Cornell Journal of Law and Public Policy Volume 28 Article 5 Issue 1 Fall 2018

Do You Tru$t Your Children: A Parent’s Final Dilemma J. Sam Rodgers Cornell Law School, J.D. Candidate 2019

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Recommended Citation Rodgers, J. Sam (2018) "Do You Tru$t Your Children: A Parent’s Final Dilemma," Cornell Journal of Law and Public Policy: Vol. 28 : Iss. 1 , Article 5. Available at: https://scholarship.law.cornell.edu/cjlpp/vol28/iss1/5

This Note is brought to you for free and open access by the Journals at Scholarship@Cornell Law: A Digital Repository. It has been accepted for inclusion in Cornell Journal of Law and Public Policy by an authorized editor of Scholarship@Cornell Law: A Digital Repository. For more information, please contact [email protected]. 40749-cjp_28-1 Sheet No. 51 Side A 11/30/2018 10:47:34 R R R R R R R R R R R R R R R R R R R R R R R R ET ? ... 114 L T ’ ON ...... 96 OLLARS Cornell Journal of Law W D HEY ULES T R ...... 124 ...... 122 ...... 124 BUT , ILLIONS OF ...... 108 ...... 107 ...... 103 ...... 102 HEM M AKES THE ...... 118 T 93 M ...... 109 ...... 123 NOTE ...... 96 ...... 122 O WITH OLD ...... 121 ...... 98 T WITH D ...... 121 ...... 123 J. Sam Rodgers* G I OU ...... 100 ...... 111 AKE Y B ...... HBT : 118 AS THE T T ’ H OULD AN ...... 100 ...... 94 NSWER . Syracuse University, 2015, B.S. Summa Cum Laude, Football Captain, W A PARENT’S FINAL DILEMMA FINAL A PARENT’S C O 1. Flexibility 2. Public Policy 3. Unintended Consequences 4. Motivation 5. Parenting First 6. Later Rather Than Sooner 7. Discuss Family Expectations 1. Predicting the Future: Specificity vs. Flexibility .2. . 101 Prepare for Litigation 1. The Hedonic Treadmill 2. Bait and Switch A DO YOU TRU$T YOUR CHILDREN: TRU$T YOUR DO YOU HAT HOEVER G HE HEY T D. Motivation A. Structure and Drafting B. HBTs in Action A. the Grave Beyond B. Trusts Incentive I A. Inflexibility B. Public Policy Limitations C. Unintended Consequences * Cornell Law School, J.D. Candidate 2019, Executive Editor, I. W II. T III. W IV. T NTRODUCTION M K Academic All-American, Remembrance Scholar. I am thankful for a support network whose names are longer than this Note. I would like to specifically thank the following: my loving wife, Jenna Rodgers, who inspires me daily, 1 Tim. 4:12; Professor Lape, my first-year prop- not erty professor at Syracuse, who taught me that the rule against perpetuities, just like life, is in- about probabilities, but possibilities; Professor Sherwin, whose Trusts and Estates course Sue spired this Note; Katherine Van Bramer, JLPP EIC Vol. 28, Karli Cozen my Notes Editor, the Pado, and the rest of the hardworking JLPP staff; Finally, thank you Chancellor Syverud, value of your mentorship is immeasurable. and Public Policy \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown Seq: 1 28-NOV-18 13:32 I C Y 40749-cjp_28-1 Sheet No. 51 Side A 11/30/2018 10:47:34 A 11/30/2018 51 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 51 Side B 11/30/2018 10:47:34 R R M K , C Y To- 4 § 10.1 AGAZINE M [Vol. 28:93 RANSFERS T ORTUNE F Id. ONATIVE OLICY P D THER Scholars relate the situation 6 UBLIC O P In the United States, unlike in In the United States, 2 , by which parents incentivize their 7 ILLS AND ...... 125 AW AND .: W L NTRODUCTION I ROP P OF Mr. Shapira conditioned a portion of his large Mr. Shapira conditioned Should You Leave It All to the Children? 1 ) Mr. Shapira used his power to incentivize his son Mr. Shapira used his power to incentivize 3 This fear leads to a controlling dynamic between This fear leads to a controlling dynamic 5 HIRD OURNAL OF (T J ...... 125 8. Giving Charitable at 826. Shapira v. Union Nat’l Bank, 315 N.E.2d 825 (Ct. Com. Pl. 1974). Shapira v. Union Nat’l Bank, 315 N.E.2d 825 ORNELL ESTATEMENT Richard I. Kirkland Jr., Id. Jon J. Gallo, Use and Abuse of Incentive Trusts: Improvements and Alternatives, ¶ Id. See Id. R If you knew you would inherit millions of dollars as long as you would inherit millions of dollars If you knew you was a twenty- Daniel Shapira faced. Daniel This was the situation Many parents view the distribution of their assets at death as the Many parents view the distribution 4 5 6 7 1 2 3 ONCLUSION cmt. e (Am. Law Inst. 2003). “The organizing principle of the American law of donative cmt. e (Am. Law Inst. 2003). “The organizing owners have the nearly unrestricted right to dis- transfers is freedom of disposition. Property pose of their property as they please . . . . “ Sept. 29, 1986, http://archive.fortune.com/magazines/fortune/fortune_archive/1986/09/29/ 68098/index.htm. 1100 (2011) (on file with The Madison Group Inc.), http://www.themadisongroup.com/Resour ces/Use%20and%20Abuse20of%20Incentive%20Trusts% 20%20Gallo.pdf. John Gallo “chairs the Family Wealth Practice Group of Greenberg Glusker Fields Claman & Machtinger, . . a LLP, in Los Angeles.” He is also “the author of more than 70 articles on estate planning . Fellow of the American College of Trust and Estate Counsel, an Academician of the Interna- tional Academy of Estate and Trust Law and certified by the California Board of Legal Spe- cialization as a Specialist in Probate, Estate Planning and Trust Law.” C next Friday Jewish, would you scour the Synagogue married someone night? when his fa- at Youngstown State University one-year-old undergraduate died. ther, Mr. Shapira, \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown94 C Seq: 2 28-NOV-18 13:32 fortune to Daniel: the document read either be “married at the time of my the document read either be “married fortune to Daniel: . . .” or the inheri- girl whose both parents were Jewish death to a Jewish “the State of Israel.” tance will go to within the Jewish faith. to adhere to family values and marry Historically, most parents took final impact they have on their children. security for their heirs. this opportunity to provide future financial parents’ fortunes and their children’s lives. parents’ fortunes and their children’s to the “carrot and the stick” analogy children—many times adult children—to make wise choices by dangling then string them along like a master- a “carrot” in front of their children, ful puppeteer. other countries, a decedent has almost full control over the distribution of decedent has almost full control over other countries, a his assets upon death. day, parents are confronting a recently developed fear of their children day, parents are confronting a recently inheriting too much. 40749-cjp_28-1 Sheet No. 51 Side B 11/30/2018 10:47:34 B 11/30/2018 51 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 52 Side A 11/30/2018 10:47:34 9 18 95 § 1.1. (5th ed. 564 (10th ed. parent’s final RUSTS STATES T . Part III examines E Fourth, rewarding ND 17 parent’s final dilemma , A SCHER ON HILDREN Second, the law confers a A RUSTS 15 C T ILLS OUR COTT AND Y , W , S § 29 (Am. Law Inst. 2003). RUST parent’s final dilemma ITKOFF SCHER S T RUSTS L. A Theoretically, this solves a “ Theoretically, this OU T 13 OBERT OF or leave children less inheritance, but instead, or leave children ARK Y ) O 14 & R & M HIRD The harsh consequences of complete disinheritance consequences The harsh (T 8 note 6. These conditions are “as unlimited as our imagina- These conditions COTT 11 Third, incentive trusts promote idolizing money, thus poten- Third, incentive trusts promote idolizing UKEMINIER W. S supra D 16 Part III.A. Part III.B. Part III.C. Part III.D. ”—whether mo- on to children and possibly stunt to pass wealth at 9. at 10. An incentive trust allows parents to condition distributions of allows parents to condition distributions An incentive trust USTIN ESTATEMENT so long as they do not contradict public policy or call for benefi- not contradict public policy or call so long as they do ESSE Id. Id. Id. A R Gallo, Infra Infra Infra Infra J 10 12 Part I of this Note discusses both the development of the law regard- Part I of this Note discusses both the Courtesy of American inheritance law, children can be disinherited law, children of American inheritance Courtesy However, incentive trusts are not a perfect solution and should be However, incentive trusts are not 9 8 10 11 12 13 14 15 16 17 18 M K 2015). 2017). “In all states except Louisiana, a child or other descendant has no statutory protection 2017). “In all states except Louisiana, a child against intentional disinheritance by a parent.” four principles for crafting a better solution to the four principles for crafting a better by looking at those who have successfully inspired children without in- by looking at those who have successfully ing inheritance and the growing attraction to incentive trusts. Part II de- ing inheritance and the growing attraction trusts—inflexibility,tails the four traps of incentive public policy decreased motivation—andlimitations, unintended consequences, opens the door for a new solution to a The most prevalent form of a conditioned inheritance is the “incentive inheritance is the of a conditioned prevalent form The most trust.” \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown2018] Seq: 3 D 28-NOV-18 13:32 by their parents. by their dilemma tivation and character, tially diluting the initial incentivized behavior. tially diluting the initial incentivized trust property. allow parents to do and inspiration. Incentive trusts helpful principles to children from the benefits of bequeathing property both by separating done by passing for- too much property. This is the risks of bequeathing enumerated in the align their lives with criteria tunes only after children trust. Incentive trust shortcomings are used with caution in estate planning. inflexible, making them difficult to fourfold. First, incentive trusts are litigation. draft and leaving them exposed to ciaries to break the law. ciaries to break the have led to the development of conditional bequests—parents of conditional to the development have led will give properly. children behave so long as their to their children inheritances children with money often has a negative impact on their motivation. children with money often has a negative tion,” public policy limitation that produces inconsistent enforcement of incen- public policy limitation that produces tive trusts. C Y 40749-cjp_28-1 Sheet No. 52 Side A 11/30/2018 10:47:34 A 11/30/2018 52 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 52 Side B 11/30/2018 10:47:34 M K C Y [Vol. 28:93 19 ULES Recognizing that R 21 OLICY P This method lets people This method lets 20 Under a forced succession AKES THE 29 UBLIC P M 22 OLD Alternative methods include “forced 28 G AW AND note 8, at 3, 19. note 8, at 3–4. L AS THE note 12. supra supra , , H supra , , Mar. 12, 1985 (calling incentive trusts a “modern version of the , Mar. 12, 1985 (calling incentive trusts a “modern ITKOFF ITKOFF today it can be a convoluted process of disinheri- today it can be a convoluted process at 519–85. at 65. Ideas and Trends: The Rise of Incentive Trusts; Six Feet Under and Ideas and Trends: The Rise of Incentive Trusts; OURNAL OF 23 J Laws governing transfers of property after death are Laws governing transfers of property Mandatory rules might include primogeniture, in which Mandatory rules might include primogeniture, IMES HOEVER Whether this is the best way to promote orderly succes- Whether this is the best way to promote & S & S SCHER 26 30 27 25 at 9. at 4. & A I. W , N.Y. T ORNELL at 2. at 19. . This evolution is unique to American inheritance laws, which This evolution is unique to American UKEMINIER UKEMINIER COTT J. Peder Zane, D Id. See id. See id. See generally id. S D Id Id. Id. See generally id. 24 Purchase, sale, and gift are all forms of property transfer recognized Purchase, sale, and gift are all forms Though passing down family assets through wills has long been a Though passing down family assets There is a lot to consider before death. To some, passing down an before death. To some, passing There is a lot to consider 20 21 22 23 24 25 26 27 28 29 30 19 Golden Rule”). Overbearing in a majority of jurisdictions around the world—atin a majority of jurisdictions around least while the trans- feror is living. A. Beyond the Grave common practice, inheritance is least of their worries; to others, passing down a legacy is of their worries; to others, passing inheritance is least people to choose States has settled on allowing everything. The United property when they die. what happens to their \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown96 C Seq: 4 28-NOV-18 13:32 dared parents and lawyers to push the boundaries of after-death asset dared parents and lawyers to push distribution. they extend control of property unique in the United States because through death. sion is a topic of scholarly debate. scheme, property passes after death by a set of mandatory rules that vary scheme, property passes after death by jurisdiction. the property is split between a living spouse and children, other depen- the property is split between a living tance, hiding assets, and controlling beneficiaries from beyond the tance, hiding assets, and controlling grave. succession” or “confiscation by the state.” succession” or “confiscation by the provide for beneficiaries from “beyond the grave.” provide for beneficiaries down a road of windfalls can lead beneficiaries unconditional inheritance both leave a legacy trusts emerged as a vehicle to destruction, incentive behavior. and regulate beneficiaries’ centive trusts. Part IV proposes the new solution, termed a Hidden Bonus termed a Hidden the new solution, Part IV proposes centive trusts. trusts and incorporates traps of incentive avoids the identified Trust, that from experts. the lessons 40749-cjp_28-1 Sheet No. 52 Side B 11/30/2018 10:47:34 B 11/30/2018 52 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 53 Side A 11/30/2018 10:47:34 97 Also, as codi- 45 There are three First, it promotes 34 35 Second, freedom of dis- Second, freedom A Qualitative Theory of the Dead HILDREN 38 C The American perspective ad- 33 OUR 41 Confiscation by the state is based by the state Confiscation Y but dead hand control is not bound- 32 42 note 8, at 386. Id. RUST T supra , OU Y ITKOFF O Social scientists believe that the right to bequeath Social scientists Restricting Testamentary Freedom: Ex Ante Versus Ex Post Justifica- & S 36 Adam J. Hirsh & William K.S. Wang, Potential beneficiaries want to provide care and comfort Potential beneficiaries Forced succession is most notably used when someone notably used when succession is most Forced 39 L. Rev. 1125, 1136–37 (2013). 