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Trustee Beneficiary Education: When do you Start?

Trustee Beneficiary Education: When do you Start?



Here in Asia the older generation are often very secretive about family wealth. However there are ways in which you can train and educate the next generation in an age appropriate manner, in order to ...

Here in Asia the older generation are often very secretive about family wealth. However there are ways in which you can train and educate the next generation in an age appropriate manner, in order to prepare them to be good owners and good beneficiaries and good stewards of the family wealth.



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    Trustee Beneficiary Education: When do you Start? Trustee Beneficiary Education: When do you Start? Presentation Transcript

    • Trustee Beneficiary Education Making the case for age appropriate  beneficiary training & education
    • The Richest man in Human History, born 1839
    • Almost 20% of the richest people in recorded history are Americans who were born between 1830 and 1840Listing Name Wealth in USD Billions Birth Year1 John D Rockefeller 318.3 18392 Andrew Carnegie 298.3 183528 Frederick Weyerhaeuser 80.4 183433 Jay Gould 67.1 183634 Marshall Field 66.3 183435 George F Baker 63.6 184036 Hetty Green 58.8 183444 James G. Fair 47.2 183154 Henry H. Rogers 40.9 184057 J.P. Morgan 39.8 183758 Oliver H. Payne 38.8 183962 George Pullman 35.6 183164 Peter Arrell Brown Widener 33.4 183465 Philip Danforth Armour 33.4 1832Source: Outliers, The Story of Success by Malcolm Gladwell 3
    • In 1934 many of the wealthy US families created trusts• In 1934 in the US President  Roosevelt and his New Deal  advisors sought to encourage the  redistribution of wealth through  taxation policy• In May 1934, the US Revenue Act  of 1934 increased the maximum  rate of estate tax from 45% to 60%.• Maximum rates of gift tax were to  be increased from 33%  to 45%  with effect from 1 January 1935• Many of the Wealthiest US families  transferred wealth into trusts in  1934 prior to the pending gift tax  increases and to avoid estate taxes  on death.  4
    • Today the potential for inherited wealth from these 1934 trusts – andothers created since - to harm the lives of their beneficiaries is well very understood and the lessons learned have been well documented Family Wealth, Keeping it in the Family, by James E. Hughes Jr Navigating the dark side of wealth, a life guide for inheritors by Thayer Cheatham  Willis The Golden Ghetto, the Psychology of Affluence, by Jessie H., O’Neill Children of Paradise, Successful Parenting for Prosperous Families, by Lee Hausner,  PhD Inherited Wealth, Opportunities and Dliemmas, by John L. Levy The Legacy of Inherited Wealth, Interviews with Heirs by Katherine Gibson &  Margaret Kiersted 5
    • One of the lessons is that having a trust does notguarantee that your heirs will have productive lives; in fact it can be the opposite  Common wisdom is that a Trust structure can  help overcome the “Shirt sleeves to shirt  sleeves” proverb.   But on the contrary, sometimes a Trust can  help this Proverb come into being.    This proverb is based on the third generation  not knowing how to Work; not being taught to  be Good Owners; and not being allowed to  follow their own Dreams and Calling.   Beneficiaries need training and education  on  their roles and responsibilities under a trust  Beneficiaries need a financial education  Beneficiaries need to be taught to be good  owners  If you want to avoid doing harm to  beneficiaries, then you have to invest in their  personal dreams  6
    • Lack of communication about wealth can create its own self fulfilling prophecy “We don’t “We won’t want our talk to our heirs to be heirs about spoiled by money” the money”Result: The Money is amoney has taboo topica negative in our impact on family the heirs The heirs are not prepared to integrate the money into their lives 7
    • Mixed Money Messages can easily happenThe messages being sent by The messages that could be Possible Unintendedthe parent received Consequences“We want to protect you because “We don’t trust you” Belief that my parents do nottoo much money has the trust mepotential to take away the “Money is bad” Low self esteem of beneficiariesmotivation to work and to lead anormal productive life” Aversion / avoidance of money“Money is not something we talk “Money is a taboo topic No preparation to deal withabout” in in our family” money / inherited wealth“Don’t spend / touch the family “The money is more important Low self esteem of beneficiariesmoney” than you are” Aversion / avoidance of money No preparation to deal with money“You have to steward the family “The money is more important Low self esteem of beneficiariesmoney” than you are” Aversion / avoidance of money No preparation to deal with money 8
    • Secrecy does have advantages, some real, some perceived• There is less work to do now• It avoids hard conversations • Don’t have to do the hard work of figuring out how to train beneficiaries • This is what happened to our generation• If we tell them there is a trust they may lose motivation• If we tell them about the money they may lose their motivation• It is good for them to have to learn to stand on their own feet• We want them to grow up as normal as possible • The money won’t act as a disincentive while they are young• If they don’t know about the terms of the trust it will give us flexibility to  make changes later on• We can watch how things go and make appropriate adjustments• If they don’t know about the trust they can’t talk about it and so this will  keep it more confidential  9
    • But secrecy also has disadvantages• What happens if something happens to the settlor leaving the beneficiaries  unprepared – you don’t know when the settlor’s time will come• How secret is the secret really? Can’t the beneficiaries figure out the family is  wealthy?• No chance to talk about the family values, No chance to talk about what it means to  be a steward, No chance to talk about what money means• No chance to talk about the meaning of work,• Beneficiaries left wondering “why me”?• “How come you don’t trust us?” • Many beneficiaries suffer from self esteem issues, Many beneficiaries lack direction  in life, Many beneficiaries feel “trapped”• No chance to learn what to expect from a trustee / how to hold a trustee properly  accountable / no chance to learn to understand trusts• No chance to learn how to be a good owner / No financial education   • No chance for beneficiaries to give input on how the proposed trust might impact  on them 10
    • Training and Educating Beneficiaries also has critical advantages• They can be taught family values• They can be taught the meaning of money• They can be taught to be stewards• They can be taught to understand investing  and to be a good owner• They can be taught how to handle  confidentiality• They will feel trusted and responsible• Some of the next generation may be good  at taking on certain roles in the structures  or in the management of the family  financial wealth – they can select what  they are good at doing. 11
    • Training and Educating Beneficiaries also has critical advantages• They will know what they should  expect from a trustee• They will know how they should  behave to be a good beneficiary • They will understand trust structures  and any associated tax or legal issues  that effect them• The beneficiaries can teach the next  generation how to responsibly deal  with inherited wealth    12
    • The downsides of trainingand education are managedby making it Age AppropriateThe key question becomes:What do you tell your heirs at which age? 13
    • Family Philanthropy is one way to prepare and teach heirs without having to make full disclosure of estate plans 14
    • Passing the baton successfully is based on age appropriate communication, disclosure, education and training 15
    • For more information, including articles to download, and videos to watch, please visit our web site at www.familylegacyasia.com Family Legacy Asia (HK) Limited Contact: Christian Stewart Email: cstewart@familylegacyasia.com URL: www.familylegacyasia.com Office: (852) 2369 3309 Fax: (852) 2369 3613 Unit A, 9th Floor 1 Chatham Road South Tsim Sha Tsui Kowloon, Hong Kong16