The Utah Trust & Estate
Educational Resource Center

Values Based Estate Planning

Values-based estate planning has been the subject of much attention in recent years. The term “values-based estate planning” does not have a precise definition; it means different things to different people.

Generally speaking , values-based estate planning recognizes that an estate plan does not need to be only about money. It does not focus only on transferring wealth and saving taxes. Rather, values-based estate planning identifies personal values and priorities that can be expressed and implemented through an estate plan. A values-based estate plan tries to send a message to future generations about what their parents, grandparents and great-grandparents thought were important.

There are a couple of principles that should be kept in mind when designing a values-based estate plan:

First, an estate plan is a blank slate. The features that one places in the plan are limited only by one’s imagination.

Second, it is important not to get too carried away. An estate plan should be kept simple. The more complicated an estate plan is, the greater the likelihood of unintended consequences. An estate plan also needs to be flexible. The trustee should be given the ability to adjust as circumstances evolve and change. There is danger in trying to control too much from beyond the grave.

The Mission Statement

It is becoming increasingly common for people to include mission statements in their estate plans, usually at the very beginning of their revocable trusts. A mission statement can say anything that one wants it to say. It is generally a statement of what values are important to the person who is creating the trust, leading into an explanation of why the trust was designed the way it was. As such, it is a guide to the trustee as to how she should administer the trust and what criteria she should use in making discretionary distributions to the beneficiaries. Because trusts can last for several generations, a mission statement can be the opening paragraph in a document that will be highly relevant to grandchildren and great-grandchildren. It can thus be used to convey one’s values, priorities and philosophy of life to generations not yet born.

Directed Purpose Trusts

While most trusts exist to provide general financial assistance to the beneficiaries, trusts can also exist for more particular purposes. Such “directed purpose trusts” can specify nearly any purpose that the creator of the trust wants. A directed purpose trust not only provides the financial means to implement the creator’s vision. It also sends a message to future generations that the trust’s purpose is something that was very important to the creator of the trust.

Some examples of directed purpose trusts might be:

Example: A couple may want to provide an educational safety net for all of their descendants. The trust could direct the trustee to pay the primary, secondary, college and graduate school expenses of all of the couple’s descendants.

Example: A grandmother may want to ensure that sufficient funds are available to pay for the LDS church missions of all of her grandchildren. She could thus create a trust for the sole purpose of paying those costs.

Example: An avid amateur pilot may want to pass his passion along to his grandchildren. He could create a trust that would pay for the costs of taking flying lessons and maintaining pilot licenses for any of his grandchildren who are interested in taking advantage of the opportunity.

Example: The matriarch of a large extended family may want the family to remain tight-knit for as long as possible. She can create a trust that directs the trustee to pay for an annual family retreat at a nice resort. Along the same lines, if the family has a treasured vacation home, the home can be placed in a trust so that it is available for future generations.

Example: A grandfather may be determined to make sure that his grandchildren are financially literate. He could direct a trustee to pay for all personal finance and investment courses that a grandchild completes. In addition, an annual family retreat that is paid for by the trust could include a financial education seminar. Or, the trustee could be directed to set up an investment club with trust funds to give grandchildren an opportunity to learn about investing first-hand.

Of course, any purpose for which a directed purpose trust can be created can also be built into a general purpose trust.

Dynasty Trusts

“Dynasty trust” is a generic term that refers to any trust that is designed to last for several generations. In some states, a trust can last in perpetuity. That is not true in Utah, but a Utah trust can nonetheless last a very long time.

A dynasty trust can be created for a particular purpose, as described above, or it can exist for the general purpose of supporting a family. A dynasty trust can also be a hybrid, designed to provide general financial support but also authorizing distributions and expenditures for particular directed purposes.

Directed-Purpose Distributions to Individual Beneficiaries

Most irrevocable trusts designate an income beneficiary who will receive distributions of the trust’s net income for the duration of his or her lifetime. Usually the trust also authorizes distributions of principal to the income beneficiary if needed for his or her medical needs, educational expenses or general financial support.

In addition to these distributions, or instead of these distributions, a trust can authorize distributions for more particular purposes that express the values and priorities of the creator of the trust.

Example: An entrepreneur may want to encourage his children and grandchildren to develop an enterprising spirit. Accordingly, the trust he establishes for a child or grandchild may authorize the trustee to distribute or to loan trust funds to the beneficiary to start a business if the trustee believes the business concept is well-developed and shows promise.

Example: A mother may want to encourage her children and grandchildren to pursue careers that are socially valuable, even if such careers are not financially lucrative, such as an elementary or high school teacher. She may therefore authorize the trustee to make distributions from the trust to provide additional compensation to such a beneficiary.

Example: A father may expect his children to work for a living, rather than be “trust fund babies.” Accordingly, the trust may instruct the trustee to make distributions to the beneficiary only if the beneficiary is gainfully employed.

Example: A couple may want to give their grandchildren a leg up in life by authorizing the trustee to distribute or loan a grandchild sufficient funds to buy or make a down-payment on a first home.

Example: A couple may want to ensure that their children enjoy a comfortable retirement after working hard their entire lives. The trust could authorize distributions for this purpose.

Family Philanthropy

Charitable giving is an important component of estate planning in many affluent families. Some families transmit their philanthropic values to younger generations by creating a family foundation. The family members sit on the board of trustees of the foundation and decide what grants are made each year.

A popular alternative to a family foundation is a donor-advised fund under the umbrella of a community foundation. One disadvantage to a family foundation is that the administrative responsibilities can be quite burdensome. With a donor-advised fund, the community foundation handles all of the legal, accounting and other administrative matters. All the family members need to do is determine to whom the grants will be made each year.

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