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Jay Hughes

In the 1980s Joanie Bronfman, Richard Bakal, and I began a journey that continues to this day. We sought to try to make the relationships among the creator of a trust, its trustee, and its beneficiary comprehensible to all and humane. We set out to determine and define the rules and responsibilities of these three functions, which together shape each trust's culture and structure – the combination of which my co-author Hartley Goldstone later defined as the “trustscape.” The early results of our efforts appeared in 1997 in my book Family Wealth: Keeping It in the Family (Netwrx). Those results have, over the years, been improved upon by many, and they are taken to a much deeper level in this book.

In the late 1980s Peter White, Joanie Bronfman, Anne D'Andrea, and I convened what I believe was the first gathering exclusively of trust beneficiaries. We had found to our surprise in our professional practices that many beneficiaries felt their trusts were burdens, not blessings. We wondered why a trust, which seemed on its face to be such a benefit, seemed so often to turn out to be the opposite. When we decided to host this gathering, we invited 50 or more people expecting that 10 might accept. To our amazement all accepted. We thought, “What have we started?” On the day of the gathering all 50 or more invitees showed up. Early in the meeting we took a poll asking, “Do you feel that the trust or trusts of which you are a beneficiary are more a burden or a blessing?” Eighty percent of the group raised their hands for “burden,” 10 percent for “blessing,” and the remainder could not decide between the two.

Perhaps many of you reading this book who are beneficiaries or trustees would not be surprised that in every poll of beneficiaries I have taken since – and I have taken many – the same percentages have consistently appeared: 80 percent or so feel their trusts are a burden, 10 percent a blessing, and the remainder are unsure. These results have given me a purpose ever since to see if my colleagues and I could change these percentages. This book is the result.

These percentages are a problem not only for beneficiaries. Changing these percentages is also critical to families' long-term flourishing. Among professionals it is well-known that by the third generation of a family around 90 percent of its financial wealth will likely be held in trust. Trusts represent, for almost all dynastic families, an overwhelmingly high proportion of ownership of their assets. Necessarily then these families' trust cultures and structures, their “trustscapes,” and their beneficiary/trustee relations often determine whether the entropy of the “shirt sleeves to shirt sleeves” proverb overtakes them. Those of us in the field refer to this reality in the families we serve as “the trust wave.”

So, 80 percent of trust beneficiaries declare that their trusts are burdens. And 90 percent of a dynastic family's financial wealth is in or will be in trust by the third generation. The combination of these facts underscores how important it will be to a families' flourishing that its trusts be blessings. It also underscores how important it is for us to learn from the small number of beneficiaries who feel that their trust is a blessing. That is what we have tried to do in this book.

Before proceeding, I would like to observe one other important demographic trend. The use of trusts continues to increase, not just for transfer tax planning but also for asset protection, reasons of probate, and, above all, control. This is true even in families without the wealth typically necessitating the use of trusts for transfer tax purposes (currently at well over $10 million). Within families with very significant or intergenerational wealth, beneficiaries may find themselves faced with trust distributions in their early 20s or younger. In many other families, as people live longer and longer lives, children or grandchildren may not begin receiving distributions until their middle- or later-middle-age, when their parents or grandparents pass away. However, this delay of the maturity of beneficial interests does not mean that the trusts in question do not exert a powerful force on these future beneficiaries' lives, especially if the trusts contain significant wealth. Nor is it impossible for trusts to enhance (or detract from) the lives of people in their 40s, 50s, or 60s. None of us is born an excellent beneficiary. To achieve this condition requires education and work, no matter how old you are. Indeed, insofar as it is generally harder to adapt to changes in later life, the delay of the maturity of beneficial interests may pose a growing threat to the successful use of trusts. It is a threat that we hope the practices described herein also help trustees and beneficiaries meet and overcome.

My co-authors and I are each committed to the question of human flourishing, especially in families of affinity seeking to practice seven generation thinking, that is, thinking that considers carefully the consequences of present-day actions on the people who will live seven generations later. These families preserve and grow their four qualitative capitals – spiritual, human, intellectual, and social – supported by their single quantitative capital, the financial. Such families often share a common core vision of what their members can be individually. These families' members decide, in their systems of joint decision making – their governance – to give up freedom to help enhance all other family members' journeys of happiness toward each member's own greater freedom. Such families tend to practice hastening slowly as they know they have to make just a few more seriously good decisions than bad over the next 150 years to succeed. They invest for the long term, with the intention that a later generation will harvest the hard won fruits of their labors. In contrast, we always worry when we see a family who thinks that it possesses only financial capital. Our experience, as well as history, advises that this belief is quite unlikely to lead to flourishing.

