Last month, we addressed the first purposeful exercise: Naming a Trust. You can read that newsletter here.
This month, I want to address the real heart of the trust: the Purpose Clause.
Purpose Clauses
Let's imagine that a couple has two children, a doctor and a drug addict. There are perfectly good estate planning reasons to treat both children exactly the same. The "who" gets "what," "when" and "how" do they get it looks exactly the same. But, how do you believe the doctor will response when she finds out that she is being treated the same as her drug addict sibling? You can reasonably expect there will be bitterness, sibling conflict, even self-doubt. And the drug addict will see that estate plan as confirmation that his parents did not trust him, and possibly did not love him.
Now, what if the parents took time to explain "why" they did what they did? The doctor would understand that her inheritance maximizes protection, not from her, but from lawsuits and bankruptcy and that emotional toll disappears. The drug addict will read his parents express their love for him and their confidence that he can overcome his addiction, and that estate plan can turn into a light in dark places.
The Purpose Clause is generally in the beginning of the trust, before the distribution provisions, and so helps to frame how the beneficiary interacts with the trust. This can be vital. How difficult would it be for a child to be hurt or wastefully spend their money when his or her parents wrote the following into their trust?
"This Trust does not exist as an end unto itself. It is merely the means by which we have chosen to share some of our wealth with our children, and eventually our future descendants. It is a framework to help our family better govern itself, and to encourage our children and their descendants to strive to be the best individuals they can be and to seek joy by living in accordance with the values expressed in this Agreement. We hope that this Trust will remind our children to discover the personal growth and satisfaction that can be realized through sharing my good fortune with those who are less fortunate. We also hope that the Trustee will offer positive encouragement and assistance to each beneficiary in their quests, crises, and challenges.
The foregoing primary purposes for this Trust are built on the premise that the whole family is much greater, in terms of our children's capacity to achieve their dreams and goals and to carry out our family mission statement than what the "separate sum of our family parts" would be. The Trust has been established to provide a platform to allow all members of the family to "grow interdependently."
From the primary purposes enumerated above we have distilled certain principles and values which we believe to be so fundamentally important for the long-term best interests of our children and their descendants that we have summarized these bedrock principles and core values in the paragraphs below in this Section of this Trust Agreement. We have deliberately chosen to place them here to draw attention to them and to make it easier for the trustee and beneficiaries to refer to them.
Our advisors have cautioned us about the difficulties of being able to pinpoint precisely how the Trust should be administered in the next fifty to one hundred years and beyond. What we have agreed upon is that there are certain values which will be enriching and enduring to both our family relationships and to each individual beneficiary. If the Trustee, beneficiaries, and their advisors always make sure their judgment and analysis is firmly grounded on these bedrock principles, then this Trust will have the greatest probability of allowing each beneficiary to attain their maximum potential and accomplish my goals of enriching the lives of the beneficiaries as well as the communities in which they live."
Conclusion
This is human context for the trust that gives the trust greater purpose and vision than merely a financial transaction that passes on assets to the next generation. Purpose clauses gives the trust a heart that would not exist otherwise. It helps the trust to strengthen family relationships, turn inheritances into blessings, and help beneficiaries reach their potential.
