|
|
 |
|
| Pay It Forward |
The Lure of Dynasty Trusts
Michael Sisk
12/01/2003
|
Not all states are so trust-friendly. For instance, courts in Massachusetts, ccording to Farber, have begun to count dynasty trusts as part of the overall estate—even if the trust’s assets cannot be touched. If a couple has $1 million in non-trust assets and $2 million in trust, the courts might consider the estate to be worth $3 million. If both are due $1.5 million, but by law the judge cannot touch the trust, the court might give the entire $1 million in non-trust assets to the spouse who is not the trust beneficiary.
Family issues must also be carefully considered when structuring a dynasty trust. Wachovia’s Jozik cautions clients to consider the risks of discord. The psychological and family considerations involved in setting up a dynasty trust must be weighed carefully. She says she is careful to probe and learn the family dynamics, asking questions that help to clarify what the consequences of their decisions might be for the family: Will children feel hurt, believing their parents do not trust them with the money? How might beneficiaries react if in the future a trust manager makes disbursements to one beneficiary and not another? Will the trust specify how to treat the children of first and second marriages, or will it leave this to the judgment of the trustee? Will beneficiaries become too dependent on the trust?
If these issues can be resolved, other challenges await. Stone finds one of the most difficult aspects of establishing very long-term trusts centers on the choice of trustee. When a bank is chosen to administer a dynasty trust, the grantor has tied the fortunes of the family to that bank for a potentially long time—but not necessarily forever. Financial institutions come and go; the trust agreement should specify how, if the trustee bank is eventually acquired or goes out of business, a new trustee should be chosen. If not, a court will have to decide the matter. This is another area of potential conflict. Also, there must be adequate checks and balances and a process for removing the trustee if necessary. "Having a trustee answerable to no one," Stone advises, "is a very foolish way to go."
If a family determines that a dynasty trust—structured with enough flexibility to serve the needs of succeeding generations—will assist in achieving its long-term, multigenerational goals, then it can serve as an effective wealth management tool. But flexibility is crucial: Changing a trust is an expensive process that can drain resources. Heyl recently interviewed to take over the management of a billion-dollar trust. "It was a lengthy interview process," he says. "There was so much money involved, it almost seemed like litigation. It was not a cheap process. You could see the attorney hours rack up."Photography by Eric Tucker
|
|
|
|
|
|
|