What have we learned about trusts and their functioning or failure from the families we advise? Why are so few trusts seen by their beneficiaries as blessings?

First, we have come to understand that our focus must start with the beneficiary, rather than with the trust creator or the trustee. Nearly all the writing in our field begins with planning for the trust creator's concerns over taxes, creditors, and control and then turns to the trustee's concerns over administration and investments. This focus on the trust creator easily follows from the fact that most professionals have the trust creator – and not the beneficiaries – as their paying client. It is the rarest of books and articles that treat the beneficiary side of the relationship and the distributive function. When they do often it is to disparage the beneficiary by discussing dependence, entitlement, bad marriages, addictions, or other failed developmental issues apparently caused by being a beneficiary. Clearly, this is a very disappointing point of view if the question of beneficiaries' flourishing is a critical goal.

In contrast, we came to see that beginning with the beneficiary and his or her responsibilities and goals might open new pathways to his or her flourishing. We first developed this line of thinking in a book that Keith Whitaker, Susan Massenzio, and I wrote called The Cycle of the Gift (Bloomberg, 2013). In that book we described a gift or a transfer as a meteor entering the atmosphere of the recipient to which he or she had to adapt. We asked, “What did the donor or transferor inspirit the meteor with?” Was it inspirited with love and a desire for the enhancement of the life of the recipient? Worry about the recipient's possible creditors? The transferor's tax concerns? The long-term control of the founder's dream? Was the meteor an Ozymandian monument requiring that the recipient genuflect for his or her beneficence? One can see immediately how much the grantor's intention for the beneficiary matters.

Next we looked at the question of the beneficiary's journey to individuation, which Keith and Susan and I discussed in our book The Voice of the Rising Generation (Bloomberg, 2014). And we reread Hartley Goldstone and Kathy Wiseman's book TrustWorthy (Trustscape LLC, 2012) with its wonderful stories of positive beneficiary/trustee relationships. We realized that a trust that has a deeply developed distributive function (and the distributive function is truly the key) – grounded in aiding the beneficiary's individuation, resilience, adaptability to meet life's ups and downs and capacity to bring his or her dreams to life – is the antidote against dependence, entitlement, cynicism, and addiction – addiction to alcohol or drugs as well as addiction to trust distributions.

We saw that one must begin with the recipient and work back through the system toward developing a highly functioning distributive methodology. From there one must work back to the quality of the trust creator's gift of love, seeking to enhance the life of the beneficiary and thus positively inspiriting that function. If one does so, then the likelihood of the beneficiary's declaring the trust a blessing is fundamentally improved. In turn, a beneficiary who counts his or her trust a blessing will likely want to assure that all family members with trusts are in similar positive situations now and for future generations. Such a person will likely add to family governance and flourishing as he or she seeks to give back to the family positive stories and share positive practices.

From this vantage point we were able to move toward the question of the nature of a trustee who would be committed to making the trust relationship with the beneficiary one that was mentoring, purposeful (thank you, John A. Warnick), generative, and fulfilling the high calling of regency (thank you, Patricia M. Angus). We recognized that nearly all beneficiary/trustee relationships are arranged marriages, even those in which the beneficiary has a voice in selecting the trustee. This is because the trustee is a part of a legal structure that requires him or her to obey the duty of impartiality, the duty of prudence, and to carry out multiple functions, very few of which are directly related to the well-being of the beneficiary, rather than to the protection of the trust and the trust creator's wishes. Essentially the trustee is married to the trust.

With this awareness it became clear to us that all too often the trustee is more concerned with the trust as a structure than with the culture that the trust creates. A culture that will succeed for the beneficiary begins with the trust creator's question: am I intending to make a gift of love and a gift that will enhance the beneficiaries' lives? Or am I seeking to make a transfer that solves my tax concerns, that keeps the beneficiaries' creditors from getting my money, and perhaps even creates a memorial to my dream, now embodied in an enterprise that I consider my true child and over which I seek through this trust to perpetuate my control? All these purposes are valid; but which ones lead and which ones follow will determine whether the trust is a blessing or a burden.