31 Therefore, if freedom of disposition were eliminated, the of disposition were eliminated, Therefore, if freedom For instance, if a person dies with creditors, the creditors can For instance, if a person dies with UKEMINIER . L.J. 1, 18 (1992). 37 44 D at 8. at 19. ND at 9–10. at 10. at 519. at 3. at 461–62. at 3. . at 65. implemented by the Soviet Bol- . at 19. Confiscation by the state was the method ORDHAM Finally, people assert that they know more about their families’ Finally, people assert that they know Id. Id. Critics contend that the productivity benefits are offset by lazy beneficiaries who in- Id. Id. Daniel B. Kelly, See Id. Id. Id. Id. Id Id Id. See generally There are a few situations where one’s estate plan can be There are a few situations where The United States settled on the theory called “freedom of disposi- on the theory called States settled The United Upon these principles, dead hand control has become the corner- Upon these principles, dead hand 40 43 , 68 I 36 37 38 39 40 41 42 43 44 45 31 32 33 34 35 , 82 F M K tion Hand herit, rather than create their own wealth. sheviks in an attempt to carry out the teachings of Karl Marx. Within four years, this practice sheviks in an attempt to carry out the teachings that allowing disposition of property at was ended because the Soviet government determined to work. Also, if descendants were not death encouraged savings and provided an incentive burden then fell on the state. being provided for after a parent’s death, the tion,” sometimes referred to as “dead hand control.” tion,” sometimes \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown2018] Seq: 5 D 28-NOV-18 13:32 settle debt before any property is given to beneficiaries. settle debt before any property is given to their elders in an effort to ensure they are not left out of the estate an effort to ensure they are not left to their elders in plan. do. needs than the legislature or courts disrupted. dies without a will, dying intestate. a will, dying dies without property at death leads people to work harder during life and save what leads people to work harder during property at death they earn. subjective value of property would decline because the potential use of property would decline because subjective value of at death “disappeared.” giving property away position gives the elderly leverage to receive social services from their elderly leverage to receive social position gives the potential heirs. dents, or kin. dents, or vocates for a parent’s right to disinherit children or condition inheritance vocates for a parent’s right to disinherit of the family. in any way that promotes the needs stone of American inheritance law, spouses may have rights to their fied by some legislatures, disinherited less. work and savings. on the theory that property rights terminate at death; therefore, property at death; therefore, rights terminate that property on the theory government. recovered by the should be main policy reasons behind freedom of disposition. main policy reasons C Y 40749-cjp_28-1 Sheet No. 53 Side A 11/30/2018 10:47:34 A 11/30/2018 53 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 53 Side B 11/30/2018 10:47:34 M K C Y 53 52 Id. [Vol. 28:93 As a result, incen- 56 OLICY P Even so, people continued 51 UBLIC P At that time, benefactors trans- At that time, benefactors Indeed, they were so effective at Indeed, they were 48 50 Their origins are traced back to the are traced back Their origins 57 47 AW AND L note 6, ¶ 1100. supra In part due to obstacles like these, trust laws de- these, trust laws to obstacles like In part due 46 note 4. OURNAL OF J Gallo, supra Nowhere else in the world is self-made wealth so highly Nowhere else in the world is self-made at 386. 55 ORNELL at 696. at 520. at 385. . . at 387. . . The medieval trust was called a “use.” In 1535, British parliament passed the Stat- . at 385. . People then began using the same mechanism to avoid other using the same mechanism to People then began Id Id Id Id Id Id Id. Kirkland, See generally Id. See id. Id. 54 49 Today, trusts are used for a multitude of reasons. Many trusts serve used for a multitude of reasons. Many Today, trusts are “The rich have—at history—continually least in Anglo American Trusts originated as, and in some instances continue to be, a finan- continue to be, a some instances as, and in Trusts originated 49 50 51 52 53 54 55 56 57 46 47 48 ute of Uses, which is still enacted in all common law states today. The purpose of this statute not was to completely abolish uses; however, the courts eventually held that the statute did operate if the trustee (medieval “feoffee”) was given active duties to perform. For this reason, “passive trusts”, wherein the trustee has no duties to perform, are invalid today. useful purposes in estate planning, businesses, and charitable giving. useful purposes in estate planning, used to hide assets from creditors, On the other hand, trusts can be control beneficiaries from beyond the spouses, and tax authorities, and to grave. B. Incentive Trusts to their children and grandchildren sought ways to secure their wealth bad management, and irresponsible against the accidents of fortune, spending.” \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown98 C Seq: 6 28-NOV-18 13:32 sought-after; and consequently, no culture is more suspicious that the sought-after; and consequently, no narcotic.” “silver spoon contains something vaguely laws, such as primogeniture and taxes. laws, such as primogeniture veloped as a way to protect assets and further customize bequests to the customize bequests assets and further a way to protect veloped as next generation. the law. to circumvent cial vehicle mid-thirteenth century when Franciscan friars migrated to England and when Franciscan friars migrated mid-thirteenth century to own land. were not legally allowed tive trusts were formed as a tool to leave a meaningful legacy while en- tive trusts were formed as a tool to suring beneficiaries do not waste it. eluding property laws that King Henry VIII pressured Parliament to pass that King Henry VIII pressured eluding property laws of declining tax revenue. more laws because to find loopholes in the new laws, giving birth to the modern-day trust. in the new laws, giving birth to the to find loopholes ferred land to friends of the friars to hold for the sole benefit of the of the friars to hold for the ferred land to friends friars. dead spouse’s estate. dead spouse’s 40749-cjp_28-1 Sheet No. 53 Side B 11/30/2018 10:47:34 B 11/30/2018 53 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 54 Side A 11/30/2018 10:47:34 , 99 See The survey U.S. Trust, a 62 61 65 Due to this fear, a 63 By setting conditions 66 HILDREN C , Apr. 22, 2016, http://minnesotabusi- Time Magazine published a Time Magazine 60 OUR USINESS Y B Carlson amassed a net worth over amassed a net worth Carlson 58 RUST an ominous harbinger of risk, discussed an ominous harbinger 64 Of course, such a safety net will only exist Of course, such a safety net will only T INNESOTA 67 OU note 12. , M Y O supra 70% of Rich Families Lose Their Wealth by the Second Generation , The Legacy Continues: Minnesota Legacy Families Maintain Their note 4. SCHER supra ; a “settlor” is a person who “settles” property in a trust. This line of thinking stems from quantitative data revealing from quantitative of thinking stems This line & A , June 17, 2015, http://time.com/money/3925308/rich-families-lose-wealth/. 59 id. Chris Taylor, . . . Curtis Carlson died in 1999 with two adult daughters. His eldest daughter took . Curtis Carlson died in 1999 with two adult Kevyn Burger, COTT ONEY See Id. Id. Id Id. Id S See Kirkland, Id In the midst of this mess, estate planning shifted from a tool to pass In the midst of this mess, estate planning Traditional conditions used by incentive trusts can be divided into Traditional conditions used by incentive Curtis L. Carlson is the founder of the Radisson Hotel Corp. and the Hotel Corp. and of the Radisson Carlson is the founder Curtis L. . Further, the study showed that it takes the average recipient of an . Further, the study showed that it : M 60 61 62 63 64 65 66 67 58 59 IME M K ness.com/legacy-continues. T over as CEO of the family business, and he named his youngest daughter President of the over as CEO of the family business, and he with inheritance dilemmas, Carlson decided Carlson Family Foundation. Rather than grapple by establishing a family charitable mission. to guide his daughters’ inheritance mindset generally Dedication to Local Philanthropy on wealth and take care of earthly responsibilities to an instrument used on wealth and take care of earthly a gift that is administered at one pe- to continue parenting. Rather than scheme of property disbursements riod in time, trusts create an on-going beneficiaries. tailored to the perceived needs of \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown2018] Seq: 7 D 28-NOV-18 13:32 TGI Fridays restaurant franchise. TGI Fridays so long as the beneficiaries are willing to trudge down the path the settlor so long as the beneficiaries are willing laid out for them. beneficiaries to pursue an ed- three categories: conditions that encourage infra buy a new car.” inheritance “nineteen days until they how quickly family fortunes evaporate. how quickly family that must be met before beneficiaries can receive trust disbursements, a that must be met before beneficiaries beneficiaries, while pushing them settlor provides safety nets for willing towards future achievement. study finding that “70% of high net worth families lose their wealth by “70% of high net worth families study finding that and a stunning 90% by the third.” the second generation, majority of people surveyed said they “disclose little to nothing about surveyed said they “disclose little majority of people children,” their wealth to their $700 million in his career and said, “There’s nothing people like me nothing people and said, “There’s in his career $700 million more—howworry about money from destroying hell do we keep our the our kids.” found that “78% feel that the next generation is not financially responsi- that the next generation is not found that “78% feel a substantial inheri- inheritance,” citing that with ble enough to handle will become “lazy and entitled.” tance, their children Bank of America subsidiary, recently surveyed individuals whose net subsidiary, recently surveyed individuals Bank of America $3 million dollars in investable assets. worth exceeded C Y 40749-cjp_28-1 Sheet No. 54 Side A 11/30/2018 10:47:34 A 11/30/2018 54 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 54 Side B 11/30/2018 10:47:34 M K C Y 74 73 81 , 41 O ANAGE- G . 2001). T M I CT ET [Vol. 28:93 ./O On the sur- EALTH L 69 EPT public policy W T ’ 78 ON OLICY W . J. 6, 8 (S P R HEY A fourth category some- A fourth 68 T . & T UBLIC P ROB and ineffective motivation. BUT 80 . P , and should be used with caution. 