"value-based" features in family trusts which link a beneficiary's conduct to his or her access to family wealth.
Policy wonks have long debated the merits of tax policy as social policy. It's true, for example, that "sin" taxes on tobacco and alcohol help Government recover the health costs of smoking and drinking. Yet, such impositions are also a not-so-subtle attempt to discourage "bad" behavior.
Over the years, tax incentives have also been legislated to encourage us to do what Congress thinks we should. The deductibility of mortgage interest fosters home ownership. Write-offs for charitable contributions subsidize good works, many of which would otherwise fall to Government to do. Tax savings for IRA and pension contributions reward workers and their employers when they provide for retirement security.
Some of those who have studied the topic advocate such "social engineering"; others argue that Congress should confine itself to raising the money it needs to run the Government without all this meddling. After all, values should be instilled by one's parents and not the officials we elect to represent us.
Proponents of both schools of thought would probably applaud an evolving sensitivity among estate planners who educate their clients about the ways trusts can promote a family's core values.
Trusts, as we all know, can mange and then distribute assets to family members when they need them. Trusts can also capture income and estate tax savings within families by shifting wealth in careful and creative ways.
What's new and exciting is the use of "value-based" features in family trusts which link a beneficiary's conduct to his or her access to family wealth.
Suppose Mr. and Mrs. Gotrocks want to encourage their son Junior to pursue a formal education. Their trust might fix an amount to be distributed to him after each year he earns a B average or better as a full-time college or graduate student. Another sum might be distributed to Junior should he graduate on the Dean's list. The Gotrockses' trust might even foot the bill for a vacation for Junior, rewarding him for successfully completing his college or graduate school education.
But maybe the Gotrockses don't think an education alone merits all that generosity. Ultimately, it is what kind of man the education makes of Junior that really matters. So they might instruct their trustee to match some of the income Junior earns while working his way through school.
Or they might encourage Junior to pursue a profession like social work, teaching or a religious calling, which they believe very worthwhile, but just doesn't pay much salary. Their trust might supplement Juniorís professional income.
The Gotrockses may also be eager to see Junior start and maintain a stable family. So their trust might help fund the purchase of his first home, distribute a given amount when he and his wife have or adopt a child, or give him and his wife a special gift on their tenth wedding anniversary.
Trusts usually provide that their assets can be used for "health, support, education, maintenance and comfort." Now, with value-based economic incentives, trusts can reflect their settlors' moral values and encourage their children and grandchildren to understand and, perhaps, adopt their most deeply held convictions.
About the Author
Marc Lane is a business and tax attorney, a Master Registered Financial Planner, a Registered Financial Consultant, and a Certified Investment Specialist. Marc is the author of 30 books on business organization, taxation, and personal finance. His newest book, "Advising Entrepreneurs: Dynamic Strategies for Financial Growth" draws from his experience working with those who have successfully built their businesses. Marc is an Adjunct Professor of Law at Northwestern University and an Adjunct Professor of Business at the University of Illinois. His practice areas include Individual Taxation, Corporate Tax Planning, Business Tax Planning, Estate Planning, Investments, Retirement Planning,Elder Law, International Trade, Business Law, and Wills, Trusts and Estates. Additional articles, case studies, and a free email newsletter are available at www.marcjlane.com.