Seedlings

Guest Post: The “Someones” and “Somethings” of Multi-Generational Trusts

Why a Trust?  I remember the first client who asked me that question.  I wish I could have shared this excellent piece by my dear friend and teacher, Timothy J. Belber.  With Tim's permission we are posting this piece which was originally posted on Thoughts & Commentary. 

The “Someones” and “Somethings” of Multi-Generational Trusts

by Timothy J. Belber, JD on April 20, 2011

With all the litigation around trusts, beneficiaries and trustees, the question of why bother with one in the first place surfaces loudly. Certainly, there are very smart tax and asset protection reasons for trusts. The unhappiness (read: litigation) is generally not about those things. It goes to a much deeper issue -- the human component.

Ever since the first crusader “entrusted” his bishop with his assets, trusts have centered on a very straightforward idea:

One person (the grantor) gives a second person (the trustee) something to hold for the benefit of a third person (the beneficiary).

Too often the focus is on the “something” rather than the “someones”.

We see the opportunity to act differently arising at the very first design meeting. It begins and ends with a new set of questions to be considered by the grantor and the advisors:

• How would you want to be treated if you were a beneficiary of this trust?
• What do you want the coming generations of beneficiaries to say about you and this trust?
• What are the key values and principles that you believe are critical to success in life?

Questions like these can then be translated into a document that could:

• Begin with a simple statement of purpose or faith;
• Be written in the first person;
• Sound like the voice of the grantor.

Consider this opening language from an actual multi-generational trust:

While from a legal and tax standpoint this Trust must be construed from the perspective that I am the sole “grantor,” my children and their future descendants and families should know that its creation was very much a collaboration of the mutual philosophies and ideals of my wife and partner, and myself. We have deliberated carefully on the purposes we would want this Trust to fulfill. Whether this instrument uses the singular “I” or the plural “we” when it speaks of goals, objectives or intent, I want my children and descendants to know that those expressions echo the thoughts and desires of both my wife and me.

The Trust does not exist as an end unto itself. It is merely the means by which we have chosen to share some of our wealth with our children, and eventually our future descendants. It is a framework to help our family better govern itself, and to encourage our children and their descendants to strive to be the best individuals they can be and to seek joy by living in accordance with the values expressed in this Agreement. We hope that this Trust will remind our children to discover the personal growth and satisfaction that can be realized through sharing our good fortune with those who are less fortunate. We also hope the Trustee will offer positive encouragement and assistance to each beneficiary in their quests, crises and challenges.

Perhaps more about the “someones” and less about the “somethings” in the trust equation would lead to better results.

What do you think?

Timothy J. Belber, JD
Director, Family Wealth Services
The Madison Group
[email protected]

MORE LESSONS FROM THE LIFE OF RAY CHARLES

“My mom would say ‘You might not be able to do things like a person who can see.  But there are always two ways to do everything.  You just have to find the other way.” - Ray Charles

 

“He left not only the phenomenal music he sang and recorded, he left the indelible impression on people that it's all right to be yourself" - Johnny Mathis, who recorded a duet of Somewhere Over the Rainbow with Ray Charles just a little over three months’ prior to the Genius’ death

 

Ray Charles’ life was not only a testament to the unique ability each person possesses to overcome adversity and weakness but in finding the way to become the person you were meant to be. 

 

He felt it was important to share his financial success to improve the lives of others.  In 1986, Ray Charles created a private foundation dedicated to providing support in the area of hearing disorders and the empowerment of young people through education.  The vision of The Ray Charles Foundation is to instill in the youth of America that “there is no challenge too great one cannot overcome.”

 

Just a few years before his death Ray Charles gave Wilberforce University, our nation’s oldest African-American college in Ohio, $2,000,000 to fund music scholarships because “"It was what I had to do, and the reason I had to do it is too many people have been good to me."  In 2001 he donated another $1,000,000 to Morehouse College in Atlanta, Georgia.

 

He then gave $3,000,000 to Albany State University.  A few years after his death his personal representative threatened to sue the college to get that money back.  

