Trust, Trusts, & Trustees: Introducing Future Inheritors to Wealth

By Marlis Jansen with Lily Boyar

Money is that thorny, taboo topic we were taught never to discuss at the dinner table or amongst friends. Wealthy parents in particular worry that broaching the subject with their children will dampen their ambitions. It can feel safer to avoid the conversation altogether.

Here’s the problem; wealthy children know they’re wealthy. In fact, they internalize values, ideas, beliefs, and norms about money just by observing their parents’ behavior, lifestyles, and comparing their experiences to what they see around them. Ultimately, however, when families create a sense of safety around discussing money, they can transmit important values that guide the rising generation toward healthy development. It takes mentorship and guidance to cultivate the confidence and skills necessary to create productive and meaningful lives.

You can support young inheritors (or anyone learning about wealth for the first time) in forming a healthy relationship with money by giving them the opportunity to learn about and reflect on its greater meaning in their lives. By introducing the idea of wealth conceptually (without discussing numbers), you guide them in constructing their own ideas around it. When they take the time to consider the purpose of their wealth, they are more likely to use their resources carefully and responsibly.

Trust — Families Sustain and Build Wealth and Well-being When They Cultivate and Express Shared Values.

In 2003, Williams and Preisser found that 90% of wealthy families lose their fortune in just three generations. One might assume this is primarily due to financial factors. However, the research suggests that a lack of family trust and communication are the greatest indicators. (For more information on this research, see Ensuring Success in Wealth Transfers.)

Families that spend significant time articulating shared values and goals and using their wealth in alignment with them are more successful in sustaining and growing their financial resources across the generations. This might include discussing the purpose of their family, making philanthropic donations, or volunteering their time to support causes they care about.

It’s normal to experience complex interpersonal dynamics related to wealth. But, with dedication to building and keeping strong relationships and governance, families can organize around the purpose of their financial resources and their values. This often leads to more authentic, close and honest family relationships.

The following can help you build a strong, resilient family dynamic that guides each person to develop their viewpoints, skills and interests:

Get together regularly. With an agenda. Family meetings are one of the key best practices that support the creation of close relationships and purposeful legacies. Spending time having important discussions together allows everyone to reflect on their values, goals, and beliefs and to decide what they want to do together. There are many valuable activities to do in family meetings. For example, many families craft a family mission statement that reflects what is most important to their tribe. When they do this, they create deeper, more trusted relationships that support multi-generational planning and success.

Create an inclusive family culture that values every voice. Families that hold candid and open discussions that allow each person to be heard and acknowledged are more successful in building and sustaining wealth. When the rising generation feels their ideas are valued, they begin to see their role in the family legacy and can start grappling with the best ways to contribute to it. Families are teams, and diverse teams make better decisions that reflect a wide range of viewpoints, values, skills, and experiences.

Share your family’s wealth generation story. Money doesn’t have intrinsic value. It’s a symbol and we decide what it represents. We can help young inheritors make sense of their wealth by giving them a deeper understanding of how it came to be. How did your family wealth originate? What sacrifices were made? Who added to the family wealth and how? Rather than sharing specific figures, this is an opportunity to illustrate important family values and history that give young people an appreciation for the gifts they’ve received. When young inheritors have a deeper, more personal connection to their resources, they are more likely to manage them carefully and creativity.

TRY THIS! Ask someone in your family for help with an important task or goal. This exercise is for everyone in the family, including parents. Asking for guidance and learning from one another is crucial for learning to depend on each other and building an inclusive family culture. You might ask for a fitness accountability partner, seek help with study skills, or set up monthly “money dates” to communicate about family finances.

Trusts — Beneficiaries Can Become Stewards When They Build Financial Literacy Skills and the Confidence to Use Them.

Inheritors are often beneficiaries of one or many trusts. Being a beneficiary carries with it a responsibility to understand the trust assets and how they are managed. However, this responsibility is not intuitive. It must be learned and motivated internally.

Anyone can develop the skills necessary to be an informed steward of wealth. You can support the rising generation in becoming competent beneficiaries by encouraging them to learn about trusts, finance and investing. There are many ways to do this, from taking classes to working with coaches and advisors. The best thing parents can do for young people is to be receptive to questions and provide trusted resources for training.

The purpose of encouraging inheritors to acquire financial literacy skills isn’t to make them into professional investors. The goal is to give them the tools they need to work with their advisors and make informed decisions about how to use (or not use) their trust assets.

What should young inheritors know?

