Perpetuating Family Values 9/16/07

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Perpetuating Family Values 9/16/07

Stewart H. Welch III, CFP, AEP
Founder, The Welch Group, LLC

Perpetuating Family Values

 “Perpetuating Family Values”



Parents who have significant assets often ask me how to use their assets to benefit their children, charities and religious institutions. They often worry that leaving everything outright to children will serve as a disincentive for those children to achieve success on their own. 


My firm has developed a strategy, The Family & Charitable Legacy Trust to address these multifaceted issues for parents.  Here’s how it works.  At the death of the last parent the Last Will and Testament provides a basic framework that looks something like this:


Lump sum distribution to children.  First, we make a distribution of cash directly to the children so they receive some immediate benefit from the estate of their parents.  The amount of the distribution varies, but is typically enough to ‘bump up’ their lifestyle a bit by allowing them to pay off debt or buy a bigger home..


Legacy Trust.  The balance of the assets will be placed in a trust that lasts as long as the law allows.  Depending on the state of residence, this could be 50 to 75 years or perpetual.  Or the parents may define the period, i.e. 50 years or until the death of the last child.  I’ll assume one trust that will benefit both the children and charities, but for income tax or management purposes, it may be advantageous to separate the money into separate trusts. 


Typically, the trust is set up for total distributions of 5% per year based on each year’s beginning balance.  As the trust assets grow over time, so will the dollar amount of distributions. 


Of the total annual distributions, the first 10% will go to charities designated by the children.  This lets them be actively involved in giving back to the community.  The balance of the distributions is paid out to the children either monthly or quarterly.  One variation is to distribute one dollar of trust income for every dollar of ‘earned’ income of each child up to the limit of the trust distribution.  We call this an incentive clause.


We often include language that provides additional support for education expenses for children and grandchildren.  Because this trust will last for decades, it will continue providing financial support for future generations. An additional benefit of legacy planning is that your assets are protected from future creditors of your heirs. 


Calculate the total size of your estate.  Include your life insurance, home, property and all investments.  Now imagine if your children received all this money tomorrow.  If the movie in your head reminds you more of ‘Nightmare on Elm Street‘ than ‘The Sound of Music’, legacy planning might be worth considering.  These are complex strategies so be sure to seek the advice of your financial advisor or an attorney who specializes in estate planning.