75 ROP HEM P § 29 (Am. Law Inst. 2003). T AW AND EAL L , R RUSTS note 6, ¶ 1102.1. note 6, ¶ 1102.1. . A new solution needs to address the four . A new solution needs to address T T WITH Yet, the actual effects demonstrate this is not Yet, the actual effects OF I The Dangerous Allure of Incentive Trusts, ) 70 supra supra Controlling Behavior by Controlling the Inheritance: Considera- Controlling Behavior by Controlling the Inheritance: AKE note 6, ¶ 1103. HIRD . J. 445, 453 (2006). note 4. Conditional Love: Incentive Trusts and the Inflexibility Problem Conditional Love: Incentive Trusts and the Inflexibility OURNAL OF R J T Gallo, Gallo, (T 72 T note 19. note 6, ¶ 1102. ’ note 19. supra supra Part III.A, B, C, D. . & T unintended consequences, AN supra supra supra 79 ROB C In practice, incentive trusts fail because of inflexibility, public trusts fail because of inflexibility, In practice, incentive David H. Lenok, Ellen Whiting, Gallo, ORNELL Rather than doing a disservice to settlors who deal with the Rather than doing a disservice to . P 71 MENT In practice, these perceived advantages prove illusory and create In practice, these perceived advantages ESTATEMENT 77 HEY Kirkland, See generally Id. Zane, Id. See generally See See infra See R Zane, Gallo, Joshua C. Tate, See 76 ROP Flexibility in trust drafting is a perceived strength, but when it Flexibility in trust drafting is a perceived Incentive trusts have become an integral part of estate planning, become an integral part of estate Incentive trusts have , Sept. 15, 2015, http://www.wealthmanagement.com/estate-planning/dangerous-allure- P parent’s final dilemma 71 72 73 74 75 76 77 78 79 80 81 68 69 70 EAL II. T R tions in Drafting Incentive Provisions incentive-trusts. policy limitations, the unintended consequences they promote, and defi- the unintended consequences they policy limitations, cient motivation. A. Inflexibility limited flexibility in trust administra- comes to incentive trusts, there is but have given rise to many problems \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown100 C Seq: 8 28-NOV-18 13:32 problems for all parties involved: drafting attorneys, settlors, and benefi- problems for all parties involved: drafting ciaries. needs to be a different solution to shortcomings of incentive trusts, there the trusts—inflexibility,shortcomings that defect incentive the case. limitations, ucation; conditions that provide incentives reflecting the settlor’s moral, reflecting the settlor’s incentives conditions that provide ucation; to motivate designed of life; and conditions or particular way religious, careers. to establish productive beneficiaries leave a meaningful appear to be a perfect way to face, incentive trusts do not become ensuring that beneficiaries legacy while simultaneously “wastrels or wantons.” trusts is to ease parents’ fears about In theory, the appeal of incentive to implant values from beyond the wasteful children and offer a chance grave. times observed is a condition to discourage certain behaviors perceived certain behaviors to discourage is a condition times observed or alcohol. like the use of drugs or immoral, as destructive 40749-cjp_28-1 Sheet No. 54 Side B 11/30/2018 10:47:34 B 11/30/2018 54 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 55 Side A 11/30/2018 10:47:34 AW 101 L OF THE ) 87 HIRD However, while However, (T 84 ESTATEMENT HILDREN C The inflexibility of incentive The inflexibility Given that specificity and flex- 85 92 OUR Y RUST This creates a catch-22 for attorneys who This creates a catch-22 for attorneys note 8, at 591. 91 T note 6, ¶ 1103. note 68. OU supra To be “enforceable, effective and satisfying to To be “enforceable, effective and , Unless settlors and their attorneys can predict Unless settlors and 90 Y 86 supra O supra , 56 Cal. 2d 583 (Ca. 1961); R note 76. note 76. ITKOFF note 6, ¶ 1103. 93 Gallo, § 51 (Am. Law Inst. 2000). Tate, note 76. & S supra supra note 19. note 19. Just as a living person might reward a family member for reward a family living person might Just as a supra 83 However, once they die, administration is strictly governed However, once they die, administration supra supra supra AWYERS 88 id. L Lenok, UKEMINIER Predicting all the different circumstances that could affect the Predicting all the different circumstances See See Gallo, See Zane, See Lenok, See Lucas v. Hamm Zane, D See generally Lenok, Id. See generally Incentive trusts are designed to imitate the thought process of a thought process to imitate the trusts are designed Incentive 89 1. vs. Flexibility Predicting the Future: Specificity state their intentions clearly and When settlors are alive, they can 82 82 83 84 85 86 87 88 89 90 91 92 93 OVERNING M K G “respond to changes in circumstances or be persuaded to another course “respond to changes in circumstances of action.” \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown2018] Seq: 9 D 28-NOV-18 13:32 trust is near impossible. living person. Incentive trusts are adminis- must reconcile specificity with flexibility. metrics, making them inflexible and tered in accordance with specific and remain functional in the face of unlikely to “stand the test of time . . .” changing laws and social attitudes. achieving specific milestones, incentive trusts create benchmarks that create benchmarks incentive trusts specific milestones, achieving payments. before receiving must achieve beneficiaries ibility are conflicting ideas, attorneys drafting incentive trusts must favor ibility are conflicting ideas, attorneys true to the settlor’s intentions often one over the other. Therefore, staying ambiguous language in the trust requires trustees to either interpret would have responded to the chang- agreement or guess how the settlor ing circumstances. by what was written in the trust agreement, not the settlor’s spoken direc- by what was written in the trust agreement, tions. would ideally be drafted with a the client, the distribution requirements certain degree of specificity.” the future, changed circumstances or different interpretations can twist circumstances or different interpretations the future, changed unforeseen circum- the trust. Second, an overlooked or the objectives of to hold the draft- litigation in which beneficiaries seek stance can lead to estate. thus decreasing the value of the ing attorney liable, a living person can adjust the distribution scheme to accommodate un- scheme to accommodate the distribution person can adjust a living the dead cannot. foreseen circumstances, trusts creates two woeful outcomes for settlors and the attorneys who woeful outcomes for settlors and trusts creates two the words written First, trusts must be administered by draft such trusts. in the trust agreement. tion. C Y 40749-cjp_28-1 Sheet No. 55 Side A 11/30/2018 10:47:34 A 11/30/2018 55 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 55 Side B 11/30/2018 10:47:34 M K C Y 96 and Yet 99 95 To draft 98 [Vol. 28:93 unforeseen cir- two in particular all 94 Traditionally, only OLICY P 103 : 2012-1205 5 (2012). UBLIC LAIMS P note 8, at 263–324. C 100 supra , but some violations are due to attor- note 8, at 418. AW AND 102 ALPRACTICE L ITKOFF supra M , & S EGAL L ITKOFF , 56 Cal. 2d 583 (Ca. 1961). Many of the violations are related to attorneys tak- Many of the violations are related & S UKEMINIER OURNAL OF J 101 D note 76. note 76. ROFILE OF note 68, at 453. note 68, at 460. Part II.B. supra supra UKEMINIER supra supra D ABA, P ORNELL at 19. “Wrangling among a decedent’s survivors over succession to the decedent’s where every dollar earned by a beneficiary is matched by a dollar earned by a beneficiary is matched where every dollar See infra Tate, Lenok, Tate, Lenok, See Id. See See generally See Lucas v. Hamm 97 2. Prepare for Litigation for a large number of attorney Trust and estate practice accounts Another common provision incorporates income-matching incen- provision incorporates income-matching Another common Good drafting can reduce the risk of unforeseen circumstances, but Good drafting can reduce the risk From the four main categories of incentive trusts, four main categories From the 94 95 96 97 98 99 100 101 102 103 property entails potentially significant private and social costs . . . . The decedent’s property may be consumed by litigation costs and relationships within the family may be irrevocably damaged.” ethical violations. What about an online college program? What if the beneficiary had a college program? What if the What about an online and graduating college was unattainable? learning disability tives, \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown102 C Seq: 10 28-NOV-18 13:32 from the trust. Does this penalize beneficiaries who want to take lower this penalize beneficiaries who from the trust. Does a beneficiary that mission work? What about paying jobs or complete and take care of a family—doeschooses to stay home the settlor really beneficiary nothing? intend to leave that to defend against it is unrealistic to expect attorneys cumstances. At a certain point, exceptions to incentive conditions create cumstances. At a certain point, exceptions purpose of the trust. more confusion and dilute the intended ing advantage of elderly clients, neys breaching a duty owed to beneficiaries. neys breaching a duty owed to malpractice because privity of con- clients could hold attorneys liable for effective incentive trusts, attorneys are expected to perfectly mesh speci- effective incentive trusts, attorneys incompatible concepts. Drafting in- ficity with flexibility, two seemingly attorneys exposed to litigation, centive trusts for settlors may leave often lead to specific provisions that are harmfully inflexible in practice, inflexible that are harmfully to specific provisions often lead pro- A common incentive productive careers. education and encouraging “graduates college.” a beneficiary funds when vision distributes Would this than it answers. more questions may create such a condition If not, is it the or a two-year community college? include a trade school beneficiary? disinherit an otherwise hardworking settlor’s intent to even if the drafting attorney is not held liable, litigation is costly, which even if the drafting attorney is not is to the detriment of the beneficiaries. 40749-cjp_28-1 Sheet No. 55 Side B 11/30/2018 10:47:34 B 11/30/2018 55 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 56 Side A 11/30/2018 10:47:34 ESSE 103 for J 112 See also Although the This opened the 110 Beneficiaries to a Beneficiaries 109 106 § 51 (Am. Law Inst. 2000). HILDREN AWYERS L C OUR In fact, the first case that recog- In fact, the first Y 108 This public policy concern poses OVERNING note 8, at 305. G 114 Incentive trusts bring problems § 29 (Am. Law Inst. 2003). RUST AW 111 note 8, at 418. L supra T RUSTS , T OU supra , OF OF THE Y ) ) ITKOFF , the Supreme Court of California granted estate , the Supreme Court of California O Today, however, privity of contract is no longer a contract is no longer privity of Today, however, ITKOFF HIRD 307–35 (8th ed. 2014). HIRD & S 104 , This is the exact zone in which estate planning attor- This is the exact (T (T & S 107 56 Cal. 2d 583 (1961). When incentive provisions are declared invalid, the prop- When incentive provisions are declared 6 Cal. 2d 583 (Ca. 1961) (granting standing, but ultimately finding the attor- ROPERTY The restatement specifically notes a few instances attorneys notes a few instances specifically The restatement UKEMINIER 113 , P D 105 Lucas v. Ham UKEMINIER ESTATEMENT ESTATEMENT was costs the estate money and cut disserved because the litigation Id. Id. D Lucas, 5 See Lucas, See id. See R Id. R Id. The restatement offers the following guideline: attorneys may be offers the following guideline: attorneys The restatement Any trust provision contrary to public policy can be ruled invalid by Any trust provision contrary to public 107 108 109 110 111 112 113 114 104 105 106 UKEMINIER M K ney was not liable for a drafting mistake involving the rule against perpetuities). The rule ney was not liable for a drafting mistake involving the rule against perpetuities). The against perpetuities prevents a property owner from exerting control over property for long his after the instrument was written, practically allowing donors to provide for all those in family whom he personally knew and the first generation after them. must exhibit a duty of care to non-clients, including non-clients who an non-clients to non-clients, including a duty of care must exhibit from their services. knows should benefit attorney D \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown2018] Seq: 11 D 28-NOV-18 13:32 neys operate. When drafting an estate plan, a primary objective of the drafting an estate plan, a primary neys operate. When the beneficiaries. client is to benefit the conditions never existed, or as erty involved is distributed as though if the conditions were satisfied. door to future suits by similarly-situated beneficiaries. door to future suits by similarly-situated was not harmless. The client in attorney was not held liable, his error Lucas the beneficiaries’ inheritances. trust are non-clients who should benefit from attorney’s services, which who should benefit from attorney’s trust are non-clients attorney for can now sue their estate planning means beneficiaries malpractice. intends as one of the if they know “that a client held liable to non-clients services benefit of the representation that the lawyer’s primary objectives the non-client.” malpractice requirement under Restatement § Restatement requirement under malpractice of the Law Governing 51 Lawyers. tract was required. tract was nized this provision of the restatement was a case involving an estate of the restatement was a case nized this provision plan. In attorneys, as they require consideration of unknown circumstances, lead- attorneys, as they require consideration ing to arbitrary results. B. Public Policy Limitations the courts. beneficiaries standing to sue an attorney for malpractice because he made beneficiaries standing to sue an attorney perpetuities. a drafting error related to the rule against C Y 40749-cjp_28-1 Sheet No. 56 Side A 11/30/2018 10:47:34 A 11/30/2018 56 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 56 Side B 11/30/2018 10:47:34 M K C Y UKEMINIER D note 8, at 8 [Vol. 28:93 Even with Id. 117 supra , See also , however, the court Whether a provision . A Romanian man left his ITKOFF OLICY Shapira v. Union Na- court distinguished its P Id 122 . 