The various forms of trusts available to estate planners provide an excellent way for well-to-do clients to pass their assets on to future generations. But for certain people, providing for their heirs may be too vague a goal when it comes to estate planning. Maybe there are specific things they’d like those bequests to be spent on.
Some advisors have begun to create very specific, targeted trusts that allow their clients to control their money from beyond the grave. Some may see this as a way to make good decisions for their children and grandchildren about how their inheritance should be spent; some may see this as micromanaging. Whatever your opinion, there are certainly clients who want to extend that kind of control over what happens to their money.
If your clients are the type who show interest in that kind of control, here are some trust options to consider:
Travel trusts: Many clients work very hard to ensure future generations have all their material needs provided for, but many want to bequeath them something more meaningful than mere objects. Some of these people have begun turning to travel trusts.
Bequeathing travel to one’s heirs may seem like an extravagance, but for many people, it may be very important to the identity they want their children and grandchildren to establish. Immigrants may want their descendants to visit the country their family once hailed from. Jewish families may want to ensure their ensuing generations visit Israel. Retirees who have moved to another country may want to simply ensure that younger people visit them.
It’s clients who hold these ideas dear who are most likely to respond to the idea of a travel trust. A travel trust can be created with a limited sum of money — certainly far less than the amount needed to fund a typical living trust. A Minnesota-based travel agency, Travel Beyond, has even set up a partnership with a UBS-affiliated wealth management group to develop a framework for travel, whether for the clients themselves or for future generations.
Incentive trusts: Some heirs do need to use their inheritance in order to get established in life — but they might need more than just money. Clients who are worried that the next generation might just squander their gifts can turn to incentive trusts.
These trusts can be designed to match a person’s income, preventing a layabout from spending a client’s money while also spending a lifetime on the couch. Or they can be designed to match the proceeds of a business, encouraging the next generation to keep the family firm afloat. Other trusts pay out only if the heirs live up to a certain set of rules, such as staying drug-free.
One advisor set up a trust for a client that functioned as a sort of bank. Members of the client’s extended family could receive loans for such things as education or the down payment on the house. And as long as the loans were repaid on time, half the payment was forgiven.
Heirloom asset trusts: Some clients have assets that could be enjoyed throughout several generations, such as a beach house or ski chalet. Or there may be a treasured piece of art that the client wants very much to remain in the family. An heirloom trust can be set up both to ensure the asset doesn’t leave the family and to provide sufficient funds to maintain the asset — so future generations don’t feel compelled to sell it.
Kiss trusts: These simple vehicles are designed to let parents or grandparents design irrevocable savings trusts that specify certain ways in which the inheritance is to be spent. A product of a company also called Kiss Trusts, they’re intended to be a trust option for the middle class, without a minimal gift amount.
One nice feature of these kiss trusts: Since the trust is irrevocable, the assets are not really the property of the heirs. So a young person who is entering college wouldn’t have to declare the value of the trust in his or her assets when applying for need-based financial aid. For more information, see www.kisstrust.com.
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