Often, a trustee cannot affirm for the beneficiary a set of positive goals and grow a positive trust culture. Instead, the beneficiary must live in a structure of relationships conditioned by a founder's goals that essentially disparage or ignore the beneficiary. For the beneficiary this is a negative culture, since the beneficiary's concerns will disappear in the endless details of the management of the structure. My thanks to Matthew Wesley for this insight, contained in his brilliant article, “Culture Eats Structure for Breakfast” (Wesley Group, 2015).

From all these sources and reflections we learned that a good way to diagnose whether the trust was growing a positive, dynamic culture or caught in the negative entropy of a static, suffocating structure was to ask this question: is the trust (guided by the trustee) making dynamic distributions that promote the beneficiary's growth and individuation, or is it making sterile, annuity-type payments that breed beneficiary dependence? The distributive function should really be the focus of mindful trustees and trust creators. Yet in most trusts it is stillborn; it is assumed that it will eventually become an annuity.

Looking at the generic trustscape today from the vantage point of the beneficiary we realized that most trusts aren't set up to grow excellent beneficiaries. Their cultures do everything but.

In contrast, we require new cultures and structures and systems that support them, if trusts are to be blessings and help long-term family flourishing. We need trust cultures that seek to grow excellent beneficiaries and structures and systems that support that happening. We need excellent beneficiaries who can in turn assure that their relationships with their trustees are excellent. We need trustees who grow the culture of trusts as gifts from trust creators rather than transfers. We need trust creators who are seriously counseled about what a trust can do and its consequences for another human being for whom it will always be a meteor. If the fundamental responsibility of each of us, when we touch another, is to do no harm – and it is – then how truly sad it is that 80 percent of trust beneficiaries count their trusts as burdens rather than blessings, especially when 90 percent of a family's financial capital will likely end up in trust. Clearly, the risk of harm is great.

A beneficiary who takes seriously his or her responsibilities will naturally function more effectively within the relationships the trust creates, as he or she comprehends and masters his or her role in the relationship rather than feeling burdened by it. Such beneficiaries are most likely to declare their trusts blessings. Those beneficiaries are also more likely to feel gratitude toward their trust creators and to say, “Not only was I not harmed, I was loved, and you blessed me.” Those beneficiaries are more likely to say to their trustees, “Not only was I not harmed, my life was deeply enhanced by my relationship with you.”

My colleagues Peter White, Joanie Bronfman, Richard Bakal, Anne D'Andrea, Susan Massenzio, Patricia M. Angus, John A. Warnick, Timothy Belber, Peter Karoff, Michael J. A. Smith, Sara Hamilton, Gail Cohen, Dennis Jaffe, Ellen Perry, Don Kozusko, Davidson Gordon, John Duncan, Christopher Armstrong, Joseph A. Field, Kathy Wiseman, Christian Stewart, Barbara Hauser, Charlotte Beyer, Gregory Curtis, Paul Cameron, Rick Fogg, Ken Polk, Ulrich Burkhard, George Harris, Stephen Hoch, Tim Brown, Rob Kaufold, Miles Padgett, Peter Evans, Robert Pritchard, Scott Peppet, Rob Kaufold, Juan Meyer, and many other pioneers in this work are beginning to unwrap this fraught question of the positive trustscape and the duties and responsibilities it engenders. For too long the “trust wave” has been leading families into entropy and the failed lives of beneficiaries that follow.

My co-authors, Keith and Hartley, and I are committed to bringing light into this area of unnecessary suffering so that no new beneficiary will ever have to wonder how he or she would answer the poll, and so that current beneficiaries may change their votes – all so the family systems of which they are members will flourish as they do.

As I have in my previous books I now ask each of you to pick up your staff, put on your round hats, drape your scallop shells around your necks and walk with Keith and Hartley and me through the chapters to come of this guide. Then, if it offers a way forward, walk with me on the journey to growing excellent beneficiaries so all trustscapes may flourish.

Bon Camino!

Namaste

James (Jay) E. Hughes Jr.