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Estate Planning (Part 3): Securing Assets Through Multiple Generations

{6 minutes to read} This is the third in a series of articles about estate and trust planning. Article 1 defined estate planning and described the trust basics. Article 2 explored various ways a trust can protect an elderly client with dementia and a severely handicapped adult child. In this article, we will explore ways in which a trust can help several family generations achieve goals.

Trusts can play a vital role in helping a family meet personal objectives. Each family situation is different and can come with a wide variety of problems, challenges and solutions. A well-constructed estate plan that is coordinated with the family’s overall wealth planning needs may include specific trusts and provisions tailored for the family. Take the Smith Family for instance:

The Smith Family owns a small, closely-held second-generation family business. It has been very successful. So much so, that there will be significant federal and state estate taxes at the second generation’s death. The family has diligently worked with estate and financial planners to transfer assets to the third generation during their lifetimes so estate taxes are minimized. Complicated trust planning and gifting have been important parts of the overall family strategy.

The Smith family’s primary objective is to avoid the shirtsleeves to shirtsleeves in three generations family experience i.e. the first generation builds the family wealth, the second generation grows it and the third generation loses it. The third generation is still a work in progress and the family doesn’t know if they will retain the company or eventually sell it. Nevertheless, the family’s objective is to retain family wealth across multiple generations, pass on important family values, and give back to their community.

The family knows they can’t predict the future and this makes planning challenging. The family knows they face a myriad of potential issues that will make it difficult to achieve their objectives:

  • Taxes:
    Each generation is confronted with federal and state estate, income and capital gains taxes. These taxes can make it difficult to pass on significant wealth.
  • Expertise:
    Not every member has the ability, experience, knowledge or desire to manage wealth or assets (the business). Lack of expertise can inhibit asset growth.
  • Divorce/Creditors:
    Family wealth can be quickly dissipated in the event of litigation or a divorce.
  • Health/Special Needs:
    Mental health issues, drug addiction and special needs for the disabled can be difficult and expensive issues for any family.
  • Spendthrift Children:
    The affluent and their children may have expensive lifestyles. If the next generation lives beyond their means, it may not take long for family wealth to be decimated.

Trusts may offer solutions to these problems:

A trust can be designed to avoid estate taxation through multiple generations, instead of being taxed at each generation.

A trust can hire professional management so that trust assets (including a business) have proper and appropriate management. Additionally, assets held in trust may be protected from creditors. For example, assets held in trust may not be considered “marital” assets and may not be part of a divorce settlement.

An independent professional trustee may offer bill paying services, budgeting control and cash-flow planning for heirs that are in need of these services. Unfortunately, it is sometimes necessary to restrict access to assets when mental health or addiction is a concern. Profligate spenders may be in need of these services as well.

The Smith Family has clearly defined their goals and the trust is a perfect tool that can help them achieve their objectives over multiple generations. From a financial perspective, they consider the trust a “family bank” and the independent trustee is considered an important advisor. The trust is not the only solution to their objectives but it is one of the many tools that this family will use to pass on wealth and important values to multiple generations.

Please call the Raskin Planning Group if you would like to discuss your family’s wealth planning goals and explore estate planning solutions.

The content of this material was provided to you by Lincoln Financial Advisors Corp. for its representatives and their clients.

Peter Raskin is a Representative with Lincoln Financial Advisors Securities and advisory services offered through Lincoln Financial Advisors Corp., a broker/dealer and registered investment advisor. Insurance offered through Lincoln affiliates and other fine companies. 125 Summer Street, Suite 1400, Boston, MA 02110. 617.728.7433. Raskin Planning Group is not an affiliate of Lincoln Financial Advisors. CRN-1497048-051016

Estate Planning: (Part 1): Does a Young Couple Need a Trust?
Estate Planning (Part 2): Finding Solutions to Unforeseen Problems

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