Wisdom in Wealth

Strategies, Stories, and Lessons Learned Over the Course of 25 Years Helping Families Plan Their Financial Lives

Wealth is Complicated

By Bill Beynon | May 08, 2020

Asset 1-2Wealth is complicated.  Largely because every family is different, but at the same time, the similarities I have found in unrelated families, have always amazed me.  

The stories repeat...only the names change.  Finding an advisor that specializes in working with wealthy families and the complexities that come from wealth, may be the most important decision you make.  

How many times have you heard “A Leopard Cannot Change Its Spots”?

The saying expresses the notion that we cannot change our innate nature or character.  In my experience, I have come to believe that it is almost impossible to change the natural inclinations of people.  Although I never say never, my experiences have taught me that if a family member has a lack luster work ethic or questionable morals, you are likely not going to change them.  Certainly, leaving them a substantial estate will not solve the issue – likely, it will make it worse.

So many times, I have heard from clients that their son or daughter will get their life together and turn into productive members of society. In reality, it rarely happens, in my opinion.  I am not saying that I have lost hope in humanity, but when planning, it is important to be a realist.  Not even my own family is immune from this situation, so do not take my statements as judgmental.  

So what is the best way to deal with a wayward child or grandchild? Structure, Structure, Structure!

Families have the ability to structure the disposition of their assets to have a layer of control or protection.  Let’s say I have an adult son that has had an issue with occupational effort.  Or laziness if you prefer.  Unfortunately, history and averages tend not to be on our side when trying to adjust the behavior of a 40 something year old beneficiary.  

A W2 clause in your plan can provide encouragement and protection at the same time.  The W2 clause enables the trustee to require proof of employment in order to receive distributions.  This clause can be customized in many ways.  Many will have their trust match distributions to earned income.  Others provide a distribution with multiples on earned income, so not to penalize your child or grandchild if they decide to pursue honorable, but lower paying careers, such as teaching or non-profit work.  

Another example of a common structure around trust distributions, is the inclusion of a Drug Clause.  Unfortunately, in our society we have a nation struggling with addiction.  The opioid crisis is an unfortunate circumstance that families may have to take into consideration when it comes to their planning.  Though resources are necessary to help those impacted by the addiction, non – discretionary, unsupervised money, typically does not help them resolve their problem.  

Trust distributions can be made subject to drug testing.  In the event that you have a beneficiary that is struggling with addiction, the trust can limit or restrict distributions - unless drug tests come back clear of substance abuse.  Having said that, I always recommend that the trustee retains the flexibility to fund treatment and resources to help that individual recover, even when the regular distributions are halted.

The age of entitlement  

After 25 years working with wealthy families, I am rarely surprised.  In one instance, I can honestly say that I was shocked. 

I received a call from the trustee for one of our clients.  She advised me that a small group of the grandchildren of my client were making a demand on an irrevocable trust that he created to benefit the family in the future.  I remember thinking... the audacity of this group of entitled 20 and 30 somethings. They were essentially demanding the trust assets, making a claim that a distribution should be made.  The craziest part of this situation was that these kids were not even the primary beneficiaries of the trust.  I was in the room when their grandfather established the trust for the benefit of their Mother.  They were included as beneficiaries only after their Mother’s passing.  She was in her late fifties and in great health.  So, the likelihood that they would see the money in the next 20 years wasn’t probable.  Although the situation caused much sadness and stress for my client, in the end, properly structured trust documents prevented the money grab.  

Common Mistakes

Each year we see hundreds of existing trusts when planning with families.  The most common planning issue that we encounter is provisions that distribute the trust assets outright at specific ages.  This ultimately exhausts the trust assets. Once the assets are distributed and deposited into personal accounts, they lose the protection of the trust. This type of distribution plan can expose the assets to the claims of creditors, lawsuits and divorce. In order to protect the assets, we recommend ongoing trusts. The trusts can be controlled with provisions mentioned above. In the hopeful scenario that you have responsible beneficiaries, they can serve as their own trustee. The key point is that the assets should stay in a trust. Flexibility with regard to investments and distributions can be established in the trust.

If you have existing trusts that do not meet your planning goals, or perhaps may not be properly structured for possibilities you did not consider, it is not too late.  Many states have enacted “decanting” provisions that enable you to move assets from an obsolete existing trust to a new trust.  State law can differ, so be sure to consult you Estate Attorney.

Key takeaway

Take the time to review your estate plan thoroughly.  Have a realistic view of your beneficiaries and plan for the unexpected.  Talk to your Advisor and Estate Planning Lawyer. Their experience will help you review and reevaluate plan structuring. 

CWA Asset Management Group, LLC is an SEC-registered investment adviser, doing business as Capital Wealth Advisors and as blueharbor wealth advisors. CWA’s ADV 2A can be accessed via https://adviserinfo.sec.gov/. This material is as of the date indicated, is not complete, and is subject to change. Any opinions expressed herein represent current opinions only and no representation is made with respect to the accuracy, completeness or timeliness of information and CWA assumes no obligation to update or revise such information. Additional information is available upon request. Certain information has been provided by and/or is based on third party sources and, although believed to be reliable, has not been independently verified and CWA is not responsible for third-party errors. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Nothing herein should be interpreted as investment advice. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Specific companies or securities described in this report are meant to be illustrative of investment style. Such case studies are not meant to be, and may not be, representative of any portfolio or holdings of CWA Asset Management Group, LLC. CWA does not guarantee the accuracy of information of any third-party website denoted in this article. Third-party website is provided for informational purposes only.

Please note that past performance is not indicative of future results.

This material is solely for informational purposes and is intended only for the named recipient. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment or other decision.
William Beynon
President & CEO

Co-Author of Wisdom in Wealth.

John Walker
Executive Vice President | Private Wealth Management

Co-Author of Wisdom in Wealth.

Newsletter Signup