897, 913 (2006). In & S EV 119 UBLIC P might be grounded on the fact that the Shapira Restatement (Third) of Trusts § 29 (Am. . U. L. R UKEMINIER D See AL § 29 note c, cmt. (i)–(i)(2) (Am. Law Inst., Maddox § 29 (Am. Law Inst. 2003). § 29 (Am. Law Inst. 2003). Maddox v. Maddox AW AND , 40 V RUSTS L Valid provisions in one era may be unac- in one era Valid provisions T See also In 115 RUSTS OF RUSTS ) 120 T T OF OF ) ) HIRD Settlors using trusts for estate planning cannot using trusts for Settlors Incentive Conditions: The Validity of Innovative Financial Parent- (T 116 HIRD HIRD , noting that although the provision restricted mar- , noting that although the provision OURNAL OF J (T (T Bob Jones Univ. v. United States, 461 U.S. 574 (1983) (holding that if Bob Jones Univ. v. United States, 461 U.S. note 8, at 12. A Canadian man left a will instructing most of his estate be note 8, at 12. A Canadian man left a will instructing , 315 N.E.2d at 825. Why the discrepancy? The , the court upheld a trust provision that limited potential , the court upheld a trust provision Maddox ESTATEMENT R ORNELL 121 Shelly Steiner, Maddox v. Maddox, 52 Va. 804 (Va. 1854). For instance, “[a] trust condition or other provision in the terms trust condition or other provision For instance, “[a] , supra ESTATEMENT ESTATEMENT See See R Shapira v. Union Nat’l Bank, 315 N.E.2d 825, 832 (Ohio 1974). See Shapira R Id. See also, 118 Due to the unpredictable nature of public policy, it is reckless to nature of public policy, it Due to the unpredictable ITKOFF 117 118 119 120 121 122 115 116 year was 1854, and the petitioner’s ability to relocate and find a qualifying spouse was not year was 1854, and the petitioner’s ability to relocate and find a qualifying spouse was air reasonable in the “horse and buggy days.”). In 1974, Daniel Shapira had the benefit of travel, freeways, and telephone communication to find his Jewish spouse. (suggesting that the unreasonable restraint in 2003). ing by Passing Along Wealth and Values case from given to the Toronto mother who gives birth to the most babies in the ten years following his given to the Toronto mother who gives birth this provision as not against public policy and death. The Supreme Court of Canada upheld given birth to nine children in those ten years, “ten years later, four women, each of whom had the winners. . .” received the equivalent of $2 million each as property to his wife under the condition that she smoke five cigarettes a day for the rest of her property to his wife under the condition that she life. The wife plans to challenge the provision. Bob Jones University wanted to keep their tax-exempt status they could no longer punish Bob Jones University wanted to keep their interracial couples). of a trust is ordinarily invalid if it tends to . . . discourage formation or of a trust is ordinarily invalid if it resumption of such a [familial] relationship.” marriage. riage, it did not “unreasonably” restrict & S \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown104 C Seq: 12 28-NOV-18 13:32 Law Inst. 2003). reconcile an error because they are dead before the provisions are chal- because they are dead before the reconcile an error is passed by intes- provisions are drafted, property lenged. Unless backup of their freedom of disposition. tacy, stripping settlors ceptable in another. ceptable backup provisions, a challenge to the original provision devalues the a challenge to the original provision backup provisions, estate. interpretation trust provisions that hinge on a court’s draft testamentary and applications of “Various court interpretations of valid public policy. conflict and confu- violates public policy have led to whether a condition sion.” problems for both the settlors wishing to use incentive trusts and the use incentive trusts wishing to for both the settlors problems inconsis- is a blurred and public policy drafting them because attorneys invalidity of validity or and precise rules therefore, “simple tent line; cannot be stated.” frequently struck down a provision that required a woman to marry within the struck down a provision that required was an unreasonable restraint on Quaker religion, finding the provision marriage. tional Bank spouses to Jewish women. 40749-cjp_28-1 Sheet No. 56 Side B 11/30/2018 10:47:34 B 11/30/2018 56 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 57 Side A 11/30/2018 10:47:34 105 OLIT- The Garrett .: P note 118, 125 TL See A Obergefell supra HE , T and note 8, at 8. supra HILDREN , C ITKOFF OUR Lawrence v. Texas & S Y a testamentary gift was conditioned a testamentary 124 , Go figure. RUST 123 T UKEMINIER note 128, 131, 134 and accompanying text. OU , 478 U.S. 186, 193–94 (1986). infra Y Representing the majority, Justice White wrote, Representing the majority, Justice O 129 to its opinions in was decided in 1986, engaging in homosexual activ- Lewis v. Searles Lewis v. , 315 N.E.2d; D The Court reconciled the discrepancy, finding that the condition was to . Throughout this public policy evolution, how would an Throughout this public policy evolution, at 189. Bowers at 154. The will stated: “I devise to my niece, Hattie L. Lewis, all of my real at 154. The will stated: “I devise to my niece, 127 (June 26, 2015), https://www.theatlantic.com/politics/archive/2015/06/same-sex- . The issue the Court sought to determine was “whether the The issue the Court sought to determine at 155 ICS The conflict and confusion surrounding the restraint of marriage confusion surrounding the restraint The conflict and 128 Id. For a discussion, see See Bowers v. Hardwick See id. See Shapira Lewis v. Searles, 452 S.W.2d 153 (Mo. 1970). See id. OLICY 126 Recently, perhaps the most radical evolution in public policy has Recently, perhaps the most radical When Further, in Further, The U.S. Supreme Court Fulfills Its Promises on Same-Sex Marriage 126 127 128 129 123 124 125 & P M K financially support the petitioner until she remarried, and the burden of support would then fall financially support the petitioner until she remarried, and the burden of support would then on her spouse, rather than a condition restricting her from remarrying. Steiner, at 917. marriage-supreme-court-obergefell/396995/. Epps, and personal property of which I may die seized and possessed, so long as she remains single and personal property of which I may die seized L. Lewis shall marry, then and in this event, I and unmarried. In the event that the said Hattie desire that all of my property, both real and personal be divided equally between my nieces and nephews . . . .” Federal Constitution confers a fundamental right upon homosexuals to Federal Constitution confers a fundamental engage in sodomy.” is only one segment of public policy, but this segment provides foresight of public policy, but this segment is only one segment be racial equality, in other areas. Whether it to conflict and confusion substances, or and recreational use of banned gender equality, medical way for attor- of public policy, there is not a reliable any other segment today but will what does not offend public policy neys to predict tomorrow. Over a twenty-nine-year period occurred in the context of gay rights. changed course from its opinion in (1986-2015), the Supreme Court Bowers v. Hardwick \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown2018] Seq: 13 D 28-NOV-18 13:32 incentive provision that requires a beneficiary to be heterosexual be incentive provision that requires evaluated? “[i]t is obvious to us that neither of these [formulas to determine if a right “[i]t is obvious to us that neither of Constitution] would extend a funda- is fundamentally protected by the on the petitioner not remarrying, evidently discouraging the formation of the formation evidently discouraging not remarrying, on the petitioner relationship—ana familial of public policy. express violation v. Hodges restricting marriage is valid depends on the court’s interpretation of “rea- court’s interpretation depends on the marriage is valid restricting and “unreasonable.” sonable” states and the District of Co- ity was a punishable crime in twenty-four lumbia. court decided, however, that the provision did not offend public policy that the provision did not court decided, however, to determine confusion has developed in attempts and noted that “[m]uch or a condi- in any given case, is a limitation whether such a provision, tion.” C Y 40749-cjp_28-1 Sheet No. 57 Side A 11/30/2018 10:47:34 A 11/30/2018 57 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 57 Side B 11/30/2018 10:47:34 M K C Y 137 130 and Jus- Frank 134 141 [Vol. 28:93 Lawrence v. Lawrence Bowers, Obergefell v. Mystery sur- in 139 In 133 OLICY P Bowers Thirty-years before the 136 Frank Mandelbaum amassed UBLIC P Kennedy added, “[t]he ancient 140 135 but left unanswered. AW AND L 138 , rejected the policy accepted in rejected the policy Gay Man Told to Marry Woman or Son Would Lose inheri- it would have been hard to predict that the policy it would have been hard to predict note 118. , note 127. OURNAL OF J Lawrence supra : US (Aug. 20, 2012), http://abcnews.go.com/US/gay-man-mary-woman- continued the policy that homosexuals had no right to en- had the policy that homosexuals continued supra EWS decision The majority opinion was written by Justice Kennedy, who written by Justice opinion was The majority In re Mandelbaum Epps, In re Mandelbaum, No. 2007-2181, 2013 WL 3929822, at *1 (N.Y. Sur. Ct. July ORNELL at 2595. Thus, Lawrence v. Texas, 539 U.S. 558, 578 (2003). Obergefell v. Hodges, 135 S. Ct. 2584, 2608 (2015). Steiner, Alyssa Newcomb, at 2600. at 193–94. , the right to marry was conferred as a constitutional right. was conferred as a constitutional , the right to marry 131 132 See Id. See See Id. Id. See id. See See id. See See Id. Bowers . Based on similar facts, the Court overruled Court overruled similar facts, the Based on The question relative to our inquiry—how would an incentive pro- The recognition of the right for same-sex people to engage in sexual the right for same-sex people to engage The recognition of , ABC N 132 133 134 135 136 137 138 139 140 141 130 131 tance 31, 2013). gage in sexual activity. gage in sexual son-lose-inheritance/story?id=17043550. wrote that, “[t]he petitioners are entitled to respect for their private petitioners are entitled to respect wrote that, “[t]he lives.” Texas be heterosexual be evaluated—wasvision that requires a beneficiary to asked in Thus, \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown106 C Seq: 14 28-NOV-18 13:32 origins of marriage confirm its centrality, but it has not stood in isolation origins of marriage confirm its centrality, The history of marriage is one of from developments in law and society. both continuity and change. That institution—even as confined to oppo- site-sex relations—has time.” evolved over quickly. But, as the Court observed, would change so drastically and so marriage can “evolve[even something as fundamental as ] over time.” Obergefell firm Intellicheck. a fortune as the founder of the ID-verification rounding this question adds to the conflict and confusion of drafting in- rounding this question adds to the centive trusts to align with public policy. mental right to homosexuals to engage in acts of consensual sodomy.” to engage in acts to homosexuals mental right Hodges tice Kennedy again wrote for the Court, “[b]ut while Lawrence con- wrote for the Court, “[b]ut while tice Kennedy again to engage in of freedom that allows individuals firmed a dimension liability, it does not follow that intimate association without criminal may be a step forward, but it does freedom stops there. Outlaw to outcast not achieve the full promise of liberty.” instead created the policy that homosexual activity would be tolerated, if policy that homosexual activity would instead created the conducted in privacy. have a right to to deciding if same-sex couples activity was preliminary marry—thequestion of this millennium. judicial 40749-cjp_28-1 Sheet No. 57 Side B 11/30/2018 10:47:34 B 11/30/2018 57 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 58 Side A 11/30/2018 10:47:34 . IN 153 148 142 F 107 OF J. When 150 Robert challenged A provision in the A provision 147 143 The two married later in The two married within six months of the within six HILDREN 146 C mother The unintended consequences of OUR 152 Y Settlors must ask themselves, what 151 RUST note 8, at 13. T 149 OU supra , Y O ITKOFF note 141. . Law § 2011). 