For generations, conventional wisdom was that a Trust was only for the wealthy. But this myth is debunked by two fundamental forces: the massive wealth created in Mom and Dad’s lifetimes and the increase in blended families.
First, Mom and Dad are wealthier than any prior generation, full stop. There are 12M families with estates in the $1-5M range. Likely, the majority of that is the family home plus investment accounts and insurance policies. But here’s the thing: $1M is a lot of money! Or at least I think so. It’s worth protecting. It’s worth organizing. It’s worth optimizing.
The second macro trend of an increase in the divorce rate, the social acceptance of partnering, an increase in blended families, and the ever-present truth that humans will human. The story of 2.5 kids with a white picket fence and a dog simply isn’t true enough any more. All of these situations would be well served to be explicit about what is mine, what is yours, and what is ours. Along with who makes the decisions and who is only informed.
The Street recently posted an article touting Bank of America research about the Family Trust. “The bank argues that a trust’s most useful function for most families is keeping the household intact when a crisis hits.” When done correctly, the trust can efficiently and effectively determine ownership and decision rights. And when stored, secured, and shared appropriately, all parties can know the plan before the crisis.
“The bank’s analysis outlined five ways a trust can play a role beyond estate-tax planning:
- Setting parameters for how an inheritance is spent across generations,
- Preparing for incapacity through a successor trustee,
- Easing business succession,
- Providing for family members with special needs, and
- Managing blended families where children from different marriages have competing claims.”
What’s wild is the enduring myth that a Trust isn’t needed. “That belief ranked as the single most cited barrier to action, ahead of procrastination at 23%, not knowing where to start at 17%, and cost concerns at 15%.” This self-belief of being wealthy enough has yet to catch up to the legal implications of being wealthy enough!
And what’s worse, is that Mom and Dad run the risk of tripping at the finish line. “If an estate plan relies solely on a will, it may not address incapacity during the grantor’s lifetime or probate costs and delays after death. It also may not provide detailed control over how and when beneficiaries receive their distributions, Galvagna noted in Bank of America’s analysis.”
We don’t need to suffer through The Great Probate. We can start to have these family conversations at the kitchen table rather than the courtroom. We can start to organize our estates so we can optimize our family wealth, together. We can help move our families forward…