SPLIT UP THE FAMILY TRUST ? Sort of.

What’s the best way to try to keep family harmony and let family wealth grow over time? Split up that family trust.

Notice I didn’t say “bust up” the family trust. There’s a difference.

OK, so you have a family trust for the benefit of four children, each of whom have children. The family trust is intended to hold wealth for the children’s and grandchildren’s generation and even further down the bloodline. We KNOW what happens when you mix blood and money, so what can we do to keep family harmony as much as we can and still keep the family trust?

One idea is to split the family trust into shares: one share for each child to be administered for that child and that child’s descendants. In our example, you’d create four shares, and administer each trust share as if it were its own trust.

In other words, your cousins can’t take money from your family’s separate trust share. And you won’t know what’s going on with your uncle’s trust. You all have the same trustee and are governed by the same trust document, but you now have a little more privacy and less involvement with each other’s trust affairs.

If you want to request money from the trustee of “your” share, for, say, the purchase of a new house, your cousins, aunt and uncles won’t need to know about it or what the request for trust money is for. Your desire for trust money may be known to your parents and siblings, but will not be subject to the scrutiny, and maybe scorn, of your other relatives. If your uncle wants the trust to invest in some crazy “investment” scheme with a golfing buddy from the club, your uncle can talk to the trustee about “his” share investing.

Separate shares can avoid the “tit for tat” mentality which can permeate family trusts. Requests for trust money can be contagious. Imagine if you only had one big trust and no separate shares. When one grandchild or child or trust beneficiary requests money for, say, a new car, other beneficiaries can follow and likewise may want a similar distribution. Beneficiaries view as “unfair” when the trust pays for one child’s four children to attend prep school, but another child with no children receives no “similar” benefit. Keeping everything in one big trust can cause beneficiaries from different children or siblings to spend too much time counting “who gets what”.

Creating separate and equal shares for, say, children of the creator of the family trust can make sense. Everyone has different spending habits and budgets. Not all are going to be the same. Separate shares also give everyone a “mind-your-own-business” mentality.

And if a blood line ends, not to worry, you can transfer a separate share to the other shares. In other words, if a share created for a child of the trust creator is coming to an end because that child has just died without children or grandchildren, not to worry: the trustee can re-distribute that share equally to all other shares. In other words, when a bloodline dies, you can direct where the trust money goes. Keep it in the family trust.