10-a (McKinney Money and Soul: A Psychotherapist Looks at Incentive Trusts, EL & S note 19. To complicate the matter, Robert was gay and his father Robert was gay the matter, To complicate supra . R 144 OM (noting that neither of the men knew who Cooper’s biological father was). (noting that neither of the men knew who Cooper’s supra In 2011, Robert and his partner, John O’Donnell, became and his partner, John O’Donnell, In 2011, Robert 145 UKEMINIER note 6. N.Y. D Newcomb, D Eileen Gallo, Id. Zane, For two reasons: first, trust documents are not public record; therefore, evidence of See id. See id. See id. See id. See id. The above examples, and many others, demonstrate that the only and many others, demonstrate The above examples, views of money. Incentive trusts skew beneficiaries’ . (Dec. 2004), http://archive.li/3LsLF. Author Eileen Gallo is married to Jon Gallo, author 147 148 149 150 151 152 153 142 143 144 145 146 supra LAN M K P unethical behavior is based primarily on what trustees and estate planners have seen and heard. Second, most unethical behavior is based off social and moral principles and is not illegal, requiring documentation. of knew it. was born via surrogate. parents to a son who but can be observed in many circumstances. The most common out- but can be observed in many circumstances. The parties did not litigate the case to its conclusion, but rather settled in litigate the case to its conclusion, The parties did not terms. 2013 on undisclosed Creating a public policy is that it is always changing. certain feature of public policy plan for a client that hinges on evolving valid testamentary to clients and as incentive trusts do, is a disservice considerations, such an unwise practice. C. Unintended Consequences Frank died in 2007, leaving behind a son Robert. in 2007, leaving Frank died \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown2018] Seq: 15 D 28-NOV-18 13:32 value systems are really being promoted by paying beneficiaries to have value systems are really being promoted certain goals and live a certain way? in estate planning literature, incentive trusts are not well documented the trust provision on the basis that it was contrary to public policy. on the basis that it was contrary the trust provision trust indicated that a future biological child of Robert would only be of Robert would biological child that a future trust indicated the child’s if Robert married included became legal in New York. 2011 after gay marriage left a will with a trust to provide money for any future grandchildren. money for with a trust to provide left a will money becomes a child’s sole objective, there is a “risk of turning our money becomes a child’s sole objective, who has no true enthusiasms for children into a kind of money junkie anything except more money.” child’s birth. C Y 40749-cjp_28-1 Sheet No. 58 Side A 11/30/2018 10:47:34 A 11/30/2018 58 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 58 Side B 11/30/2018 10:47:34 M K C Y OF ) By Presi- 164 HIRD 165 (T [Vol. 28:93 and beneficiaries ESTATEMENT R 154 OLICY P See also UBLIC Such resources propelled his P 161 155 156 AW AND L note 8, at 20. note 8, at 20. Incentive trusts invite beneficiaries to jump Incentive trusts invite , https://www.forbes.com/profile/donald-trump/ (last vis- 159 supra supra 160 , , note 150. ORBES Social psychologists call the pursuit of material Social psychologists note 150. note 150. The Restatement (Third) of Trusts suggests that no The Restatement (Third) of Trusts , F 158 supra ITKOFF ITKOFF note 6, ¶ 1102.4. OURNAL OF 167 J The maxim, “money changes people,” is used almost The maxim, “money supra supra note 162. & S & S , 315 N.E.2d 825 (Ohio C.P. 1974); The initial loan is said to be around one million dollars, The initial loan is said to be around 157 supra 163 supra 166 Eileen Gallo, Gallo, ORNELL but also subjected him to the risks of the hedonic treadmill. but also subjected him to the risks UKEMINIER UKEMINIER 162 See id. Id. Id. Id. D See Donald Trump D See id. Trump, Eileen Gallo, See Shapira See See Eileen Gallo, § 29 cmt. Commentary on clause (c) (Am. Law Inst., 2003). Ultimately, incentive trusts make money a central concern in many Ultimately, incentive trusts make money Like him or not, President Donald Trump is a rich man. President President Donald Trump is a rich Like him or not, 1. Treadmill The Hedonic a mental ef- is a never-ending game that has The pursuit of money 157 158 159 160 161 162 163 164 165 166 167 154 155 156 RUSTS ited Jan. 18, 2018). Frederick Trump gave his son Donald a “small loan” to help start his real Frederick Trump gave his son Donald estate career. connections that allowed the future with subsequent loans and business York City real estate market. president to break into the New exclusively to describe undesirable changes in a person’s attitude or be- undesirable changes in a person’s exclusively to describe never get ahead of is “our motivating factor, we can havior. When money our material wants.” T personal decisions. Trump was not the beneficiary of an incentive trust, but he was a benefi- beneficiary of an incentive trust, Trump was not the ciary of exceptional material resources. fect on people. \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown108 C Seq: 16 28-NOV-18 13:32 on the hedonic treadmill, exposing them to values different from those exposing them to values on the hedonic treadmill, the trust settlor intended. trust provisions should be valid if they “are unreasonably intrusive in trust provisions should be valid if gain the hedonic treadmill. career, cheating the trust to receive payments. the trust to receive cheating comes are: money cravings altering personalities money cravings comes are: dent Trump is a material success story. But, at what cost? Whether dent Trump is a material success forfeited principles of virtuous be- President Trump’s quest for wealth he be out for a jog on the hedonic havior is left to public debate. Might treadmill? leveraging his position to accumulate more wealth, and eventually be- leveraging his position to accumulate in United States history, coming the only billionaire president 40749-cjp_28-1 Sheet No. 58 Side B 11/30/2018 10:47:34 B 11/30/2018 58 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 59 Side A 11/30/2018 10:47:34 109 Daniel Sha- Most incentive . 18, 2018), http://www 169 AN Shapira, HILDREN Charles’ financial legacy is C Others take advantage of am- Druker v. C.I.R., 697 F.2d 46 (2d Cir. 173 , (last visited J 171 See OUR Y OCIETY S For example, in For example, note 8, at 10. The effects of the hedonic treadmill— of the hedonic The effects RUST 168 170 supra However, he failed to find a fortune and However, he failed to find a fortune T , 175 ISTORICAL OU In 1885, he founded his own building and sup- In 1885, he founded his own building H Y ITKOFF 176 O EENAH & S , N Motivated by harsh Wisconsin winters, the Manville Motivated by harsh Wisconsin winters, note 6, ¶ 1102.4. 177 In the mid-1870’s, he quit his job to search for gold during In the mid-1870’s, he quit his job to , 315 N.E.2d 825 (Ohio C.P. 1974). Tommy’s grandfather, Charles B. Manville, was an Ameri- Tommy’s grandfather, Charles B. supra 174 UKEMINIER D 172 . Shapira Gallo, Id. See C.B. Manville Id. Id. Id. Id Restatement (Third) of Trusts § 29 (2003); 2. Bait and Switch to cheat by money are also incentivized Beneficiaries incentivized Charles began his career operating a photography studio in Neenah, Charles began his career operating 169 170 171 172 173 174 175 176 177 168 M K money motivating the decision-making process—contradictmoney motivating the reason .neenahhistoricalsociety.com/c-b-manville/. 1982). Legislators drafting tax law determined that taxes should not influence the decision of 1982). Legislators drafting tax law determined saw using money to incentivize marriage marrying. The history of tax law shows that congress is it not the same for inheritance? through the tax code as bad public policy. Why Covering Company specialized in manufacturing a material to effectively Covering Company specialized in manufacturing the Black Hills gold rush. can entrepreneur who died in 1927, leaving behind an estate worth $150 can entrepreneur who died in 1927, million (over $2 billion in today’s dollars). \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown2018] Seq: 17 D 28-NOV-18 13:32 incentive trusts were created: to mold reckless beneficiaries into people created: to mold reckless beneficiaries incentive trusts were their own responsible decisions. who could make tell stories of in the trust. Estate planning attorneys the rules outlined federal income tax “altered copies of state and beneficiaries presenting that “reflect non-existent school en- returns” and fake college transcripts rollment,” to obtain trust disbursements. biguous language in the trust instrument, to obtain a benefit far from biguous language in the trust instrument, example is the story of Tommy what the settlor intended. A notorious Manville. and one bad—verya product of keen business decisions bad—estate planning oversight. Wisconsin. returned to Wisconsin. pira was concerned about how his inheritance was affecting his very per- was affecting his his inheritance concerned about how pira was marry. whom he should about if and sonal decisions and make decisions” “significant personal invade one’s trust provisions primary influence. money the ply company. significant personal decisions.” significant C Y 40749-cjp_28-1 Sheet No. 59 Side A 11/30/2018 10:47:34 A 11/30/2018 59 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 59 Side B 11/30/2018 10:47:34 M K , C Y 179 In 182 (1972). [Vol. 28:93 Charles re- Charles ANVILLE appeal docketed The terms of According to M 180 188 187 181 OMMY T OLICY P IVES OF , Oct. 8, 1959, at 19. 186 W UBLIC P RIBUNE T , https://www.asbestos.com/companies/johns- IVES AND , https://www.jm.com/en/our-company/history- L ASTLE HE AW AND The secret ingredient was asbestos. ingredient was The secret C L , T ANVILLE EW 178 In his life, Tommy Jr. became a notorious In his life, Tommy -M , N 185 What Became of Tommy Manville? Must Wait 6 Years for Wife ANVILLE OHNS IMES M T note 185. , J note 19. OURNAL OF NITA Johns Manville History J A supra HESTER supra C Trainer v. Manville, No. 427, 138, 147–50 (N.Y. App. Div.), , No. 427, at 147. EST This move diversified the company and expanded its offer- the company and expanded This move diversified Wilson, Zane, Madelaine Wilson, See ORNELL W 183 .; . at 148. . at 149. . at 148. 184 See See generally See See Id Matt Mauney, Trainer Id Id Id Company History Thomas F. Manville had two children of his own, a son, Tommy Jr., had two children of his own, a son, Thomas F. Manville who ran away from home when Tommy was a rambunctious child Charles’ eldest son, Thomas F. Manville, was not fazed by his fa- not fazed by F. Manville, was eldest son, Thomas Charles’ ORTH 185 186 187 188 178 179 180 181 182 183 184 , N Anita was the sixth wife of Tommy Manville and wrote this book about her experience. “Tommy Manville was a Manhattan socialite and heir to the Johns-Manville asbestos fortune. He was a celebrity in the mid 20th Century [sic], by virtue of his large financial inheritance, and his 13 marriages to 11 women. This feat won him an entry in the Guinness Book of World Records and made him the subject of much gossip.” heritage-berkshire-hathaway/company-history (last visited Jan. 18, 2015). There were lawsuits heritage-berkshire-hathaway/company-history deaths as early as 1929. Asbestosis is a filed against Johns-Manville for asbestos related solely by exposure to asbestos. Johns-Manville nonmalignant scarring of the lungs caused businesses and created the Johns-Manville divested itself of its interests in all asbestos-related by asbestos workers throughout the late 1900’s Personal Injury Trust to settle claims brought by and early 2000’s. Johns-Manville significantly restructured in the 1990’s and was acquired Berkshire Hathaway Inc. in 2001. 11 manville.php. (1st Dep’t May 23, 1929), https://books.google.com/books?id=m9xIeiHV5noC&printsec= frontcover#v=onepage&q=Manville&f=false. ings to the construction, aerospace, and automotive industries, among aerospace, and automotive ings to the construction, others. and a daughter, Lorraine. in mischief. he was thirteen and was always involved Over the next fifteen years, business grew exponentially. business grew next fifteen years, Over the of the family business. further growth and oversaw ther’s wealth \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown110 C Seq: 18 28-NOV-18 13:32 national celebrity, similar to that of a Kardashian. It was a guilty pleasure similar to that of a Kardashian. It was national celebrity, Manville was do- to stay tuned to what Tommy of national pop culture ing, and Tommy kept everyone entertained. reports, Tommy’s grandfather Charles saw the warning signs and devised reports, Tommy’s grandfather Charles him to settle down. a trust for Tommy that incentivized the trust stipulated that Tommy was to be paid between $250,000 and the trust stipulated that Tommy was insulate heat bearing pipes. insulate tired and handed the family business to his three sons. business to his handed the family tired and 1901, Thomas artfully coordinated the consolidation of the business with coordinated the consolidation 1901, Thomas artfully Incor- Company, thus creating Johns-Manville the Johns Manufacturing porated. 