Bernstein’s predicament is familiar to many wealth creators. They fear that ingenuity, ambition and financial savvy will fund complacency, lack of ambition and extravagance in their offspring. Their goal is to imbue their children with the entrepreneurial flair that has enriched their lives, and they also want to ensure that the young people will see wealth not as the resource for supporting a dissipating luxury lifestyle, but as a tool that allows them to find fulfilling ways to support themselves.

TOP VIEW: A family bank—a modified form of dynasty trust—is a tool that can reflect a family’s values and priorities while providing children or other heirs with both support and incentives to pursue entrepreneurial projects. The most successful family banks employ trustees who can help approve or veto requests for funds and prescribe standards and procedures for obtaining loans or grants. But families must take care to set clear standards for disbursing funds and be prepared to take action if a family member violates the trust’s provisions.

Bernstein’s method is the family bank, a form of dynasty trust that provides a perpetual financial resource, along with ongoing tax advantages and asset protection. Because of its long-term nature and flexibility, many people use it to define their values and priorities for their families and to encourage them in certain behaviors—toward public service or the arts, for example. Bernstein wanted to promote education and employability, so he funded a trust to pay for his sons’ education until they are 28. Following that, they can still tap the trust for schooling, but they have to show a plan to make a living within a certain amount of time from the additional training.

Family banks can make outright distributions, just like all trusts, but in practice they are best utilized to provide loans and direct investments for family business, real estate and education. In fact, most family banks have rigid standards stipulating these uses. This arrangement gives heirs access to this money while keeping it out of their taxable estates and beyond the reach of anyone who might sue or divorce them. This strategy also enables the trust to renew itself and grow as loans are repaid and interest and investment returns accrue. The Bernstein family bank decrees that the children can ask the trust for noneducational endeavors, but they need to make a case for their ideas to the trust’s advisory board, which includes Bernstein, his wife and three trustees.

The oldest son, a musician, was interested in living off campus when he went away to college so that he would have practice space where he lived. He researched the local real estate market, came up with figures comparing the costs of renting and buying, then devised a plan to sublet part of a house to roommates to cover the ownership costs. He also researched mortgage rates so the trustees could decide whether it was more cost-efficient for the trust to lend him the money or to cosign on a mortgage. In the end, the trustees approved his plan to buy a house and lent him the money to do it. He still lives in the home.

"It’s a lot of work to make sure you aren’t just giving them things," Bernstein says. But, he adds, he is already seeing the payoff for these efforts. The musician, who recently graduated, would like to set up a practice studio and has begun researching the economics of it—such as where and how to set it up at a reasonable cost and how to rent out time to others—so that he can present another plan to the trust. "When he wants to build this studio, he can use it as an income source for his lifestyle. And he has an entrepreneurial path that he’s familiar with for how to make that work," Bernstein notes.