A radical shift in thinking
My ex-husband is a trust fund kid, sort of.
He wasn’t born into wealth, he was adopted in by his step-father, Lew Crosley. And because he was adopted, he gets to take part in one of the small Crosley family trusts.
Lew was the great-grandson of Powel Crosley, Jr., the inventor of Crosley cars, radios, and many early appliances. He was also the owner of the Cincinatti Reds.
Powel became a very rich man during his time and left behind a substantial fortune.
Unfortunately, he structured the passage of this fortune in such a way that it didn’t incentivize or even encourage his successors to build that wealth.
The Crosley fortune is tied up in multiple trusts managed by Fifth Third bank, one of the oldest and most conservative banks in Ohio.
As Trustees of the trusts holding the Crosley fortune, they are responsible for doling out the income and principal of those trusts.
Because of the way the trusts are set up, the beneficiaries would have an extremely difficult time removing and replacing the trustees.
In fact, there have been numerous lawsuits against the trustees over the years by various family members.
The trustees are very tight with the trust assets. They have no incentive to play nice with the beneficiaries because they know they are locked in as trustees, which comes along with big annual fees.
And, the trust is set up as one big pot trust for all the descendants and all income is distributed evenly to each beneficiary.
What this means is that when a beneficiary qualifies for a principal distribution, such as for a health need, the distribution shrinks the shares belonging to the rest of the beneficiaries. Not good.
Because the beneficiaries have a right to all income, their natural inclination is to want the assets invested for income, not growth, which means the trust value is unlikely to increase significantly over time.
Money is earned by the trust, the trustees distribute it and the beneficiaries spend it, generally on non-wealth building items.
Contrast that with the new paradigm of trust planning in which the trust is the centerpiece of the family wealth building tools.
Here are some differences:
* Trustees are easily removed by beneficaries.
* Trust assets are separated out by shares for each beneficiary, so each beneficiaries spending and investment decisions have no impact on anothers.
* And, the assets are retained in trust and distributions made only on an as-needed basis to the beneficiary so that all of the trust assets are protected from lawsuits against the beneficiary as well as divorce and even estate taxes.
* Last, but far from least, the trustee is encouraged to invest in new businesses started by the beneficiary and take advantage of family investment opportunities that may increase significantly in value over time.
* Yesterday’s trusts created alcoholic/drug addict kids who were just waiting for mom and dad to pop off so they could get their hands on the family money.
* Today trusts prepare your kids for a life of family wealth building, which is the real legacy you want to leave behind.
So, job #1 for you is to begin to shift your thinking about the use of trusts. See a trust as a vehicle to grow your family wealth at each generation.
Talk to your Personal Family Lawyer about whether a trust like this may be a good idea for your family.
© 2007 Alexis Martin
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Estate Planning and Trusts…
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