Our Views

Preview Trust – A perfect Christmas gift from wealthy parents

Many wealthy parents wonder how their children will manage an inheritance. We spend years preparing our children to be independent;  it’s no wonder many wealthy parents are concerned about how money may taint their children’s drive or motivation. Our clients vary widely in their views about how much is appropriate to leave to the next generation(s).

Because they didn’t earn the money, it’s reasonable to assume successors won’t treat it as carefully. Some people, it seems, are ‘hard wired’ to spend, while others are thrifty. As parents, we have a pretty good idea into which spending type our children fall. We can, and should, carefully consider this in drafting wills to protect our children from, well, themselves.

But what if there were a way to see how our children might deal with wealth before we pass on, so we can better determine how much to leave, and in what form?

shutterstock_2221841-holiday-gift-blogThere is…and it’s based on the principle of learning by doing.  We call it a ‘Preview Trust’. Simply, wealthy parents loan funds to an inter vivos trust in which their children or grandchildren are named the beneficiaries. Children can be trustees or at least part of an advisory group for the capital in the trust.  They learn about capital vs. income, setting investing policy, managing assets over the longer term and preserving capital for beneficiaries.

The Preview Trust also happens to be a very tax effective income splitting strategy. It can be an effective strategy to help pay for a grandchild’s education costs or a business start up for example. Most importantly, it might just give you a sneak preview of how your children will handle wealth when you’re gone.

If you’re looking for that perfect Christmas gift idea for your adult children, the Preview Trust might be the answer.