For trustee-beneficiary relationships, communication and understanding are the keys to building successful partnerships.
There has been much said regarding the changing face of communication and how it is impacting members of younger generations, many of whom are more accustomed to interacting with one another digitally than in person. But tech-driven chasms are far from the only divides that can stand in the way of ideal communication between generations, particularly in the realm of trust administration.
Take the case of Zoey. In our example, Zoey is a bright, young 28-year-old trust beneficiary driven largely by her personal values and interested in contemporary investment trends. While the trustee charged with overseeing her trust appreciates her enthusiasm, he is bound by the parameters of the trust as established by Zoey’s late father. In this scenario, Zoey grows increasingly disappointed with her inability to control the trust the way she wants, and animosity grows between her and the trustee to the point where she views the trust as a source of frustration. This is the exact opposite of her late father’s intent.
Understand Your Audience: Interesting Facts About U.S. Millennials1
Such situations are not uncommon, and the dynamics at play can adversely affect trustee-beneficiary relationships even in less starkly polarized situations. While it is important not to paint with too broad a brush, the communication style of today’s young adult trust beneficiaries often benefit from an engaged trustee-beneficiary relationship that recognizes the communication characteristics of younger generations. More than ever, such beneficiaries are responding to trustees who are authentic, transparent and take the time to understand the beneficiary’s aspirations and personal values.
The Case of Zoey
A Beneficiary’s Good Intentions
In our example, Zoey is the intelligent, ambitious millennial beneficiary of a large trust created by her father. Zoey’s father passed away suddenly, and his intentions for the trust were not thoroughly discussed. Instead of being a source of security and happiness as intended, the trust – which owns a sizable interest in the family business as well as a portfolio of marketable securities – has increasingly become a source of angst for Zoey. She has even gone so far as to describe it as “a pure burden.” Her frustration, though, is not caused by having distribution requests denied, but because she feels the trustee views her as incapable of managing her own financial life.
Over the last few years, Zoey has enthusiastically proposed several ideas for investing the trust assets. She is interested in owning digital assets and in cryptocurrency markets, and she wants to identify profitable investments that also “do good.” She realizes that she is an inexperienced investor and needs help performing due diligence on her ideas. But at this point she feels her proposals have been disregarded so many times that the trustee’s decisions are unreasonable and arbitrary.
The Trustee’s Perspective
The trustee is just as frustrated. While he would like to entertain Zoey’s investment ideas, he is operating under the constraints of the trust and his fiduciary responsibilities. The family business already represents a large concentration in the trust, and adding another type of investment would jeopardize the principle and violate the trustee’s legal duty to diversify. He must respect the father’s intent as stated in the document and therefore has told Zoey that he cannot act on her ideas. He views the trust document as a set of rules, written by experts, to be followed without question. When he has tried to enforce these rules, Zoey often feels as if she is being lectured, and the meetings end in conflict.
Zoey and the trustee’s mutual frustrations stem from a lack of effective communication and understanding about actions undertaken by the trustee. Zoey may not always agree with the trustee’s decisions, but she may be more willing to accept them if she clearly understood his rationale.
Approaches to Solutions
The trustee and the beneficiary can benefit from better communication that recognizes both the father’s intent and the ideals Zoey brings to the table in order to identify a mutually satisfying solution. This approach admittedly requires more work on the part of both the trustee and the beneficiary. But when the beneficiary is engaged, the chances for the relationship to thrive and for the trust to function as it was intended, as a tool for security and happiness, increase dramatically.
The trustee might consider taking the following steps to help engage the beneficiary:
Identify beneficiary expectations set by the trust creator, or grantor. What values is the grantor trying to incent? If the grantor is deceased, the trustee could interview family members or the family office to understand the grantor’s goals.
Try and understand what drives the beneficiary. The beneficiary’s main motivations may not be monetary. The trustee can make efforts to align investments with the beneficiary’s personal values.
Articulate the trust’s goals in plain language. The trustee should avoid lecturing and instead mentor the beneficiary on trust and financial concepts in language the beneficiary understands, using flow charts and avoiding complex legal jargon. The trustee should be respectful so the beneficiary doesn’t feel embarrassed to ask for help going forward.
Send bite-sized learning opportunities using technology and visual tools to explain concepts. For younger beneficiaries, this is often an intuitive and comfortable way of learning.
Provide access to webinars and other self-study tools that can be accessed remotely. Identify possible solutions to cultivate areas of investment interest. Meeting the beneficiary halfway can show that the trustee respects her ideas and encourage an engaged relationship. Could the trust, for instance, loan the beneficiary money to invest in a start-up rather than make it an investment of the trust?
Show visually how proposed investments impact the trust over time. Explain factors affecting the investment performance to underscore the importance of prudent investment selection.
Show the risk of concentration and the effects of overspending on a chart. The trustee can use real-life examples to illustrate how poorly managed resources can be quickly and irreversibly depleted.
Set expectations for success. For her part, Zoey should endeavor to learn more about the trust and provide workable solutions behind her investment ideas.
There is rarely a one-size-fits-all approach to the trustee-beneficiary relationship, and generational divides between trustees and beneficiaries can present unique challenges. But by emphasizing engagement, encouraging the beneficiary to become an active participant in the trust, and respecting the spirit of the beneficiary’s proposals, the trustee fosters communication, reduces the likelihood of conflict and misunderstandings, and honors the intentions of the trust creator.
Grantor Perspective: Statement of Wealth Transfer Intent
For grantors, selecting a trustee who has the capability, character and patience to work productively with beneficiaries is key. Creating a statement of wealth transfer intent (SOWTI) to accompany your trust can also help ensure your intentions are clear. Written in plain English, a SOWTI2 can provide guidance about your expectations and priorities in how the trust is administered. It can address:
- Legacy intentions for the trust, including intentions for generations not yet born
- Employment goals for beneficiaries
- Beneficiary lifestyles deemed acceptable or unacceptable
- Guidelines pertaining to education, healthcare, travel and distributions
- Stipulations covering investment parameters or charitable giving
- Direction on beneficiary rights of survivorship
The accomplishment of the goals articulated in the SOWTI may be one of the most important measures of wealth transfer success. To learn more, read The Goal Standard of Estate Planning.