Most people will never have to manage an inheritance, notes Wells, while others have been preparing for one their entire lives. By putting money in a trust, families will inevitably change how their beneficiaries relate to their wealth—and into the middle of that is dropped a trustee.

“A trust is a sensitive instrument,” Wells says. “It’s a legal document with a human relationship attached to it. There is a written document, but human beings sit alongside that.”

Three Steps
He thinks of estate planning in three steps, with the first step being that the grantor generation has to decide what their wealth’s purpose is, whether they want to continue family ownership of any currently operating businesses, how much wealth is enough and to what extent they want to give to causes and communities.

The second step is to decide what it means to treat beneficiaries fairly. Does it mean treating every beneficiary or inheritor equally, or does treating people fairly mean dividing up assets in some way other than equally?

“Three kids dividing the wealth three ways is one way to set numbers, but is that the right thing?” Wells asks. “What about one child who is an art teacher versus another that is a heart surgeon—both are serving important roles but have radically different earnings potential. How do you answer the question about what you’re trying to give to them?”

The third step is communication, he says, because it’s hard to execute an estate plan successfully unless all of the relevant stakeholders are aware of the plan.

But discussions about money and finances are still taboo in many families, so heirs and beneficiaries are left in the dark about why certain decisions are being made about the wealth and their inheritance.

“In too many families, the first time beneficiaries hear about finances is when the trust goes live,” Wells says. “Is that really how the grantors want the message of all of their efforts to be communicated?”

The most important thing families can do right now, according to Wells, is protect assets from estate taxes altogether, but the process must be carefully thought out, especially when establishing generation-skipping or “dynasty” trusts that can keep a family’s assets out of the estate tax regime for decades—or even centuries.

“The families setting up estates that allow long-duration vehicles and dynasty trusts as well as gifting to avoid estate taxes are really hitting the home runs today,” he says.

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