A couple of years ago, Susie M. Roh’s office asked the G4 members of the family she serves whether they wanted their trust company to continue into future generations. Roh is president and CEO of Wind River Trust Company, a Wyoming-based trust company that serves Generations 3, 4 and 5 of a small family. The G4 members are currently raising their children, and estate planning was an important topic.
“There will be some trusts that may terminate, and there are estate planning opportunities that we can look at,” Roh says. “We got buy-in, so did some more creative planning for G4 to continue the legacy of the family office.”
Trust terminations are just one example of how, when a family office gets beyond the first two generations, estate planning becomes more complex.
Increasing lifespans mean that some estate plans that were put in place long ago may not be working as originally envisioned, says Shannon Zur, family office director for Vogel Consulting.
“When the great-grandparents set up the trust, they may have expected that the parents and grandparents would be dead by a certain age, and the great-grandchildren would have access to the funds when they were in their 30s. But now, they’re not going to get access until their 50s,” Zur says.
Anticipating shorter lifespans, some trusts don’t disburse funds to the next generation until 20 years after the previous generation’s death.
“The recipients could end up being in their 70s or 80s when they get these assets that come out of this trust, and so their estate could have a big problem, because when they’re 80, they don’t have a lot of time to plan,” Zur says.
Mohsen Ghazi, partner at Ashurst Perkins Coie, where he advises family offices, encounters similar issues when he speaks with members of a family office’s rising generation.
“They may already have a trust set up and their parents may own property in a particular state,” Ghazi says. “We try to think about planning for them in a way that doesn’t conflict with the assets they’re inheriting.”
The family Roh works with is small, with different branches, and they have very coordinated estate planning strategies, she says: “Over the last six or seven years, we worked on a lot more transparency around the core trusts: ‘Here is when an expected distribution is going to happen.’”
All family members use the same estate planning attorney. Although the attorney maintains the privacy of each family member and different members may have different trust terms, it helps with continuity and coordination.
“All the trusts are created in the spirit of the ecosystem, with the same understanding of when certain distributions may be made,” Roh says.
Although every family’s approach to wealth and estate planning is different, Roh says a few points stand out.
One is that multigenerational planning needs to occur in the context of standard estate planning tactics, such as using trust distributions to make lifetime gifts.
“I think sometimes the vanilla planning gets overlooked for fancier things,” Roh says. “But if you have a trust that’s going to terminate and the beneficiaries have a lot of outside resources from other trusts, that’s a really great opportunity to make a distribution to create a trust for future generations.”
There are rules around some trusts — for example, some may distribute income only. But all family members need to understand these rules of engagement.
“Think of it as an ecosystem of opportunities for people, not an expectation that everybody has to do the same thing,” Roh says.
This gets to a second critical point: Transparency is very important — even when it has to be tempered by the reality that it can be difficult to predict exactly how much money will be available to future generations.
“It is hard that there’s no guarantee. But you can have the conversation without tying dollar amounts to it: setting up some of the expectations of what it means to be part of the family office,” Roh says. “Whether it ends up being a smaller amount than they think or more than they think, at some point, the next generation is going to have to engage.”
Helping the next generation know what the expectations are is how family offices get set up for success, Roh says: “You sometimes see it fall apart at G3 or G4 because there has been this veil of secrecy, with older generations saying, ‘We’ll tell you what you need to know’ rather than, ‘We’ll help you figure out what is possible.’”