40749-cjp_28-1 Sheet No. 59 Side B 11/30/2018 10:47:34 B 11/30/2018 59 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 60 Side A 11/30/2018 10:47:34 At 111 193 Money Tommy However, 199 192 196 The cognitive skills 200 HILDREN C Do you think Grandpa Charles Do you think Grandpa OUR 195 , July 17, 2016. Trust accounts are not public Y During a 1959 newspaper interview, During a 1959 newspaper Me and My Car: ‘54 Rolls Convertible’s First More often, the beneficiaries will ei- More often, the beneficiaries will note 8, at 9. EWS 194 Charles saw marriage as an event that saw marriage as Charles 198 N RUST 197 189 supra T , OU ERCURY Y note 189. ITKOFF , M O Therefore, settlors should seek to inspire benefi- Therefore, settlors should seek to David Krumboltz, note 6, ¶ 1102.1. & S supra note 19. 201 note 185. On top of the trust fund Tommy received from his grandfa- 190 supra supra Part III.C. Part III.D. see also supra ; UKEMINIER D Krumboltz, Zane, Gallo, Due to ambiguous language in the trust instrument, Tommy in the trust ambiguous language Due to See See id. See Id. Wilson, Id. See See infra See supra See See id. See id. See id. 191 Incentive trusts misidentify how money affects behavior. Incentive trusts misidentify how money Financial interests motivated Tommy to eventually marry thirteen Tommy to eventually interests motivated Financial Many incentive trusts are drafted with good intentions. Many incentive trusts 191 192 193 194 195 196 197 198 199 200 201 189 190 M K record, which explains the uncertainty of the exact terms of the trust Charles B. Manville record, which explains the uncertainty of the created for his grandson Tommy. ther, Tommy also inherited 10 million dollars from his father, Tommy F. Manville Sr., in 1925 following Tommy Sr.’s death. Owner had a Unique Career was paid each time he was married, not just the first time. he was married, not just the first was paid each time D. Motivation times. \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown2018] Seq: 19 D 28-NOV-18 13:32 would encourage Tommy’s maturity, but it also coincided with his own also coincided with maturity, but it Tommy’s would encourage moral principles. coveted by incentive trusts are best achieved when motivation is intrin- coveted by incentive trusts are best sic, not extrinsic. them for completing tasks. When ciaries from within, rather than reward something they want to do, they beneficiaries are forced to avoid doing ther find themselves on the hedonic treadmill or manipulate the trust to ther find themselves on the hedonic receive their payments, or both. Tommy calculated he could not “afford any more alimony for six years” he could not “afford any more alimony Tommy calculated little bit lonely.” and was feeling “a would have been proud? would have been $1,000,000 when he married. $1,000,000 paid the women a portion of his trust disbursement, pocketed the rest, a portion of his trust disbursement, paid the women again.” needed more money, he’d get married and then, “when he age sixty-five, Tommy reminisced about his passion for auto mechanics, reminisced about his passion age sixty-five, Tommy chosen without the was the career he would have discerning that it millions.” “handicap of inherited beneficiaries is unlikely to signifi- dangling money in front of reckless cantly change their worldview. behavior being incentivized involves is not an effective incentive if the and reasoning. cognitive skills such as judgement C Y 40749-cjp_28-1 Sheet No. 60 Side A 11/30/2018 10:47:34 A 11/30/2018 60 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 60 Side B 11/30/2018 10:47:34 M K C Y 204 ENTAL M Unfortu- [Vol. 28:93 214 . 1, 71–81 (V.S. For example, 212 EHAV B NCYCLOPEDIA OF –obtaining a certain E OLICY That is to say, “auto- People who have de- P 203 UMAN 213 211 H People who are convinced UBLIC 210 reprinted in P 202 This is an undesirable result because This is an undesirable NCYCLOPEDIA OF AW AND 205 L ,4 E ,4 Self-efficacy note 6, ¶ 1102.3. OURNAL OF J note 6, ¶ 1102.3. note 6, ¶ 1102.3. note 6, ¶ 1102.1. Self-efficacy is “the belief in one’s ability to succeed in Self-efficacy is “the belief in one’s Mastery experiences are defined as opportunities to suc- Mastery experiences are defined as note 68, at 490. supra Part II.B. 207 209 supra supra supra supra 206 ORNELL “Mastery experiences,” are the most effective ways to develop “Mastery experiences,” are the most ; Gallo, (H. Friedman ed., 1998). See id. Gallo, See id. Id. Albert Bandura, Id. Gallo, See id. See id. Id. Tate, See supra Gallo, 208 A main purpose of incentive trusts is to develop self-efficacy in of incentive trusts is to develop A main purpose Of the main types of incentive provisions, types of incentive Of the main 205 206 207 208 209 210 211 212 213 214 202 203 204 EALTH Ramachaudran ed., New York Academic Press 1994), life,” overcome challenges, and maintain a strong commitment to life,” overcome challenges, and goals. self-efficacy. small, giving the subject an “oppor- ceed; such opportunities should start tunity to build on each successive success.” H beneficiaries. Human psychology and sociology suggest that attempts to incentivize and sociology suggest that attempts Human psychology are counter-produc- intrinsically-driven behaviors cognitively-complex, self-motivation, likely to produce a child with poor tive and are more life skills. self-confidence, and \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown112 C Seq: 20 28-NOV-18 13:32 clients interested in incentive trusts “are almost exclusively parents who in incentive trusts “are almost exclusively clients interested and self- their children’s lack of self-motivation complain about efficacy.” that they can be successful are more likely to “persevere in the face of that they can be successful are more setbacks.” adversity and quickly rebound from veloped a high degree of self-efficacy demonstrate what social psycholo- veloped a high degree of self-efficacy behavior is a state of mind that gists call autotelic behavior. Autotelic the experience itself. makes the main goal of any activity level of education, developing a particular moral framework, engaging in framework, a particular moral developing level of education, behaviors—all destructive career, and restraining a productive “cog- are the individual.” self-motivated, and intrinsic to nitively complex, will likely “overvalue the action that was unfairly restricted,” and rebel restricted,” action that was unfairly “overvalue the will likely wishes. deceased parents’ against their a beneficiary demonstrating autotelic traits would graduate college for a beneficiary demonstrating autotelic maturation experience, not because the importance of education and the doing so. he or she would receive a reward for in because we enjoy it.” telic behavior is behavior we engage 40749-cjp_28-1 Sheet No. 60 Side B 11/30/2018 10:47:34 B 11/30/2018 60 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 61 Side A 11/30/2018 10:47:34 215 , 18 113 “Al- Based 221 220 note 6, ¶ 1102.2. supra . 627, 659 (1999). Deci and two HILDREN ULL C . B OUR Y SYCHOL The experiment gave groups of stu- The experiment Students who were paid substantially Students who were 218 219 RUST , 125 P T . 105, 108–09 128 studies in which the (1971) (analyzing OU This payment model is useful in settings that This payment model is useful in settings Y 223 O Effects of Externally Mediated Rewards on Intrinsic Motivation SYCHOL note 218. note 218, at 108–09. . P A Meta-Analytic Review of Experiments Examining the Effects of Ex- OC supra supra The principle derived from these studies is known as the these studies is derived from The principle & S at 109–12. at 114. ¶ 1102.2. 216 note 6, ¶ 1102.2. Deci, Edward Deci, Thus, the development of self-efficacy is inhibited. Thus, the development of self-efficacy Deci, One of these studies sought to determine the effect of external sought to determine the effect One of these studies 222 Id. See See See id. See id. Edward Deci, See See id. See id. supra One might ask, are incentive trusts not a reflection of real life, One might ask, are incentive trusts Over a hundred studies since 1970 have revealed that monetary in- that monetary 1970 have revealed studies since Over a hundred 217 ERSONALITY 217 218 219 220 221 222 223 215 216 . P M K colleagues published an analysis of 128 studies where the “Tom Sawyer” effect was replicated time and time again in carefully controlled experiments. Gallo, “Tom Sawyer” effect was replicated time and time again in carefully-controlled experiments). Gallo, trinsic Rewards on Intrinsic Motivation where pay for performance is commonplace. The previous experiment where pay for performance is commonplace. workers to complete routine shows that reward structures can motivate habitually participate for a cash re- tasks by commissioning workers to challenge workers to engage in their ward; but, cash rewards will not work and work harder. Tom Sawyer effect. “Paying someone to do what they initially viewed as “Paying someone to do what they Tom Sawyer effect. that is less interest- turns the activity into ‘work’ intrinsically interesting ing.” motivation. rewards on intrinsic J centives decrease personal growth and self-motivated behaviors sought behaviors growth and self-motivated decrease personal centives by settlors. \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown2018] Seq: 21 D 28-NOV-18 13:32 care more about completing objectives than inspiring their participants. care more about completing objectives but it will not transform peoples’ im- Money can help accomplish tasks, and their attitudes towards the pressions of why they are working reduced the time they spent working on the project during their breaks they spent working on the project reduced the time never paid. group of students who were compared to the control dents cash rewards to complete projects in an allotted amount of time; to complete projects in an allotted dents cash rewards designated break tracked if the students would use then, researchers their projects. times to work on nately, research shows that using external motivators, like money in an like money using external motivators, shows that nately, research and autotelic behavior. self-efficacy trust, does not develop incentive though rewards can control people’s behavior—indeed,though rewards can control people’s that is why they are so widely advocated—the negative effect of rewards is that primary as demonstrated by this experi- they tend to forestall self-regulation, ment.” on the results, the researchers concluded that when money is used as an researchers concluded that when on the results, the motivation to complete activi- extrinsic motivator, subjects lose intrinsic work, rather than an interest. ties because the activity becomes C Y 40749-cjp_28-1 Sheet No. 61 Side A 11/30/2018 10:47:34 A 11/30/2018 61 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 61 Side B 11/30/2018 10:47:34 M K C Y ? There- 230 [Vol. 28:93 225 OLLARS D tempting them to be OLICY P 231 ILLIONS OF Because more people want Because more people UBLIC P M 227 note 150. O WITH AW AND D L supra OU Labor Supply of New York City Cabdrivers: One Day at a Y Using money to motivate creates external mo- Using money to motivate creates external 229 ., 341, 408 (1997). OULD note 6, ¶ 1102.2. OURNAL OF J CON W note 68, at 490. supra Part II.C.1. Part II.C.2. Introduction. HAT and undercutting the purpose of the incentive trust with un- and undercutting the purpose of the at 416. On the one hand, wealthy people want to leave a meaningful On the one hand, wealthy people want Q. J. E at 105. ¶ 1102.3; Eileen Gallo, supra 232 HE Gallo, Colin Camerer et al., ORNELL 233 228 People who lack intrinsic motivation but are commissioned to commissioned motivation but are lack intrinsic People who See id. Tate, See See id. See id. See See id. See supra See supra See supra The study found that most cab drivers set a daily monetary goal that most cab drivers set a daily monetary The study found III. W 224 Like the students completing projects and the Manhattan cab driv- completing projects and the Manhattan Like the students This concept is validated in another experiment that sought to ex- in another experiment that This concept is validated Incentive trusts originated in estate planning to solve a legitimate Incentive trusts originated in estate , 112 T 226 224 225 226 227 228 229 230 231 232 233 Time intended consequences. and go home once they meet that goal. and go home once complete tasks for money will simply complete the task for their money the task for their will simply complete tasks for money complete For ex- collateral benefits. any available not experiencing and be done, beneficiary from college, the to graduate a beneficiary is “paid ample, if curiosity.” lifelong intellectual school but lose may finish ers, beneficiaries to incentive trusts risk having their intrinsic motivation ers, beneficiaries to incentive trusts Deprived of intrinsic motivation and stripped and self-efficacy blocked. monotonously collect their rewards self-efficacy, beneficiaries will either activities, or not participate in the with no desire to benefit from the incentive scheme at all. plain why there are fewer cabs available on a rainy afternoon in Manhat- fewer cabs available on a rainy afternoon plain why there are tan. \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown114 C Seq: 22 28-NOV-18 13:32 dilemma. tivation rather than relying on personal enthusiasm or passion. tivation rather than relying on personal unethical, work. rides when it rains, cab drivers meet their goals earlier in the day and go cab drivers meet their goals earlier rides when it rains, continuing to work, they could earn more money by home. Although monetary goal, is depressed once they reach their their intrinsic drive benefits a rainy day ability to take advantage of the thus restricting their provides. fore, if settlors’ goals are to inspire beneficiaries’ self-motivation and fore, if settlors’ goals are to inspire not have such an effect. Incentive moral framework, incentive trusts will on achieving certain tasks might pro- trusts that condition disbursements complete the tasks; however, incen- voke beneficiaries to monotonously that the settlors intended—tive trusts will not stimulate behaviors thus treadmill, subjecting beneficiaries to the hedonic 40749-cjp_28-1 Sheet No. 61 Side B 11/30/2018 10:47:34 B 11/30/2018 61 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 62 Side A 11/30/2018 10:47:34 115 Re- 235 If benefi- 239 parent’s final di- Estate Planning for the Roy Grinker Jr., a 240 HILDREN C “It is not the money that de- 242 OUR 238 In theory, incentive trusts are a incentive trusts In theory, Y A proper upbringing is the “ultimate 234 243 RUST . 