 

Mr. Charles’s children strongly opposed that move and sent a letter to the attorney for the estate stating: “Ray Charles would be outraged by your threats to rescind the gifts he made...to Albany State U.”

 

Shortly after his death tabloids reported Ray Charles died broke and was a negligent father.  This publicity so angered his children that they shared with the public a very private story about what their father had done for each of them.

 

A few days before Christmas 2002, Ray Charles called a meeting of his 12 children at a hotel in Los Angeles. Few of his children knew each other as they had 10 different mothers.  Ten of the children, ranging in age from 16 to 50 – came to this luncheon to listen as their father told them he was mortally ill and outlined what they could expect from his fortune.  What we know about this family meeting comes largely from Ray’s second oldest son, the Rev. Robert Charles, who recalled:

 

"He called and we had a sit-down lunch...We took a lot of pictures. And we had a really good time getting to know each other. There were 10 of us there because two couldn't make it. My dad talked about how they always wait until a person passes. He said, 'Why do that? I'll give it to you now so you can build on that now.' It wasn't publicized because he was a very private man."

 

At that time, Ray Charles presented each child with a check for $1 million and explained that most of his financial assets would be left at his death to his charitable foundation.  When he passed away it is believed Ray Charles’ holdings were worth between $25,000,000 and $50,000,000.

 

Another son, Ray Jr., responded to the rumors that his father had died penniless with these words:  "How can you be broke when you give us $1 million and pay the taxes on it? What does that tell you? My father was second to none. He died not owing anyone anything. Everything he had belonged to him. He has 12 kids and he recognized them. He gave them $1 million in the prime or peak of their lives."

 

It really doesn’t matter how large Ray Charles’ estate was or how much he left his children.  The key to his personal and family legacy is found in the strength he exhibited in overcoming weakness and adversity and in the desire he had to give something to his children before he died that they could build on.

 

How will you tell your children about what your testamentary intentions are?  In what ways will your personal and family legacy empower your children to build upon what you have given them—both monetarily and through that family wealth that isn’t taxed, your wisdom and experiential reflections?

 

"Heaven wanted some music, and God sent for Ray Charles," - The Reverend Jesse Jackson speaking at Ray Charles’ funeral

 

"Through his darkness, he enlightened and brightened our lives." - Cecily Tyson, who along with Clint Eastwood, was present with Ray Charles at his last public appearance in April, 2004

What Does Money (Wealth) Mean to You?

"Money may be the husk of many things but not the kernel.  It brings you food, but not appetite; medicine, but not health; acquaintance, but not friends; servants, but not loyalty; days of joy, but not peace or happiness."  ~Henrik Ibsen

Someone has said: “The real measure of your wealth is how much you’d be worth if you lost all your money.”

At a critical point in the Civil War Abraham Lincoln was distressed to learn that some of his most trusted officers had been leaking key secrets to the Confederates.   The Secretary of War was pressing President Lincoln for a decision on what to do with the traitors.  Lincoln replied by telling the story of a farmer who loved a large shade tree which stood as a sentinel near his home:

It was a majestic looking tree, and apparently perfect in every way—tall and straight.  One morning the farmer saw a squirrel run up the tree into a hole.  The farmer proceeded to examine the stately tree and was surprised to find the tree hollow from top to bottom. Only a rim of sound wood remained, barely sufficient to support its weight.

What was he going to do? If he cut it down, it could do great damage with its great length and spreading branches. If he let it remain, his family was in constant danger. In a storm it might fall, or the wind might blow it down, and his house and children could be crushed by it.

As the farmer turned away he said sadly, ‘I wish I had never seen that squirrel.’”

Since I heard this story I have thought how the stately but hollow tree is a metaphor for the dangers which occur when family wealth is transferred without meaning.  Meaning is what prevents a family’s financial wealth from becoming a hollowed out façade that threatens the well-being of rising generations.

