Trustees must build rapport with younger beneficiaries

By Pamela Lucina

When 28-year-old Brady lost his mother to a sudden illness, in addition to grief and loss came questions about how to manage a large trust created by his mother. The mother’s estate plan distributed her controlling interest in the family business and other assets into separate trusts for Brady and his siblings, with each trust governed by Brady’s uncle Charlie, as trustee.

His mother had passed away before she or Charlie had a chance to discuss her intentions with Brady. When Brady learned that he was the sole beneficiary of his trust, he wanted a say in its direction. After all, he had a strong network, including many entrepreneurially minded individuals who had succeeded in their own businesses. He thought the trust should be invested directly into several startup companies that focused on alternative energy, vegan milk and cannabis. He contacted the trustee right away and made several recommendations for deployment of the investable assets.

Brady perceived that Charlie was dismissing all his recommendations. He figured this was likely because he was young and Charlie had a paternalistic style. Charlie, however, was not opining on the strength of the recommendations. His legal advisers had told him that the ideas were in conflict with the constraints of the trust and his fiduciary responsibilities. According to the trust document, the trustee was allowed to retain the family business, although it represented a large concentration in the trust. As for the other assets of the trust, Charlie had an overall duty to diversify and invest them prudently. Charlie was told that risky investments in a handful of trendy companies would jeopardize the principal and violate the trustee’s legal duties.

Charlie explained to Brady that he was required to respect the rules as stated in the trust document. Therefore, he told Brady, as a trustee he could not act on the ideas Brady had suggested. After many heated discussions, Charlie sent Brady the trust document, which was full of legal jargon and was hard for Brady to follow. When Charlie tried to enforce the rules, Brady grew increasingly frustrated with his inability to control the trust. Animosity grew between Brady and Charlie to the point where it became a source of angst for Brady and an issue for the family. This was the exact opposite of his late mother’s intent.

Misunderstandings and conflict occurred here because of a lack of empathy for what each party brought to the relationship, based primarily on a lack of effective communication taking generational differences into account. Shifts in attitudes, preferences and behaviors are redefining many aspects of our culture, and estate planning is no exception.

There is rarely a one-size-fits-all approach to the trustee-beneficiary relationship. Generational divides between trustees and beneficiaries can present especially unique challenges.

By emphasizing engagement, encouraging the beneficiary to become an active participant in the trust and respecting the spirit of the beneficiary’s proposals, a well-prepared trustee can foster communication, ultimately reducing the likelihood of conflict and misunderstandings while honoring the intentions of the trust creator.

Overcoming obstacles
The primary criterion for choosing a trustee is the ability to communicate in a way that optimizes the chances for the relationship to thrive and for the trust to function as originally intended: as a tool for security and happiness. Here are some steps that trustees and grantors (trust creators) can take to increase the likelihood of a productive relationship between trustee and beneficiary.

• Identify beneficiary expectations set by the grantor. If possible, this should be discussed very clearly, as early as possible before a trustee is chosen. Discuss the values that the grantor is trying to incent with the trust. If the grantor is deceased, the trustee could interview family members or the family office to understand the grantor’s goals. It may be helpful for the beneficiary to participate in these interviews and hear from family firsthand.

• Work to understand what drives the beneficiary. The beneficiary’s main motivations may not be monetary. A trustee should strive to understand what makes the beneficiary tick. With this understanding, the trustee should seek to align investments with the beneficiary’s personal values, while honoring the parameters of the trust.

• Articulate the trust’s terms and goals in plain language. A trust document at its core is a contract. The beneficiary must understand the agreement in order to have a sense of what is reasonable and what is not. However, the trustee should avoid lecturing and instead mentor the beneficiary, or work with qualified advisers who can readily connect and explain trust and financial concepts in language the beneficiary understands. Using visuals such as flow charts and avoiding complex legal jargon can help with these discussions. The trustee, and any other advisers, should be respectful and approachable so the beneficiary doesn’t feel embarrassed to ask for help going forward.

• Leverage webinars and other self-study tools that can be accessed remotely. The trustee should take advantage of digital content to help educate the beneficiary, and identify possible solutions to cultivate areas of investment interest. Meeting the beneficiary halfway can show that the trustee respects their ideas and wants an engaged relationship. Could the trust, for instance, loan the beneficiary money to invest in a startup personally rather than making the startup an investment of the trust?

• Show graphically how proposed investments impact the trust over time. The trustee should explain factors affecting an investment’s performance to underscore the importance of prudent investment selection.

• Create a chart that shows the risk of concentration and the effects of overspending. The trustee can use real-life examples to illustrate how poorly managed resources can be quickly and irreversibly depleted. This will help the beneficiary understand the impact of their financial behaviors on the trust assets.

• Encourage the beneficiary to take an active role. The beneficiary should endeavor to learn more about the trust and the constraints of its structure, and should take steps to provide budgets and business plans behind their investment ideas.

Communication is key
A successful relationship requires ample patience and understanding. When the relationship involves parties from different generations, communication serves an essential role in the trustee’s ability to uphold the intentions of the trust creator as well as positively engage the beneficiary.

The family business owner should choose a trustee who takes steps to understand what really motivates the beneficiary. The trustee should seek to communicate with the beneficiary in a way that resonates with their style and preference. In the case of someone like Brady, taking advantage of savvy digital tools and using plain, understandable language can go a long way.                                                                  

Copyright 2019 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.

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Issue: 
November/December 2019

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