6, 8–9 (1989)). He finds, far too often, that parents pay He finds, far too often, that parents note 4. T ROP 241 OU supra . & P Y O ROB note 6, ¶ 1102.3. note 4. note 4. note 4. , 3 P Part I, II. Kirkland, note 6, ¶ 1100 (citing Gallo, J. & Gallo, E., supra supra supra supra Part II. supra Gallo, first, worry most about parenting—not leaving an inheritance; If children are taught the right principles then their parents need If children are taught the right principles 236 is unsolvable; it means that it is time for a new solution. A new means that it is time for a new solution. is unsolvable; it Kirkland, See supra See generally See generally See id. See id. See Kirkland, See id. Gallo, Kirkland, 237 244 First, child rearing should come before estate planning. First, child rearing should come before Quashing incentive trusts does not mean that a Quashing incentive 234 235 236 237 238 239 240 241 242 243 244 M K not be concerned with how an inheritance will negatively affect their not be concerned with how an inheritance offspring. second, give inheritances to beneficiaries later in life rather than earlier; second, give inheritances to beneficiaries expectations; finally, incorporate third, be open in discussing family charitable giving into estate planning. \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown2018] Seq: 23 D 28-NOV-18 13:32 lemma trusts and incor- on the shortcomings of incentive solution should build intent. To ex- to effectively carry out the settlor’s porate new principles stories offered one need only look to past success tract such principles, stories, effective wealthiest people. Through their by some of America’s teach benefi- to help donors leave positive legacies, tactics have emerged to carve their own and motivate beneficiaries ciaries to be responsible, paths: Postponed Generation mechanism for addressing both concerns, but as noted above, they inef- as noted above, both concerns, but for addressing mechanism designed to mitigate. they were alleviate the concerns fectively safeguard” against beneficiaries being irresponsible with their inheri- safeguard” against beneficiaries being tance. little attention to their children’s upbringing and are more concerned little attention to their children’s plan. about developing a strategic estate psychoanalyst who spends his career working with children of the psychoanalyst who spends his career parents money advice, I would give wealthy, said, “Rather than give rich them child-rearing advice.” stroys our children, but the parents who earn the money but neglect to stroys our children, but the parents instill values in their offspring.” legacy; on the other hand, they want to protect their descendants from their descendants they want to protect the other hand, legacy; on “wastrels or wantons.” becoming do attitude,” the purpose of con- ciaries possess self-efficacy and a “can ditional bequests become unnecessary. sponsible attorneys should be honest with their clients about the futility clients about be honest with their attorneys should sponsible that incentive trusts to avoid the false reassurances of incentive trusts provide. C Y 40749-cjp_28-1 Sheet No. 62 Side A 11/30/2018 10:47:34 A 11/30/2018 62 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 62 Side B 11/30/2018 10:47:34 M K C Y 253 257 [Vol. 28:93 OLICY P Lang defended his tech- Lang defended his The bottom line is that The bottom line 249 Beneficiaries who receive 251 He said, “If your kids grow He said, UBLIC 255 P 246 note 8, at 305. AW AND L Giving a significant inheritance to young Giving a significant inheritance to Some parents opt for a subtler approach. opt for a subtler Some parents supra , As adults, Lang’s children have become a As adults, Lang’s 254 247 250 ITKOFF & S OURNAL OF 256 note 4. J supra Part II.C.2. UKEMINIER H. Ross Perot became a billionaire after selling his electronic after selling Perot became a billionaire H. Ross D ORNELL Eugene Lang, who made his fortune as a tech developer, paid made his fortune as a tech developer, Eugene Lang, who John Train recommends that “talks about money, like those about John Train recommends that “talks 245 See id. Id. Id. Kirkland, Id. See id. See id. Id. Id. See supra See id. See See id. See generally id. 248 Third, it is important to let beneficiaries know where they stand. Third, it is important to let beneficiaries Second, it is better to give inheritances to beneficiaries later in life, Second, it is better to give inheritances There are multiple ways to instill these values in potential benefi- in potential instill these values multiple ways to There are 252 258 246 247 248 249 250 251 252 253 254 255 256 257 258 245 data system company to General Motors. company to General data system sum, and since then education, gave them a nominal for his children’s but encouragement.” has “given them nothing Keeping family expectations secret and surprising beneficiaries with con- Keeping family expectations secret warnings that foreshadow litiga- ditioned inheritances is one of the main tion. rather than earlier. John Train, a Harvard graduate, decorated financial rather than earlier. John Train, a Harvard handed to children who have advisor, and author, warns that windfalls tend to corrupt them.” yet to accomplish anything will “inevitably twenty-one is “too early for most Most estate advisors have agreed that children to reap a windfall.” \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown116 C Seq: 24 28-NOV-18 13:32 inheritances later in life are more likely to be responsible and benefit inheritances later in life are more what they achieved prior to receiv- from the sense of accomplishment for ing an inheritance. beneficiaries is more likely to thwart development than if a donor waits beneficiaries is more likely to thwart until the beneficiary has already matured. up living in fairyland thinking that they’re princes and princesses, you’re and princesses, that they’re princes in fairyland thinking up living curse their lives.” going to and an investment analyst. lawyer, an actor, Warren Buffet added, “Love is the greatest advantage a parent can “Love is the greatest advantage Warren Buffet added, give.” nique by saying, “I want to give my kids the tremendous satisfaction of “I want to give my kids the tremendous nique by saying, own.” making it on their the parents’ life- behaviors has to be done during teaching productive behaviors while are ineffective at teaching these times. When parents taught by an estate unlikely that such behavior can be they are alive, it is plan. ciaries. 40749-cjp_28-1 Sheet No. 62 Side B 11/30/2018 10:47:34 B 11/30/2018 62 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 63 Side A 11/30/2018 10:47:34 8 266 260 117 Buffet 267 NPR, Washing- Keeping Peace in HILDREN C Invoking bitterness in benefi- Invoking bitterness a disinherited son contested his a disinherited son OUR 263 —contradicting purpose of the the 262 , Y 264 This way, beneficiaries are not left in beneficiaries are This way, note 8, at 306 (citing McCullen, 259 RUST T supra , https://www.npr.org/templates/story/story.php?storyId=55 OU 268 Investment guru, Warren Buffet said that the Investment guru, Y ITKOFF 265 O note 4. Instead, he made his children trustees of his private Instead, he made his children trustees note 59 and accompanying text. , 87 (2006)). Nelson v. Daniels , Buffett Gift Sends $31 Billion to Gates Foundation, & S note 4. note 4. note 4. available at 270 supra In supra note 6, ¶ 1100. DVISOR supra supra supra Lang cheerfully explained, “In a way they’re spending Lang cheerfully explained, “In a 261 A supra S Planning for “lifetime participation in the mission and goal Planning for “lifetime participation 271 ’ UKEMINIER Burger, Kirkland, No. 94CA29, 1995 WL 535200 at *3 (Ohio Ct. App. Sept. 5, 1995). No. 94CA29, 1995 WL 535200 at *3 (Ohio D Robert Smith 272 Then, they allow their descendants to take active roles in the Then, they allow their descendants LDER See See id. Kirkland, See Kirkland, See See See id. Id. Kirkland, See generally id. Gallo, See Id. 269 Many wealthy people choose to start their own charitable founda- Many wealthy people choose to start Finally, charitable giving can be a better option than passing inheri- giving can be a better option than Finally, charitable . E 264 265 266 267 268 269 270 271 272 259 260 261 262 263 ARQ M K M the Family While You are Resting in Peace: Making Sense of and Presenting Will Contests, the Family While You are Resting in Peace: Making Sense of and Presenting Will Contests, ton D.C. 26 June 2006, 12893. their inheritance with me . . . and getting a lot of satisfaction and joy their inheritance with me . . . and from it.” foundation to learn responsibility and attain gratification. Eugene Lang, foundation to learn responsibility and to pass on any wealth to his children who died April 8, 2017, did not plan through his estate. Instead of planning to leave his full fortune to his children, Buffet to leave his full fortune to Instead of planning Gates Foundation in 2006. pledged $31 billion dollars to the tions. Parents might intend to motivate children through a testamentary scheme a testamentary children through intend to motivate Parents might view it but many children inheritance, a small or conditional that leaves or discour- disfavors, a parent “disinherits, rejection when as a personal ages a child.” \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown2018] Seq: 25 D 28-NOV-18 13:32 of the family through judicious use of family partnerships, charitable of the family through judicious use testamentary scheme. tances to descendants. mother’s will saying, “You’re not going to make me believe that my “You’re not going to make mother’s will saying, the day she died.” mother hated me foundation. the dark and are more likely to be on-board with the overall plan. with the overall to be on-board and are more likely the dark ciaries can lead to further rebellion ciaries can lead to “perfect legacy” for one’s children is “enough money so they would feel one’s children is “enough money “perfect legacy” for do nothing.” but not so much that they could they can do anything, sex, begin as early as possible.” sex, begin “carve out their own place” in the explained that he wants his kids to might be through donating his fortune world, and the best way to do that to charitable foundations. C Y 40749-cjp_28-1 Sheet No. 63 Side A 11/30/2018 10:47:34 A 11/30/2018 63 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 63 Side B 11/30/2018 10:47:34 M K . C Y IN , J. F [Vol. 28:93 A new solu- 274 Letting benefi- 275 2010). The Uniform Trust OLICY N ’ P note 8, at 681. OMM C supra UBLIC , : HBT AW P was unsolved. Hereafter, incen- was unsolved. Hereafter, . L NIF ITKOFF There is a five step framework to NSWER 276 & S A AW AND L HE UKEMINIER 273 IV. T OURNAL OF note 69, at 12. parent’s final dilemma J Not Your Typical Incentive Trust: The ROTE and FST, Part I supra : select the parties. Each HBT needs a settlor, attorney, trus- : select the parties. Each HBT needs Part III. Unif. Trust Code § 105(b)(8)–(9) (U ORNELL Whiting, Gallo et al., See Supra Step one Until now, a HBTs are an improved alternative and a new suggestion. Built on HBTs are an improved alternative . (2011), https://www.onefpa.org/journal/Pages/Not%20Your%20Typical%20Incentive% 273 274 275 276 LAN P Code (UTC) originally allowed preventing “a beneficiary from learning of a trust’s existence, not but only until the beneficiary reached age 25.” Many states that enacted the UTC did accept this provision; instead, states permitted that a beneficiary could be kept uninformed until a later age or, indefinitely—if there is a third party who has standing to bring suit against the trustee for breach of trust. D tive trusts should be thought of as provisional treatments, only acceptable be thought of as provisional treatments, tive trusts should time and for most need a slight nudge. “Most of the for beneficiaries who trusts do not produce” desired