If your named beneficiaries are Millennials—born between 1981-1996—you may want to consider three essential points about your trusts, as explained in the recent article “Trusts For Your Millennial Beneficiaries” from The Street. They’re different from their parents and grandparents, and disregarding these differences is a missed opportunity.
This generation’s distinguishing characteristics and traits include:
- Valuing relations with superiors with a passion for learning and growth.
- Desire to live a life with meaning and make a positive impact on the world and causes.
- Creative and free thinking, looking for outside-the-box solutions and opportunities.
If your estate plan benefits Gen Y, some trust features recommended for Millennials may not be optimal for them. They’re different than their older Millennial counterparts.
Have your beneficiary serve as a co-trustee of their trust alongside an experienced advisor. Millennials appreciate the opportunity to ask for advice from a trusted advisor, secure positive reinforcement and get constructive feedback. Many heirs set to come into money are likely to work with an advisor once they inherit. For them, a co-trustee arrangement could be perfect. Consider naming a family member or friend with a background in finance as their co-trustee or naming a corporate trustee.
Consider giving your beneficiary a limited testamentary power of appointment to support their favorite charity. Millennials want to make a positive impact on the world, and there’s a trust feature you can build into a trust to support this goal: a limited testamentary power of appointment. In broad strokes, this gives the trust beneficiary the power to redirect where assets go upon their death. If the scope of power permits, they could redirect assets to charitable organizations of their choice.
Most people design trusts to last for the beneficiary’s lifetime and then structure the trust so assets remaining at their death will pass in trust to their children in equal shares. Trusts can also be created to change the distribution percentages between recipients. For instance, instead of a 50-50 split, the trust can redirect shares of 70-30 to better accomplish their personal objectives. You can also provide for new beneficiaries, like charities, if they weren’t part of the original trust.
Powers of appointment can be complicated and making them overly broad can have serious and adverse tax consequences. Therefore, speak with your estate planning attorney to make sure the scope of power is clear and properly designed.
Broadly define the standards for which distributions can be made to your beneficiary. Millennials think differently, so the commonly used trust distribution standards of health, education, maintenance and support (“HEMS”) may stop them from being able to tap into trust funds for philanthropic or entrepreneurial efforts. The HEMS standard only allows for distributions generally for purposes to align with the beneficiary’s current standard of living. If you want beneficiaries to be able to do more, they need to be given the ability to do so.
Another way to accomplish this is to allow a disinterested trustee (someone who is not a beneficiary) an expansive distribution authority. Having the ability to make a distribution of trust funds to your beneficiary for any purpose can be a little unsettling. However, naming a disinterested trustee you trust will ensure that funds are distributed responsibly.
Leaving assets in trust for beneficiaries can be part of an effective estate plan supporting planning goals and your loved one’s future. However, if the trust’s structure doesn’t meet their unique needs and talents, then their potential may be dimmed.
To learn more about estate planning in the East Valley, Gilbert, Mesa and Queen Creek, schedule your free consultation with Attorney Jake Carlson by using one of the links above.
Reference: The Street (Feb. 24, 2023) “Trusts For Your Millennial Beneficiaries”