Legacy Planning: Strategies for Success

Many wealth creators have grandchildren. What unique opportunities and challenges do grandparents face in legacy planning?

Grandparents and grandchildren enjoy a sort of unconditional love that is untroubled by the same responsibilities of a parent-child relationship. As a result, grandparents and grandchildren can sometimes come together around important topics even more readily than children and their parents.

For example, I have seen grandparents present at family meetings about their early lives, the struggles they faced and the successes they had, with young and adult grandchildren listening with rapt attention. Simply put, grandparents’ words about legacy hold special power.

But at the same time, grandparents need to exercise that power responsibly. Sometimes grandparents want to “spoil” their grandchildren with continuous gifts, even large gifts like a car or down payment for a home. This behavior can undermine parents’ authority and upset plans parents have made to instill responsibility and hard work into their children’s habits.

As a grandparent, it’s important to talk with parents first before planning large gifts to their grandchildren. That goes for estate planning even more. If a grandparent is planning to set up a generation-skipping trust (GST) to benefit their grandchildren, be sure to talk with the parents first before doing something they may have to live with for decades to come.

Many families use trusts to transfer wealth to the rising generation. How can parents use trusts more effectively?

In our practice and research, we have seen one thing above all else determine whether trusts turn out to be a burden or a blessing in families’ lives: Do the family members see the trust as a living, human relationship or as a dead, legal construction?

Most of the time, it’s the latter. People experience the trust as a convoluted, confusing restriction on their choices. Many beneficiaries say, “A ‘trust’ means my parents didn’t trust me!” This is an attitude sure to lead to resentment and dependency.

So how do you make a trust a living, human relationship? One way is to make sure to explain to beneficiaries your purposes in creating the trust. List those reasons. Tell them about it —  maybe write a letter of wishes explaining to the beneficiaries what you hope the trust will achieve.

I have a colleague who was a fifth-generation estate planning attorney. In his practice he would not write for a client a trust that did not begin with the sentences, “This trust is a gift of love. The intent of this trust is to enhance the lives of the beneficiaries.” Come up with the language that feels right to you, and express it. Then make sure that the trustee understands these purposes, too.

When it comes to choosing a trustee, choosing wisely is a critical step in ensuring that the trust is a human relationship. You want someone who balances good technical knowledge and competency around trusts with a deep understanding of you and your children. You want someone (or an institution) you have complete confidence in and who will be loyal to your beneficiaries.

Finally, consider giving your beneficiaries the power, as they get older and develop their own skills and knowledge, to choose their own trustees. If you make the trust a lockbox to keep beneficiaries away from the money, then they will likely spend much of their time trying to open that box. It’s far better to make the trust a vehicle for the continued growth and flourishing of your beneficiaries’ lives.