As we continue to look at the innovations of 21st Century estate planning, we turn to the way estate documents connect people within and between generations. In traditional estate plans, oftentimes each child is treated equally, but separately. Beneficiaries have no “skin” in each other’s “game” and are not required to remain connected by the structure of the documents themselves. Beyond that, the beneficiary often has no real relationship with the investment manager of the trust and makes no connection with the family advisors by the explicit provisions in the trust documents. This lack of connection to both family and advisers can perpetuate family disconnection and helps to ensure that beneficiaries are not likely to receive competent advice that will allow them hold onto the welfare inheriting.
One option designed to remedy this highly individualistic structure is to create an entity which requires siblings to work together (this can even require cross-generational cooperation). These structures ensure that family members and units must work closely enough with family advisers to make joint decisions. Good decisions benefit all and poor decisions are felt by everyone involved.
One particular type of inter-vivos trust that works well is a pooled investment trust. Gifts are made to trusts and the payouts are contingent on participation by the children in the joint management of those funds. This habituates family members in working together around common assets. One trust we recently helped structure made distributions from the trust contingent on a point system. Children and grandchildren were given points based on their participation in the management of the trust, meeting certain personal and collective milestones and their level of cooperation with each other and the process. The accumulated points determined the percentage of payouts on an annual basis.
In addition to this direct experience, some benefit can be had through structures that hold joint family assets (for example vacation properties, boats, or planes). If these assets are held for the common good of the entire family, and require familial discussions and management, they can become a way for the family to maintain ties with one another. Oftentimes families will establish a compound that will become the gathering place for family meetings and provide an opportunity to create shared experiences between otherwise disparate members of the family. One famous example of this type of family compound is the Kennedy home at Hyannis Port.
Finally, for many families, philanthropy can serve as this type of bond, whether through something as simple as a donor advised fund or as complex as a foundation. The work of the family in making investment and distributions can help to engage the family in opening lines of communication, building deeper values of cooperation and engagement and furthering individual and collective development.
Questions
- Do you have experience with these types of pooled asset trusts?
- What do you see as the upside and downside of these from the point of view of the families and the advisers managing them?