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By Liza Horvath


New Era of Trusts


Wealthy families have been using trusts and other estate planning documents for hundreds of years to control assets (and beneficiaries) sometimes for generations. Trusts began to gain popularity in the U.S. around 1970 and they are now part of most estate plans. If you have a home, an investment portfolio and a family, you should probably have a revocable living trust as a key component in your plan. Trusts are great vehicles to smoothly transition wealth to the next generation, avoid court conservatorship should you lose mental capacity and, for some, reduce or eliminate estate taxes on death.


When the dot.com boom of Silicon Valley first began many young software engineers were overnight millionaires and some of these nouveau-riche were understandably concerned that, should their children suddenly inherit millions of dollars, that they may become…well, “Paris Hilton-like.” To address this concern, estate lawyers got busy and invented an “incentive trust” which would reward beneficiaries for attaining certain goals. The trust would provide that should mom and dad die, that big pile of money they had amassed would stay in trust under the watchful and diligent eye of a trustee to be used for the children’s education, care and, if they accomplished certain things like completing a college education, the child would receive a “bonus” from the trust. The idea was to not to simply hand them the money but have the beneficiaries earn it – in a way.  


Fast forward twenty years and many of those trusts are now in practice. Guess what? We have unhappy heirs that feel powerless and angry that they must jump through hoops – educational or otherwise - to unlock money. The intent of the incentive trust was excellent but somehow certain shortcomings are revealed when the plans were put into practice.


How can parents leave wealth to children with some certainty that the wealth will help nurture and support the child rather than leading the child to wild or irresponsible behavior? Parents are concerned that their children may lack certain wealth acumen and wonder if a child will value money that is so readily available and so easily received? Parent’s fear that easy money may lead a child to become a spendthrift, succumb to the allure of life in the fast lane, or that the child may give the wealth away or lose it to an ex-spouse by divorce.


Enter the “financial skills” trust. Trustees are now being asked to help heirs become more financially adept in order to receive their inheritance. Trustees are instructed to use trust funds to educate and mentor a would-be beneficiary who may need financial coaching. The trust terms only ask that prudent money management skills be demonstrated by a beneficiary for them to receive the trust money and, if they cannot demonstrate the skills, the trustee is directed to help them attain financial proficiency.   


There is no doubt that fiscal responsibility is needed to keep and grow wealth - maybe a trust that requires that a beneficiary be financially competent is a winning solution.       

Liza Horvath has over 30 years experience in the estate planning and trust fields and is the president of Monterey Trust Management, a financial and trust management company. This is not intended to be legal or tax advice. If you have a questions call (831)646-5262 or email liza@montereytrust.com










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