(TheStreet) - Does your estate plan benefit Millennials? Are you leaving assets in trust for your Millennial beneficiaries under your will?
There’s a decent chance that your named beneficiaries may be Millennials/Gen Y - those born between 1981 and 1996. Millennials overtook Baby Boomers in 2019 as America’s largest generation, so if you’re at or near retirement age, your legacy may include Millennial beneficiaries — a generation that contrasts greatly with their parents and grandparents.
According to Indeed, Millennials as a group have a number of common characteristics and distinguishing traits:
- Millennials value their relations with superiors, and have a passion for learning and growth — they want to become leaders too!
- Millennials want to live a life of meaning and make a positive impact on both the world and the causes they support.
- Millennials are creative and free-thinking. They look for and seize opportunities outside of the box.
Recognizing and tapping into these traits is important. Disregarding them is often a missed opportunity.
If your estate plan benefits Gen Y, take note. Some trust features that may work well for older beneficiaries might not be optimal for this generation (and vice versa!). If you’re looking to maximize Millennial potential and contribute toward its realization, here are three powerful trust features to consider:
1. Have your beneficiary serve as a co-trustee of their trust alongside an experienced advisor.
You may trust your beneficiary’s judgment and think they would be a competent sole trustee of their trust. But Millennials appreciate the opportunity to ask for advice from a trusted advisor, secure positive reinforcement, and get constructive feedback. In fact, a recent survey shows that many heirs set to come into money are likely to work with an advisor once they inherit. For them, a co-trustee arrangement could be ideal.
Consider naming a family member or friend with a background in finance as the co-trustee. You could also consider naming a corporate trustee, like a bank. Corporate trustees bring a wealth of expertise acting as a fiduciary, so your beneficiary can receive the type of insight into financial management and trust oversight that can best equip them in their role — including if they ever have to fly solo, such as you decide to terminate the co-trustee arrangement at a set age.
Powers of appointment can be complicated, and making them overly broad can have serious and adverse tax consequences. You’ll want to speak with qualified counsel before you implement this trust feature to make sure the scope of the power is clear and appropriately tailored.
You’ll also want to be sure to provide to whom assets should pass if your beneficiary doesn’t exercise the power, since it’s always possible the beneficiary won’t redirect the trust funds.
A limited testamentary power of appointment that can be exercised in favor of the charities closest to their heart is a powerful way to tap into your Millennial beneficiary’s desire to leave a lasting legacy — while making the world a better place for generations to come.
3. Broadly define the standards for which distributions can be made to your beneficiary.
Millennials tend to think outside the box, which means that the commonly used trust distribution standards of health, education, maintenance, and support (or “HEMS”) may hinder their ability to tap into their trust funds in order to thrive in an entrepreneurial sense. This is because the HEMS standard allows for distributions that are generally for purposes that align with the beneficiary’s current standard of living.
Your trustee may not consider starting a brand new business a permissible application of trust funds under the HEMS standard. As a result, your beneficiary may have to tap into their own funds, borrow funds, or else forgo an opportunity to pursue their dreams — including ones you would have enthusiastically supported during your lifetime.
Instead, consider allowing a disinterested trustee (that is, someone not a beneficiary) an expansive distribution authority - the ability to make a distribution of trust funds to your beneficiary for any purpose. If this sounds a bit scary, consider nominating a disinterested trustee whose judgment you trust. This could possibly be a corporate trustee. They’re highly unlikely to distribute funds irresponsibly; if they do, they’re subject to penalty — including removal.
With a HEMS standard, your trustee’s decision-making power will be restricted if the proposed uses are not in alignment with the beneficiary’s current lifestyle or activities. By including an expansive distribution authority, your trustee can consider broader uses of trust funds that your Millennial beneficiary may pursue (such as starting a new business or traveling abroad to engage in meaningful charitable work), as well as exercise sound judgment in considering all factors as to whether a distribution should be made.
Thoughtful design leads to greater impact
Trusts for Millennials that are carefully crafted to take advantage of their unique characteristics and passions can help them to shape a future that you can be immensely proud of.
Leaving assets in trust for beneficiaries under your will can be part of an effective estate plan design that both supports your planning goals and your loved ones’ futures. But trusts that fail to meet your beneficiaries’ unique needs and talents run the risk of limiting their potential. They may also result in trust funds sitting around, rather than being put to use for sensible, thoughtful, and impactful purposes.
By Allison L. Lee
February 24, 2023
About The Author: Allison L. Lee
Allison L. Lee is the attorney-at-law and director of trusts & estate content for FreeWill, a mission-based public benefit corporation that partners with nonprofits to provide a simple, intuitive and efficient platform to create wills and other estate planning documents free of cost. Through its work democratizing access to these tools, FreeWill has helped raise more than $4 billion for charity.
