January 2, 2018

Generative Trusts and Trustees: A New Paradigm For Trust Design and Administration

Note:  From time to time we invite guest bloggers to share their thoughts on our blog.  The following is a guest blog authored by John A. Warnick, the founder of the Purposeful Planning Institute.

by John A. Warnick, Esq.

Family Trusts commonly preserve family financial asset, but fail to preserve either family or trust—Hartley Goldstone, author of Trustworthy and Co-Author of Family Trusts – A Guide for Beneficiaries, Trustees, Trust Protectors and Trust Advisors

I have been concerned about the emotional and relational impact of trusts since I had a “professionally jarring” encounter in 2001 with a beneficiary of an irrevocable trust established by her grandfather.  The dependency, disempowerment and entitlement I witnessed led me to ask “Is there a better way?”  

The Generative Trust and the Generative Trustee are part of that better way.

I’m convinced there is a better way to think about the purpose and meaning of trusts which still honors the legal roles and responsibilities but lifts the influence of the trust to the point it becomes a generative (positive) influence in the lives of beneficiaries.

Traditional design and administration of trusts centers around the choice of trustee, the tax and legal purposes of the trust instrument, and the duties and powers given to the trustee.  Little has changed over the last three decades in terms of the conversations which estate planning attorneys and prospective trustees have with trust creators around the pros and cons of corporate trustees and family trustees.  The purpose of this blog is to suggest that needs to change if we are going to find a better way to make trusts more positive and more sustainable.

Over the last twenty years I’ve witnessed delegated trusts emerge as a popular choice in many jurisdictions, particularly among the ultra-affluent. Bifurcation, or what I refer to as the “Trifurcation” of trustee duties is becoming increasingly common in legal forms and drafting systems, whether or not it is part of a delegated trust.  Those three functional divisions are administration, investment and distribution.  I believe that will become an increasingly popular paradigm for design and drafting of trusts even in the mass affluent marketplace.

The generative trustee concept aims to “improve” the distribution function, leading to more positive trustee/beneficiary relationships and promoting the individual growth and well-being of beneficiaries.

So what is a generative trustee?  Before we answer that we must tackle the word generativity and learn how it applies to the trustscape (a term coined by Hartley Goldstone which refers to the entire landscape that makes up a healthy trust system)?

I first learned of generativity through the writings and research of Erik Erikson, the father of modern human (psychosocial) development theory. Erikson posited that generativity arises in middle adulthood, between the ages of 40 and 65.  Generativity refers to an adult’s ability to care for and guide the next generation?

Generativity is usually applied to the parent-child relationship but I believe it has great application to the role of the trustee.  Through a series of questions and answers I’d like to frame the conversation-altering potential of the generative trustee concept.

What is a Generative Trust?  A generative trust is a trust whose central purpose is the growth and well-being of the beneficiary.  To extend the suggestion of Jay Hughes it is a trust that could start out with these two sentences: “This trust is a gift inspired by love, faith and hope. The paramount purpose of this trust is to nurture the growth and well-being of the beneficiaries.”  The faith is the confidence of the trust creator in the goodness and capabilities of the beneficiary.  The hope is the trust creator’s dreams for the potential positive and sustainable influence the trust and trustee will be in the life of the beneficiary.

How is Generativity Put in Motion with a Generative Trust? It starts by developing a very positive trustee/beneficiary relationship.  Generativity in the trust context may be expressed through mentoring, teaching, training, encouraging and even jointly participating with the beneficiary in volunteer work and charitable giving.  Beneficiary grants, opportunity stipends and meaningful trustee/beneficiary conversations and celebratons are hallmarks of a Generative Trust.  A Generative Trustee will attend important milestones activities, whether sporting, educational, religious or relational (birthdays, anniversaries, holiday parties and celebrations).

Does a Generative Trust Require a Generative Trustee?  No.  The generativity potential of the distribution function might realized through the use of beneficiary coaches, trust advisors, distribution committees or through intentional use of mentors and consultants.  Just exactly how much the actual trustee might do will depend on the design and the interest, capacities and aptitudes of that trustee.  They may choose to actively participate or they may be more passive.

How do you spot a Generative Trustee?  What would you be looking for in an ideal Generative Trustee?  A Generative Trustee is that person who helps Beneficiaries think for themselves instead of robbing them of that ability.  A Generative Trustee isn’t necessarily someone 50 or older.  We can find younger individuals whose nature and drive is extremely generative.  Some of the attributes of an ideal Generative Trustee include:  strong communication skills, life wisdom as well as a healthy dose of common sense, the gift of holding people accountable, a non-judgmental and friendly veneer, seeing the potential in others they don’t see in themselves, and curiosity around what excites and fulfills others.

Are there templates for Design, Drafting or Implementation of a Generative Trust?  Yes.  Please contact me at johna@purposefulplanninginstitute and I will be happy to share resources with you.