The farmer expressed remorse over the squirrel calling to his attention the flaw in the stately tree.  I wonder, however, if the farmer shouldn’t have felt gratitude for the role of the squirrel in alerting him to the danger which he and his family were ignoring.

Is there a squirrel in your life who has helped you understand the importance of creating meaning for your life and around financial resources?  What are you doing to make sure that this meaning doesn’t get disconnected from your family’s wealth?

"Only when the last tree has died and the last river been poisoned and the last fish been caught will we realize we cannot eat money."  —Cree Indian Proverb

The Red Corvette Story

Putting significant wealth into the hands of a young person who hasn’t been adequately coached or trained reminds me of the metaphor of the Red Corvette:


Can you imagine any parent who on his/her son’s or daughter’s sixteenth birthday would announce: 

“Happy Birthday sweetheart!!!  There is a brand new, bright red Corvette in the driveway.  I want you to have as much fun and excitement in life as you can.  I don’t have time to get you over to Driver’s Ed nor to get the car insured.  Here are the keys.  Invite your friends to go with you for the ride of their lives.  Take that red Corvette out on the freeway and see how fast you can get that ‘Vette up to.”

In a sense putting together a training and educational program for next generation family members is all about making sure that before the keys of trusteeship and control get handed over to the beneficiaries they have been prepared for that responsibility and opportunity. 

What form will that training and educational program take?  Will it be purely a text book curriculum where the beneficiary reads books, white papers, etc. and then engages in a dialogue with the trainer?  Could it also include the simulator version where the next generation family member has the opportunity for experiential learning with examples that pose potential “real-life” challenges they might face someday in the future?  Will it also involve an apprenticeship as a “shadow trustee” or “co-trustee?”

What would you recommend to your client or what are you as a parent inclined to include in your customized training and educational program for next generation family members?

Preparing Our Children to See What They Need to See

“People only see what they are prepared to see.”—Ralph Waldo Emerson

In a recent conversation with a client we discussed how she might go about preparing her children for the wealth she wants to transfer to them.  At least part of the answer may lie in the answer to this question: what do we want our children to be prepared to see?

Ted Williams was a legendary hitter.  The key to his success wasn’t just native ability.  Ted Williams worked extremely hard to prepare himself to be a great hitter.  He would take so many practice swings his hands would crack and become bloody.  He walked down the street with one eye closed to strengthen his distance vision.  With a great swing and an eye trained to focus on that speeding speck of a baseball, he produced extraordinary results. 

Vincent van Gogh had a very turbulent and sad life.  Had it not been for his younger brother, Theo, he might not have become a famous painter. Theo believed in his brother, and this faith sustained Vincent.  Theo was financing the education of Vincent and supplying him with paints, canvas, food, and lodging.  But so far Vincent had been a big disappointment and hadn’t demonstrated much effort or vision for the investment Theo was making in him.  In a difficult confrontation, Vincent pleaded, “I want to paint.  I have something inside of me that says I must paint.  Don’t pin me down.  Don’t pen me in.  I must paint.”  Theo replied, “All right, all right, but learn how to hold the brush.”

Both Ted Williams and Vincent Van Gogh ultimately rose to be stars in their respective fields.  Ted Williams got there largely on his own determination and desire.  Vincent Van Gogh needed accountability and direction from a family member who was constant when others had no faith in Vincent.

Preparing heirs is absolutely crucial work.  It requires vision and constant commitment.  While you may want to ask others to assist you with this task, don’t delegate the opportunity of determining what the curriculum for your children should be.  

"Don't waste life in doubts and fears; spend yourself on the work before you, well assured that the right performance of this hour's duties will be the best preparation for the hours and ages that will follow it" —Ralph Waldo Emerson

Making the right decisions today on how to prepare your next generation family members will ultimately prove to be the “best preparation for the hours and ages” which lie ahead of your family.

When it comes to preparing inheritors and trust beneficiaries for what they need to see to successfully navigate their journey in life, what would you recommend?