• Basic personal finance and healthy financial habits
• How to live within their means
• The basic definition of a trust and their various types
• The benefits trusts provide (not only financially, but in terms of privacy of assets, protection of beneficiaries, etc)
• The purpose and structure of their trusts — who set them up, whether there are other beneficiaries, and how and where the assets are managed
• Their trustees and the role they play in the management of their trust(s)
• Basic fundamentals of investing

While it’s crucial for young inheritors to learn financial literacy, these skills alone aren’t enough. Young people can engage financially when they have the confidence to actively use these skills. Building confidence is an internal process that supportive parents and advisors can facilitate through mentorship. When young people are interested in gaining financial knowledge and are confident speaking up and asking questions, they are ready to participate alongside their trustees as informed beneficiaries.

Here are a few ways to encourage beneficiaries to become both competent and confident financially:

Talk about money early and often. Open discussion is the only way to learn. It is possible to share important values and beliefs about wealth without discussing specific dollar amounts. When children ask questions about money, try to identify and address the real concern behind their question. What do they really want to know? As we address their concerns honestly, we help them to develop a healthy relationship with money.

Teach Financial Literacy. Learning financial literacy skills is important regardless of how much money you have. It is what allows young people to make thoughtful choices about their resources. Financial literacy education is most effective when young people are able to see how these skills connect with their goals and interests, and have relevant ways to practice them.

Start by helping young people cultivate an awareness of basic healthy money habits like saving, spending and sharing. Build from there, toward more advanced topics like trusts and investing. You can guide your teaching based on young people’s maturity level and questions.

Create opportunities to experiment and make mistakes. In order for young inheritors to be willing to take risks, it is important for them to know that failure isn’t a “fireable offense.” When they are able to try, fail, and try again with warm guidance, they build the confidence and resilience to try new things and be creative. Encourage young people to practice experimenting with money by giving them opportunities such as an allowance to manage, or helping them start a shadow stock portfolio.

TRY THIS! Find a trust mentor for each beneficiary. We recommend that young people reach out to other inheritors, outside of their nuclear family, who are also beneficiaries of a trust. This is an opportunity to build an ongoing relationship of support and mentorship with someone who can relate to their experience. Trust mentors can be extended family members or friends.

TRY THIS! Have young inheritors write thank you notes to each living trustor (the person who created their trust). Setting up a trust is a generous act of stewardship. Give young people the opportunity to reflect on the gifts they’ve been given and express gratitude to those who made it possible. This helps them develop their own ideas about wealth, generosity, and financial planning.

Trustees — Trustees and Beneficiaries Should Know Each Other as People.

Making choices about how to use our wealth and resources is profoundly personal. However, in the case of trusts, a beneficiary relies on the trustee(s) to manage and distribute their trust assets. This relationship requires a high degree of confidence and care. However, too often, it is merely transactional.

When beneficiaries don’t have personal relationships with their trustees, they might view them as an ATM or even a litigation target. When trustees don’t know their beneficiaries personally, they can become a disinterested gatekeeper, rather than a trusted advisor.

Beneficiaries are served best by a trust when it helps them reach their goals before depleting the assets. When a trustee knows the beneficiary as a person, they become a partner rather than a transactional provider. Eventually, when it comes time for the trustee to replace themselves, they can carefully select someone that reflects the beneficiary’s values and ideas. Here are a few ways to support young people in building meaningful relationships with their trustees:

Set up regular meetings. Introduce young beneficiaries to their trustees and encourage them to meet regularly. This will help the young inheritors learn about their trust, while also developing an authentic relationship with their trustee.

Use trustees as a resource. Each trust has a document that outlines how it should be used. The trustee’s role is to follow these guidelines. However, it is also important that the beneficiary also has a basic understanding of the rules of the trust. Encourage inheritors to ask questions and learn from their trustees.

Make sure young inheritors understand trustee succession. Choosing a trustee successor can be a collaborative process. Beneficiaries should know the parameters of their specific trusts (each is written differently) and understand the trustee succession process. This information will prepare them to ask questions and be involved in the selection process.

TRY THIS! Have young inheritors write thank you notes to each of their trustee(s). The goal of this is similar but distinct from writing thank you notes to trustors. It gives beneficiaries an opportunity to express their gratitude and, in the case of trustees, sets the tone for a meaningful partnership.

Putting it All Together

Many believe that kids are more resilient and successful when they are not exposed to discussions and details about wealth. However, the opposite is true. Building a life of wealth and well-being is an active process. It takes direction, education, and intentionality.

When families create a culture that supports young inheritors in exploring their values, teaches them important financial literacy skills, and encourages them to build meaningful relationships with their trustees and advisors, they guide the rising generation toward developing a healthy wealth identity. This allows young people to see their resources as a powerful tool for building a meaningful life and contributing to the world around them. With communication and mentorship, we can empower the next generation to become thoughtful stewards of wealth, while strengthening family relationships in the process.

For an inspiring real-life example of one young beneficiary’s perspective on this topic, we encourage you to read The Wealth of Knowledge by Katie Rosa.