Family Trusts. Keith Whitaker

place in a legal environment.” We're here to make the case – to you and yours – for the practical wisdom of this insight.

      There's much at stake for our clients and their families – a good deal more than preservation of financial assets.

Hartley Goldstone

      INTRODUCTION

      KeithWhitaker

      Many years ago a member of my family asked me to serve as a trustee for a personal trust she had established. I agreed without much thought. It felt like a pro forma sort of thing: a document needed signing, and I was willing to sign it.

      I had a lot to learn.

      In the years since, I have served, paid and unpaid, as a trustee of many personal and charitable trusts as well as a director of or adviser to foundation boards, business boards, and private trust companies, for my family and for others. I have seen the great good that trusts can do, and the great harm. I have had the pleasure of working with generous grantors and grateful beneficiaries. I have had the displeasure of dealing with lawsuits over trusts that have torn apart families and friendships.

      Along the way I have learned a great deal from other trustees, beneficiaries, and numerous advisers. One thing I learned is that my initial experience was not unusual. Few people begin service as a trustee with much clarity about what it entails. Most trustees begin as I did, wishing to do a favor for a family member or friend, unaware of the complexities and the opportunities that trusteeship brings with it.

      For such trustees, the standard handbooks in the field —Loring & Rounds or The Third Restatement of Trusts– are amazingly rich but often too specialized. Coursework, such as that offered through the American Bankers Association, can help. But there has been no truly practical resource for the great majority of individual trustees.

      Hartley, Jay, and I wrote this book to benefit any member of the “trustscape” (as explained in Part One) who finds him- or herself in a situation similar to mine those many years ago. You, our readers, are trustees, would-be trustees, beneficiaries, trust creators, or advisers who are conscientious and want to do the right thing. You may or may not have legal or investment expertise, but even if you do, you realize that your expertise may not completely prepare you for living with a trust. Most importantly, you recognize that your goal is to deal with that trust not only correctly (that is, in compliance with law and regulation) but above all well, namely, for the true good of all the people affected by it.

      In writing this introduction and serving as a trustee, I have been guided by the belief that trusteeship is far more than a matter of administration. Even if unpaid, it is a noble profession. It is similar in this way to the noble professions of medicine, law, teaching, and the clergy. This means that even if a trustee performs his or her duties only a few hours a week or month, still, in those few hours, he or she is serving in a tradition that stretches back centuries and that has an inner worth of its own.

      Principles

      The rest of this introduction will say a few words about the principles that underlie the noble profession of trusteeship; it is meant to inform trustees, beneficiaries, and trust creators. It will also connect these principles and thoughts to the chapters and sections of the book that follows. In the main body of the book, Hartley, Jay, and I will outline practices and activities by which members of the “trustscape” can put these principles to work. If you would like to skip right to the practices, please feel free to jump to Chapter 1. If you would like to have a better understanding of our principles, then read on.

      The five principles discussed here do not replace the traditional duties of the trustee, such as prudence, care, impartiality, and so on. Instead, what I have sought to do is to uncover some of the aspects of what we have elsewhere called the “fiduciary character” that makes any individual trustee the type of person who will fulfill these duties.2 What trusteeship looks like will vary from time to time, place to place, and situation to situation. What makes up its core persists over time, place, and situation to give shape to the work amid changing circumstances.

1. First, Do No Harm

      This is the first principle of every noble profession. Doctors swear it in the Hippocratic Oath. Lawyers, teachers, and the clergy have their own versions, spoken or unspoken.

      This principle reminds us that trusts and trustees can do harm. Trustees have an intimate relationship with the other parties to a trust. We see confidential financial statements. Depending on the circumstances, we may be privy to confidential personal information regarding health, drug use, or other private behavior. Not honoring this “trust behind the trust” smashes the relationship to bits.

      Sometimes doing harm takes on more subtle forms than exposing confidential information. Many trustees find themselves beset with “trust fund babies,” that is, beneficiaries who live without work or purpose, dependent on their distributions. Is money the problem, “the root of all evil”? Or is family dysfunction the cause? Both may have a part to play. But the most common sort of trusteeship – tight-lipped, communicating only the bare necessities, winnowing down our relationship with beneficiaries to an annual letter along with the distribution checks – may also be a cause. The flip side of paternalism is infantilization. If we treat adults like children, it should be no surprise that we produce childish adults.

      Not doing harm requires constant vigilance. That is why throughout this book, especially in Part Three, we emphasize practical ways that trustees and beneficiaries can develop strong relationships aimed at beneficiaries' growth.

      After all, trusts and trustees can also do much good. The decisive difference lies in intention. Doing no harm is the first expression of what the Buddha called “right understanding,” the understanding or view that sees the whole, accepts the whole, and then seeks to ease suffering.

      Part of this right understanding is recognizing one's own boundaries. It is tempting, when one has been entrusted with perhaps millions of dollars, to believe that one can do it all. As the old Yiddish saying quips, “When you have money in your pocket, you're smart, you're handsome – and you sing well, too.” In contrast, wise trustees do not fall prey to that temptation. They spend time and money to get the best advice that they can, whether around investments, law, taxes, communication, or human relations.

      As Hartley and Jay have said, most trusts are proposed as expert solutions to the problem of minimizing gift, estate, or income taxes. In other words, most trusts aim at a quantitative goal. But if the trust exists for any period of time – and particularly if it does succeed at its quantitative goal – it will have an immense qualitative effect on the lives of the grantor and beneficiaries. This qualitative side of the trust is almost never discussed at its inception and often receives little attention during the trust's life.

      As a result, it often falls to the enlightened trustee or adviser to be aware of and to foster the qualitative aspects in a positive direction. To do this work, it can help to begin by recognizing that the true capital placed in trust includes the human, social, and intellectual – as well as financial – capitals embedded in the trust relationship. This recognition then leads to asking, “Will this distribution help the beneficiary add to his or her growth or experience in life, his or her human capital? Will it help the beneficiary connect with others in a meaningful way, thereby increasing his or her social capital? Will it add to the beneficiary's knowledge or skills, his or her intellectual capital?” This orientation to human capital is what we hope to achieve in Part One of this book. We then take that orientation squarely into the distributive function of trusts in Part Four.

2. Fidelity

      Trustworthiness is more than not doing harm. It rests on solidity of character, on standing by your word, on “ringing true” when tested. That is fidelity, the core virtue of a trustee.

      Although a servant may be faithful, fidelity is not servitude. An agent serves. But a trustee is a principal, not an agent. If you have asked someone to serve as trustee merely to do your bidding, then you are not really looking for a trustee; you are looking for an agent. The same goes if you are a beneficiary who thinks that your wish should be the