An Antidote for the Shirtsleeves to Shirtsleeves in Three Generations Proverb

Hearing the stories of prior generations is like someone who is standing on top of a globe.  His vision is limited by the horizon.  When he hears the stories of prior generations it is like he is able to move to the side of the globe and see to the bottom.  The importance of this is that in the cycle of life we will find that truth is one eternal round.  Our future descendants are sure to pass through cycles which our ancestors have experienced.  While the road may be paved with asphalt instead of gravel or dirt, our path and the treks of our descendants 
will pass through the same plains of adversity and valleys of despair.  If we are forewarned of the perils of the journey by the preservation of the personal and life histories of prior generations, it will be like a light shining on a dark path that will not only illuminate the obstacles ahead but give us the conviction that we too can safely navigate our way   - John A. Warnick

My mentor, James E. “Jay” Hughes, Jr., the author of Family Wealth – Keeping It in the Family, has warned us powerfully about the cultural proverb “Shirtsleeves to Shirtsleeves in Three Generations.”  Jay first learned of this proverb in Asia where it is known as “Rice Paddy to Rice Paddy in Three Generations.”

Is there an antidote for this proverb which will allow family wealth to become a positive, rather than corrosive, influence in the lives of next generation family members.  I’m convinced that one of the inherent dangers in intergenerational wealth transfers is that the “money” gets disconnected from its “meaning.” 

How can we make sure that the meaning of money is a positive story?  How can we make sure that our wealth transfer planning is denominated in positive emotional currency?  Those are questions I will tackle in future postings.  But today I want to share with you one antidote which I believe might be a powerful and sustaining influence in the lives of the next generations of your family: the practice of preserving one’s life history.

Another friend and mentor, Scott Farnsworth, co-author of Like a Library Burning, explains that when an individual dies without having preserved their life story it is like a library burning.  Civilization was set back centuries when the great libraries of Alexandria and Rome burned.  Unfortunately, too many people don’t stop to contemplate the fortune in wisdom, insight and life-lessons they have amassed.  That personal wealth will only become family wealth when it is preserved and shared. 

Have you begun the process of saving and sharing your life wisdom and story?

There is a history in all men’s lives    - William Shakespeare

Don’t Put Off Your Opportunity to Leave a Purposeful Legacy

In The Music Man, Professor Harold Hill warns: “You pile up enough tomorrows, and you’ll find you’ve collected a lot of empty yesterdays.”

I recently read the account of a man who after the passing of his wife was cleaning out her personal effects and found an unopened item of clothing she had purchased nine years earlier on a visit to the East Coast.  She apparently had been saving it for a special occasion.

The husband shared this story with a friend and concluded, “Don’t save something only for a special occasion. Every day in your life is a special occasion.”

The friend was deeply influenced by that wisdom and reported: “Now I spend more time with my family. I use crystal glasses every day. I’ll wear new clothes to go to the supermarket if I feel like it. The words ‘someday’ and ‘one day’ are fading from my vocabulary. Now I take the time to call my relatives and closest friends. I’ve called old friends to make peace over past quarrels. I tell my family members how much I love them. I try not to delay or postpone anything that could bring laughter and joy into our lives. And each morning, I say to myself that this could be a special day. Each day, each hour, each minute, is special.”

Arthur Gordon shared this story from his youth: “When I was around thirteen and my brother ten, Father had promised to take us to the circus. But at lunchtime there was a phone call; some urgent business required his attention downtown. We braced ourselves for disappointment. Then we heard him say [into the phone], ‘No, I won’t be down. It’ll have to wait.’
“When he came back to the table, Mother smiled. ‘The circus keeps coming back, you know,’ [she said].
“ ‘I know,’ said Father. ‘But childhood doesn’t.’ ” A Touch of Wonder (1974), 77–78.

Have you been putting off spending quality time with those you care the most about or expressing thanks to that mentor, teacher, or friend who made a difference in your life?

What can you be doing to leave a Purposeful Legacy to your loved ones and to make a difference in the world you will someday leave behind?

