ensure responsible stewardship. But without further explanation, these restrictions can sometimes be perceived by inheritors as a lack of trust. So, how can families open the door to a constructive dialogue about distributions?

Nurturing Values 

Having built incredible success, it’s natural for wealth creators to worry that their guiding principles may not manifest in the next generation, who benefit from growing up with newly created wealth. That’s especially true if inheritors enjoy the fruits of hard-won success without hearing the lessons learned during the struggle to get there. These points emerged clearly in our proprietary research, Wealth Beyond Measure, which featured extensive one-on-one interviews with 40 UHNW Bernstein families from around the world.

“My biggest fear is creating trust fund babies,” said one business owner who wanted to ensure future generations remained productive despite the financial means afforded by the family’s good fortune. This sentiment was echoed when we asked families to rank their most important values. Hard work was cited most often, while responsibility and self-reliance also figured prominently in the responses.

To instill these ideals, some wealth creators attach “strings” to wealth distributions, hoping to nudge their heirs toward responsible stewardship. However, without a clear explanation, these well-intentioned measures can feel more like shackles than support, leading to misunderstandings and missed opportunities for growth.

Fostering Ambition Through Open Communication

In our experience, straightforward guidance and communication around distributions can help prevent conflict down the road. For many families, that involves identifying values first.

One family we spoke with had very real concerns that once their adult children became aware of the magnitude of the family’s wealth, their ambition and career aspirations would wane. They had several trusts in place, with looming age-based distributions, but had yet to have a comprehensive conversation about them. “We haven’t included them in conversations. We need to have a bigger conversation about the wealth but don’t want to sound too restrictive or too negative. We don’t want to alienate them…but at the same time we want to say, ‘Money goes so fast.’ Yes, that’s what I think we both want to say. ‘Your father worked hard for this. How dare you just spend it on frivolous things? Be smart with your decisions!’”

To level set, the family engaged in a formal values exercise. The couple started by understanding their own values, including shared overlaps and differences. Next, their children went through the same process. Finally, they all met to discuss the findings, identify their collective shared values, and convey important messages. By prioritizing values, they created a safe space for open dialogue and were able to express their hopes and fears to their children. And the approach allowed the couple to frame the conversation in a supportive yet direct manner.

Balancing Guardrails and Growth

Both open communication and financial modeling are vital to ensuring that family members understand the limitations of distributions and put together a financial plan that aligns with their means. Underscoring this, one family noted, “As part of our last family meeting, we discussed the trust allocations and our estate plan. We wanted to set expectations for what the trust would pay for, what it wouldn’t pay for, and that a meaningful portion of our wealth was to fund a family foundation that we hoped the kids would want to be involved in.”

Maintaining flexibility when crafting an estate plan is also key. Instead of dwelling on specific events or circumstances, center your plan around your underlying beliefs and principles. For instance, imagine you want to support your heirs’ development by creating a trust that will distribute funds for educational purposes. While this may seem straightforward, many life experiences outside of traditional educational programs can help develop life skills.

What if a child or grandchild wishes to take a “gap year” before entering college to travel the world and develop greater self-reliance and an appreciation of other cultures? If the trust agreement only authorizes distributions for “education,” the trustee may feel constrained to disburse funds solely for higher learning. However, if the trust allows for distributions to cultivate certain attributes or skills, it may better support a variety of experiences, in keeping with your true goals.

Trusts and Truths: Opening Up About Wealth Distributions

Once you’ve established a plan, it’s equally important to keep it up to date and determine how and when to communicate it. In many families, children know that trusts are in place, but are they in tune with the reality of the situation?  

One father spoke to some of the challenges he foresees as his young adult children get closer to an age when they’ll receive distributions. “This is hard—I’ve been wrestling with this—do you do a percentage of how much they all make, or when they turn 30 do I give them X amount? I want to give them access to some of the money when they need it. It’s not for going to Europe for three weeks, or a Porsche. We had to establish those trusts so quickly when we were selling our business—it was like Boom! We got to get it done. So now it’s really about making some decisions and communicating that to them in the right way.”

Opening the door to constructive dialogue about wealth distributions is not just about managing assets; it’s about nurturing a shared understanding of values and aspirations. By engaging in open conversations, maintaining flexibility in your estate plan, and communicating your intentions clearly, you can empower your family to be responsible stewards of significant wealth.