Is it time to simplify? Is the family office spending too much time tracking too many accounts or properties? Have the family’s trusts multiplied until the details risk overwhelming trustees and beneficiaries?
“There may come a time when sophisticated trust structures that served a purpose will no longer be viable,” due to changes in the family or in the legislative environment, says Alexander Degwitz, family council chair and head of GEMIS, the family office of the Maldonado family.
As families mature, complexities increase as the number of households increases and, often, some family members move to other jurisdictions.
“Legal changes are constantly taking place, forcing one to require an approach of recurring revisions and updates to remain compliant,” Degwitz says. “Maintaining structures is an ongoing process.”
Families use a variety of strategies for simplifying their estates — and they do so for a variety of reasons.
“The focus for many families is simplifying things,” says Shannon Zur, family office director at Vogel Consulting. “Life just gets so complicated, and they have all these accounts. They may have multiple homes. It’s gotten to be too much for them, so they’re getting into simplification mode.”
One of the reasons for this drive to simplify is that families can have trouble finding someone willing and qualified to be an executor or trustee when the estate is too complicated.
“They’re trying to streamline and simplify things, because it’s so complex that it’s hard for their kids to understand — or when they’re looking for successor trustees for trusts, they don’t have a good pool of candidates if they don’t want to go to a corporate trust company,” Zur says.
She is seeing a number of approaches to simplification. Some families are reducing the number of assets or types of assets they have — selling one of their houses, for example.
“If they don’t have as much stuff, they don’t need as many investment accounts and they don’t need as many investment managers,” Zur says.
Others are keeping the assets but streamlining the management of them by simplifying the trust structure. For example, if over the generations, a lot of small trusts have been created, families may look to combine some of them.
“Some trusts may be rather small but have more beneficial timelines: One could go on for 1,000 years, and another for only 360 years. To combine them, you have to go with the shortest time frame,” Zur says. However, some families find that it’s not worth it to preserve a trust that can run in perpetuity if it is so small that after a few generations, beneficiaries will not get much from it.
Sometimes simplification is a question of timing. For example, some people are choosing to make charitable donations now instead of putting them in their estate plans — allowing recipients to benefit from them now.
And in some cases, it’s the next generation that is looking at a complex set of trusts and deciding to simplify.
“Their parents may have done an elaborate estate plan, but the children are simplifying the estate plan when it’s being implemented or assets distributed,” Zur says.