 “The bitterest tears shed over graves are for words left unsaid and deeds left undone.”-- Harriet Beecher Stowe

The Protective Power of Meaning - Part 2

The Chinese Meaning of Money

George McDonald observed that “it is by loving and not by being loved that one can come nearest to the soul of another” (George McDonald Anthology, Geoffrey Bles, London, 1970)

Everytime I read the words of George McDonald I am reminded of this powerful lesson which a Chinese-American friend of mine shared with me.  During lunch one day he surprised me with this question:  “Do you mind if I ask you some very personal questions?”

“Not at all,” I replied with a growing sense of curiosity over where this turn in the conversation was taking us.

“I’ve shared with you a little bit of my Chinese heritage and my feelings about the importance of family.  But let me ask you a few questions about how you, as an American, view money, gifts and inheritance and then I’d like to contrast that with what I was taught the Chinese view is.  So tell me, what does money mean to you?”

I was somewhat disarmed by the question.  A number of concepts raced through my mind.  “Well,” I replied, “it really can mean or represent a lot of different things.  For instance, money is a medium of exchange.  It is the way I buy goods or services.  But it also represents power and status.  On the negative or dark side it represents control and dependency.  And perhaps at the highest level it means opportunity, stewardship…”  My voice trailed off as I thought of the powerfully positive ways in which I had seen some of my wealthy clients put their money to use.

“That is such an American definition,” my friend chuckled gracefully.  “Now would you like to learn how the Chinese view the money which they receive as a gift or inheritance?” 

“Oh, yes.  Please teach me.”

“In China, when we receive an inheritance we view it as the life energy of the person who has given us that money or property, whatever it is.  It represents all of their love, toil and experiences.  In fact, in a way it not only represents the culmination of their life’s efforts but it is an extension of the opportunities, successes and sacrifices of all of their ancestors.  So when we spend some of our inheritance, it is to us as if we are spending the life energy of our ancestor(s).”

It was in that moment that I first began to understand that there is another meaning to money which could dramatically change the way inheritors and trust beneficiaries regard the wealth they receive.  Is there another paradigm around the meaning of money you can share with us?

Unsafe at any level

When I ask wealthy grandparents what their greatest fear is I often hear an answer which translates to:  “I don’t want my granddaughter to grow up to become a Paris Hilton.”  While I have seen that wealth may accentuate the inherent difficulties of successfully launching children and grandchildren in life, I’ve also witnessed that entitlement can manifest itself at levels of wealth that most in the United States would consider mainstream middle class.  This has led me to conclude that wealth transfers can be “unsafe at any level.”

You may recall Ralph Nader’s best-selling expose of the automobile industry entitled Unsafe at Any Speed.  What Nader had discovered was an industry which was sacrificing safety in favor of the style, comfort and speed that consumers were demanding.  Nader focused on one particular car, the Corvair, which he alleged was unsafe at any speed because of inherent design and safety defects.

I would suggest that conventional wealth transfer processes and techniques are unsafe at any level.  Please don’t misunderstand my point.  I’m not alleging, as Nader did, that the industry itself is consciously choosing to produce unsafe vehicles.  Estate planning attorneys and financial planners aren’t intentionally seeking to create obstacles to the successful launching of children and grandchildren in life.  In fact, as I talk to planners all over the country I am convinced that their intentions are to assist their clients and their client’s families.   They are anxious to discover ways to improve the process and the results. 

And most clients don’t intentionally want to destroy the future happiness of their heirs.  There are a few who use estate planning as a means to punish their children or grandchildren.  But the vast majority of individuals want to enhance the lives of their children and grandchildren.  They want their heirs to have greater happiness and opportunities than they enjoyed.

Unfortunately, wealth transfer is a process very similar to the metamorphosis of the cocoon.  It doesn’t happen  overnight.   Even when the wealth is transferred suddenly, we don’t see its effect within 24 or 48 hours.  Often the unintended consequences of wealth transfers only become evident over the life cycle of a generation.  By the time they become apparent the transferor may have passed away or otherwise lost his or her capacity to positively influence the recipients of that wealth.