In our last few blogs, we talked about the recent proposed tax changes from the Fed.’s and how they affect planning and trusts.  Today, we’ll focus on the intergenerational transfer of wealth, and how trusts can be useful tools to achieve this important goal.  In this blog, “wealth” means more than money.  Also, don’t worry, we won’t be talking tax or slamming Justin.

First, a refresher – a trust technically isn’t an entity on its own – it’s a relationship between several individuals and/or organizations; the Settlor (person setting up the trust), the Trustee (the person or corporation who holds the assets for the benefit of others), and the Beneficiaries (those who the trust assets are held for).


Traditionally, professionals and their clients see the “why” of setting up a trust as a tax savings/deferral vehicle, or a more efficient way to administer an estate.  These are both great reasons, but using these reasons alone ignores the full “wealth transfer” picture. Remember, the Trust has “Beneficiaries”, so the trust should confer benefits and be a positive experience to them.  It shouldn’t make their life worse!


Whether there has been a liquidation of an asset (real estate or an operating business), or the assets of the trust generate great cash flow, many families find their trusts full of capital that needs to be deployed.  We’ve seen trusts used in some very interesting and creative ways that make the beneficiary’s experience both positive and educational, promoting their growth and betterment.  A couple are:


The family bank


If a beneficiary wants to start a business, instead of just giving them the funds, make them come up with a business plan to be vetted and agreed to by the trustees.  Treat the investment vetting like the process you endured when you approached a bank years ago.  So:


  • Bring in the family’s professional advisors to help craft the plan and provide guidance along the way. This will teach them how to assess a business as well as how to work with professionals.
  • Consider making the investment a loan that needs to be re-paid, or the purchase of preferred/secured shares in the business. Don’t be afraid to charge interest or a fixed annual dividend.  Make sure they understand that this is a trust investment and not a trust distribution.
  • Make the beneficiary accountable with regular financial reporting and trustee oversight. Remember, feedback is a gift.


Whether the business itself can or will be successful is sometimes besides the point.  Having beneficiaries go through a real-world process, taking risks and making mistakes (and maybe even losing money) can be a worthwhile education, and can therefore be a positive investment on the intangible balance sheet.   Remember, this the standard that you were held to – it made you the success you are.


Philanthropic endeavours


Many times, we’ve seen one of the best educational tools for young beneficiaries is philanthropy.  Strategic philanthropy – having the family come up with a mission statement and goals for giving away some of its accumulated wealth – is far more useful than the often-haphazard way of writing cheques at year end, or only donating when asked. So;


  • Allot fixed philanthropic amounts to each beneficiary and teach them (from a young age) about budgeting. Continually remind them that their allocation is fixed.
  • Have them perform due diligence on who they are giving to and how the funds will be used. Ensure that there are competent people on the receiving end.  This goes beyond Google research and often includes volunteer work and interviewing others.
  • Encourage them to really think about why they are giving to a specific organization or cause. A strong mission statement and goals can go a long way in making the right donation.


Strategic philanthropy can have countless positive outcomes to both the beneficiaries of the trust, and to society.


Barbara Hutton, heir to 1/3 of her grandfather, Frank Woolworth’s, estate once stated “I was gutted with privilege, softened by luxury, weakened by indulgent nannies. When you inherit as much money as I did, it destroys whatever incentive or goal you might have.”  Don’t repeat Frank’s mistake.


Hopefully this has been an insightful read.  We’d be happy to help you figure out ways to maximize the positive impact of using trusts, and minimize the pitfalls that we see way too often!


CV TrustCo brings an independent and informed perspective on trust and estate planning combined with the security of a regulated trust company.

CV TrustCo’s team of seasoned professionals work with you and your advisors to design and execute a tailored estate plan. CV TrustCo provides a range of fiduciary services and can act as the executor and trustee of your legacy, carrying out your estate plan as you intended.

The result: you will have a clear understanding of your options, a practical plan for your legacy, and the security and reliability of a financial institution acting as your power of attorney, executor and trustee.

Our estate planning posts consider estate planning issues at a high level.  Before you commence any form of estate planning, please consult with tax and legal advisors.