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Financial Planning

Planning Your Legacy to Give Your Family a Great ROL

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What is the best way to establish a family legacy?

While some benefactors choose to leave everything to their heirs outright, others prefer placing some guardrails around their assets to make sure that an inheritance is handled responsibly and in accordance with the family's values. 

Establishing an entrepreneur's trust in your estate plan is one way to create lasting Return on Life for your family and your community. Let's explore how an entrepreneur's trust works and review some of the key features you should discuss with your loved ones, your attorney, and your financial advisor. 

What is an entrepreneur's trust?

A trust is a legal entity that gives a third-party "trustee" control of an asset, such as cash, investment accounts, or real estate. The benefactor can establish rules for how and when beneficiaries take control of the trust's assets. For example, some trusts transfer control after beneficiaries turn18-years-old or after they graduate from college. 

An entrepreneur's trust is a special type of trust that is designed to cultivate a spirit of entrepreneurship. Beneficiaries are active participants rather than passive recipients of their inheritance. Instead of shielding beneficiaries from decision-making, this trust provides them with accountability for their investment decisions, educates them on how to put together a business plan, and allows them to celebrate their successes and learn from their own mistakes throughout the investment process.

What are its key features?

In an entrepreneur's trust, benefactors work with an estate planning attorney and financial advisor to create a comprehensive wealth plan with constructive guidance for how beneficiaries should put their new wealth to work. Entrepreneur's trusts often feature a clear "Why" statement that expresses the material purpose of the trust, such as goals, benchmarks that must be met, and values that must be put into action. The trustee is authorized to help benefactors invest the trust's assets in entrepreneurial investments that carry out the trust's "Why" and, hopefully, generate profits that grow the size of the trust. 

What are the benefits of an entrepreneur's trust?

While a traditional trust provides some protection and guidance, they often just force beneficiaries to wait. Once they have, for example, reached a certain age, beneficiaries might automatically inherit assets from the trust that they do not have the experience or life skills to properly manage. And whether they inherit those assets at 18 or 25, some beneficiaries might be tempted to treat their inheritance as a winning lotto ticket rather than as a responsibility and a potentially life-changing opportunity. 

An entrepreneur's trust combines a traditional trust’s protection with real-world learning experiences. For example, benefactors might stipulate that beneficiaries have to present business plans for the trustee's approval before assets can be invested. As they work with the trustee to identify appropriate projects and manage their investments, beneficiaries will learn valuable skills such as evaluating future investments, risk/return analysis, how financial markets work, and how to coordinate a professional support team including CPAs, tax advisors, and financial advisors. An entrepreneurial trust can even limit these actions to smaller pools of money within the overall trust so that learning experiences won't threaten the long-term viability of the trust or the family's mission. 

Is an entrepreneur’s trust right for you?

Some people are under the misconception that trusts and other legacy vehicles are only for the extremely wealthy. But estates of all shapes and sizes can benefit from some extra planning to provide structure, tax advantages, and guidance to a family legacy plan. 

Set up a meeting to review your estate plan. We can walk through the basics of an entrepreneur’s trust and discuss some other options that will preserve and grow your legacy for generations to come.

Between industry news and personal experience.