Trusts today aren’t your grandmother’s trust. Using a South Dakota Trust, you can have more flexibility and control over the intent.
You’ve decided on a trust.
You know who will benefit from the trust.
Now you need to decide how to distribute the money.
What is mandatory or required distributions of income?
Mandatory distributions only applies to the gains and income, not principal. It’s also important to define “income.” It could refer to interest, dividends or capital gains.
This only generates more questions than answers.
So, what’s a solution?
One solution I like is the South Dakota Trust infrastructure. This is where you have different committees addressing the different issues regarding the trust.
Here is an example of the structure:
- Distribution committee
- Administrative trustee
- Investment committee
I believe the more people involved the better. When each committee has different responsibilities, they serve as a check on each other.
Why is it so important to discuss Trusts now?
Currently, there is a “Use it or Lose it” situation for estate lifetime transfers. This includes any family businesses. Now is the time to consider transferring it to the next generation.
Wait, but you do not want to lose control? You do not want to pay gift taxes? First step is to get an appraisal. Think about an infrastructure that you are comfortable with long term.
I grew up with my father being head of a family real estate company. We always had a hard time valuing it … but it made sense to pass it to the next generation before it increased in value further. My father was generous and gave up his voting control with his gifts. It worked out well in the end … but when our generation took over and he realized he no longer had control … I wonder if that is what he meant to do.
When it is the time to set up a trust, think about these questions:
Is the asset liquid or illiquid?
Is it able to be sold?
Or do other shareholders have rights of first refusal?
Can it even be sold without other shareholders approving it?
What does an investment committee need to consider when investing for a Trust?
These are factors to consider. There are no easy answers but don’t let that scare you into not looking into solutions.