While, ultimately, you create an estate plan to meet technical objectives, such as minimizing gift and estate taxes and protecting your assets from creditors’ claims, you should also consider “softer,” yet equally critical, goals. Because you’ve spent a lifetime building your wealth, it’s important to educate your children or other loved ones on how to manage wealth responsibly. In addition, you may want to promote shared family values and encourage charitable giving. Using a “family advancement sustainability trust” (FAST) is one option to achieve these goals.
Creating a leadership structure
It’s not unusual for the death of the older generation to create a leadership gap. A FAST can help fill this gap by establishing a leadership structure and providing resources to fund educational and personal development activities for younger family members.
For example, a FAST might finance family retreats and educational opportunities. It also might outline specific best practices and establish a governance structure for managing the trust responsibly and effectively.
Dissecting a FAST
Typically, FASTs are created in states that 1) allow perpetual, or “dynasty,” trusts that benefit many generations to come, and 2) have directed trust statutes, which make it possible to appoint an advisor or committee to direct the trustee with regard to certain matters. A directed trust statute makes it possible for both family members and trusted advisors with specialized skills to participate in governance and management of the trust.
A common governance structure for a FAST includes four decision-making entities:
- An administrative trustee, often a corporate trustee, that deals with administrative matters but doesn’t handle investment or distribution decisions,
- An investment committee — consisting of family members and an independent, professional investment advisor — to manage investment of the trust assets,
- A distribution committee — consisting of family members and an outside advisor — which helps ensure that trust funds are spent in a manner that benefits the family and promotes the trust’s objectives, and
- A trust protector committee — typically composed of one or more trusted advisors — which stands in the shoes of the grantor after his or her death and makes decisions on matters such as appointment or removal of trustees or committee members and amendment of the trust document for tax planning or other purposes.
Exploring funding options
It’s a good idea to establish a FAST during your lifetime. Doing so helps ensure that the trust achieves your objectives and allows you to educate your advisors and family members on the trust’s purpose and guiding principles.
FASTs generally require little funding when created, with the bulk of the funding provided upon the death of the older generation. Although funding can come from the estate, a better approach is to fund a FAST with life insurance or a properly structured irrevocable life insurance trust. Using life insurance allows you to achieve the FAST’s objectives without depleting the assets otherwise available for the benefit of your family.
Not so fast
If your children or other family members are in line to inherit a large estate, a FAST may be right for you. Properly designed and implemented, this trust type can help prepare your heirs to receive wealth and educate them about important family values and financial responsibility. Please contact our Family Wealth and Individual Tax Group to help determine if a FAST should be part of your plan.