results. people, incentive 20Trust%20The%20ROTE%20and%20FST%20Part%201.aspx. \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown118 C Seq: 26 28-NOV-18 13:32 creating HBTs: first, select the parties; second, make the purpose state- creating HBTs: first, select the parties; fiduciaries; fourth, define the bonus ment; third, have a meeting of the backup. structure; fifth, choose a charitable is suitable and sometimes preferable tee, beneficiary, and trust director. It The settlor gives away prop- that one individual holds multiple positions. to influence the behavior of the bene- erty by means of a trust and hopes ciaries make life choices without cash dangling in their faces avoids ciaries make life choices without intrinsic motivation, and develops public policy restrictions, stimulates what settlors covet: self-efficacy. tion should cure the shortcomings of incentive trusts and incorporate the shortcomings of incentive trusts tion should cure the shall be called wealthy authorities. The solution lessons learned from planning tools (HBTs) which will be useful estate Hidden Bonus Trusts and drafting attorneys. for settlors, beneficiaries, A. Structure and Drafting incentive trusts and incorporating the four identified shortcomings of America’s most wealthy, HBTs are successful methods already used by proud legacies, motivate reckless testamentary tools designed to leave in lieu of changing circum- beneficiaries, and remain legally effective is to make beneficiaries decide for stances. The theory behind HBTs the settlor’s expectations. The choice themselves what behaviors uphold general HBT arrangement to benefi- is induced by communicating the hidden. ciaries but keeping the specific provisions lead trusts, and foundations can alleviate the need for stringent restric- need for stringent can alleviate the and foundations lead trusts, behavior later.” tions on 40749-cjp_28-1 Sheet No. 63 Side B 11/30/2018 10:47:34 B 11/30/2018 63 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 64 Side A 11/30/2018 10:47:34 278 119 HILDREN but, the expectations do not C 279 OUR Y note 275 on third party standing and accompany- RUST supra T OU Y O : a meeting of the fiduciaries. After the beneficiaries un- : a meeting of the fiduciaries. After because the trustee determines whether the beneficiaries because the trustee Part II.B. : make the purpose statement. Once the parties are desig- : make the purpose statement. Once 277 A family member is more likely to take an interest in the well-being of the benefi- For context, see Dukeminier, See supra Step two Step three 277 278 279 M K ing text. ciaries. Beneficiaries could include immediate family members, such as mothers and fathers, but also extended family, such as aunts, uncles, or grandparents—even a mature sibling of the beneficiaries involved in the bonus trust could be a dependable trustee. qualify for trust disbursements. The beneficiaries collect trust property in The beneficiaries collect qualify for trust disbursements. is the only posi- trust instrument. The trust director accordance with the The director has other trusts and is vital to HBTs. tion not used in all of the benefi- trustee for breach of duty on behalf standing to sue the of the trust. beneficiaries do not know the details ciaries because HBT Examples of a trustee breaching fiduciary duties include not administer- breaching fiduciary duties include Examples of a trustee confidential- when a beneficiary qualifies and breaking ing trust property at, evaluating must be familiar with, and proficient ity. The trust director drafting attorney is a good option to the administration of the trust; the fill this role. statement which explains the nated, the settlor must create the purpose structure. The purpose statement is settlor’s expectations and the bonus and then explained, clarified, and drafted by the settlor and the attorney and trust director (“interested par- justified to the beneficiaries, trustee, the settlor’s expectations for ben- ties”). Purpose statements should assert created a hidden bonus structure to eficiaries and explain that the settlor paramount that the settlor is candid emphasize such expectations. It is embodies the spirit of the testamen- with the interested parties and fully can incorporate education, career, tary scheme. The settlor’s expectations trusts; and morality, similar to incentive \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown2018] Seq: 27 D 28-NOV-18 13:32 ficiaries. The attorney advises the settlor, drafts the trust document, and the trust document, the settlor, drafts The attorney advises ficiaries. the The trustee maintains of the trust. the lawful administration oversees with beneficiaries communicates manages investments, trust property, align with behaviors when beneficiaries’ trust property and distributes trustee who carefully select a It is important to expectations. the settlor’s understands the set- beneficiaries’ well-being and who is dedicated to the tlor’s values HBTs make beneficiaries decide include specific benchmarks. Rather, with the settlor’s expectations, using for themselves what behaviors align the purpose statement for guidance. derstand the HBT concept, the settlor, attorney, trustee, and trust director derstand the HBT concept, the settlor, The fiduciary meeting is led by the should formulate the finer details. attorney and focuses on ensuring that the settlor, trustee, and trust direc- tor are on the same page. HBTs operate as discretionary trusts to pre- C Y 40749-cjp_28-1 Sheet No. 64 Side A 11/30/2018 10:47:34 A 11/30/2018 64 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 64 Side B 11/30/2018 10:47:34 M K C Y in accor- [Vol. 28:93 ) and larger 281 supra OLICY P UBLIC ). This bonus system utilizes P supra note 8, at 696. AW AND L supra This gives the trustee power to “determine the trustee power This gives , 280 ITKOFF & S OURNAL OF J : define the bonus structure. The bonus structure should be : define the bonus structure. The bonus UKEMINIER D ORNELL See Id. At the fiduciary meeting the settlor retains the ability to give more At the fiduciary meeting the settlor Step four 280 281 \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown120 C Seq: 28 28-NOV-18 13:32 when, to whom, and what amount to make distributions,” amount to make whom, and what when, to serve flexibility over time. serve flexibility dance with the purpose statement and finer details outlined at the fiduci- details outlined at and finer the purpose statement dance with enforcement requirements. not bound by strict The trustee is ary meeting. finan- beneficiary to become is for a if a trust expectation For example, when a beneficiary the trustee might pay a bonus cially independent, preparation rather savings plan, or begins weekly meal creates an income determines to rein- any other activity that the trustee than eating out, or involved; there- HBT trustees are highly force the trust’s expectations. that the trust choose them wisely. It is also important fore, settlors must the trust. grasps how to properly administer director, as the enforcer, when bonuses not specific benchmarks that indicate Most often there are The HBT concept is differs from incentive trusts. should be paid, which how the settlor director, and attorney understand that the trustee, trust circumstances and act accordingly. would approach the trust director. Here, the settlor can detailed direction to the trustee and the trustee’s discretion, where the outline specific circumstances, beyond the settlor could stipulate that the beneficiaries get bonuses. For example, each time they get a promotion, beneficiaries should receive bonuses attend Easter church service, etc. have a child, earn a secondary degree, known to the beneficiaries. There- The enumerated criteria are not made at work, she will experience the joy, fore, if a beneficiary gets promoted to the full extent because she sense of achievement, and self-satisfaction this goal, rather than having her goals decided on her own to accomplish outlined beforehand by monetary incentives. finalized at the fiduciary meeting. The bonus structure is gradual. Each finalized at the fiduciary meeting. share of the trust, decided by the set- beneficiary is entitled to a certain to form the trust principal; however, tlor. Each share is pooled together each beneficiary from their allotted the trustee administers bonuses to into as many phases as the settlor share. Each allotted share is divided that the beneficiary has to collect stipulates. A phase is a period of time a bonus amount available to the bene- bonuses. Each phase is designated ficiary for that phase. Residual bonuses are subject to the charitable giv- for ing provision. The trustee should distribute smaller bonuses preliminary habit-forming behaviors (meal prepping, bonuses for milestone achievements aligned with the purpose statement (becoming financially independent, 40749-cjp_28-1 Sheet No. 64 Side B 11/30/2018 10:47:34 B 11/30/2018 64 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 65 Side A 11/30/2018 10:47:34 284 (1) 121 285 The “hidden” 287 HILDREN C Haverly v. United States, 513 F.2d 224, OUR See Y RUST T Second, the charitable provision serves as a Second, the charitable (5) parenting first, (6) giving later rather (5) parenting first, (6) giving later which allow beneficiaries to savor their allow beneficiaries which OU 283 286 282 Y HBTs allow parents to leave meaningful legacies HBTs allow parents to leave meaningful O note 4. supra : choose a charitable back up. Each HBT should be backed up. Each HBT should a charitable back : choose Part III.D. Part II. Part IV. Part II.A. Supra Tax implications need to be determined separately; however, beneficiaries likely will Kirkland, Supra Supra Supra Step five and incentive trusts solves a The subtle difference between HBTs 1. Flexibility flexibility. HBTs avoid pinning specificity against 282 283 284 285 286 287 M K 226–27. (7th Cir. 1975). not qualify for a charitable tax deduction under I.R.C. § they will never exercise 172 because dominion over unclaimed portions of the trust. HBTs build on the four identified shortcomings of incentive trusts: HBTs build on the four identified shortcomings \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown2018] Seq: 29 D 28-NOV-18 13:32 achievement and build on each success. and build on achievement giv- The charitable giving provision. by a charitable up and accompanied settlor’s it protects the main purposes. First, serves two ing provision discussed in choose not to meet the expectations legacy if beneficiaries beneficiaries will be Residual bonuses not paid to the purpose statement. This way, the set- organizations the settlor selects. paid to the charitable deemed worthy. administered to a cause the settlor tlor’s fortune is still in charita- built-in opportunity to include beneficiaries This also forms a in the names of makes residual bonus donations ble giving. The trustee the settlor and beneficiary. in court, the trus- If a beneficiary challenges the HBT no contest clause. for the challeng- pay any share designated tee is directed to immediately the enumerated charities. ing beneficiary to B. HBTs in Action parent’s final dilemma. becoming “wastrels or wantons.” and protect their descendants from than sooner, (7) discussing family expectations, and (8) charitable giving. than sooner, (7) discussing family expectations, “mastery experiences,” “mastery consequences, and (4) mo- inflexibility, (2) public policy, (3) unintended successful methods already used by tivation; HBTs also incorporate the America’s most wealthy: testamentary tool that encompasses arrangement in HBTs produces a settlor is specific with his expecta- both specificity and flexibility. The statement. Then, beneficiaries are tions and outlines them in the purpose believe meets the settlor’s expecta- given autonomy to live in a way they when beneficiaries engage in tions, and the trustee administers bonuses conduct that the settlor would celebrate. This flexible system is authenti- C Y 40749-cjp_28-1 Sheet No. 65 Side A 11/30/2018 10:47:34 A 11/30/2018 65 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 65 Side B 11/30/2018 10:47:34 M K C Y is 289 [Vol. 28:93 OLICY P UBLIC P AW AND L OURNAL OF J HBTs do not require beneficiaries to act any specific HBTs do not require beneficiaries Part II.B. Part II.C.1. 288 ORNELL See supra See supra For example, imagine an incentive trust provision that payed benefi- For example, imagine an incentive 3. Unintended Consequences HBTs do not dangle dollar signs in front of beneficiaries, but rather, For example, in the purpose statement, a settlor might discuss the might discuss statement, a settlor in the purpose For example, 2. Public Policy durable amidst of HBTs also make them The “hidden” aspect 288 289 way, only in concert with the settlor’s expectations. Therefore, there is way, only in concert with the settlor’s on public policy grounds. This no concrete position that could be voided a settlor’s testamentary scheme will arrangement eliminates the risk that policy. be disrupted based on evolving public business. In five years, a shift in ciaries to continue a family dog kennel dogs without access to a wading public policy determines that housing beneficiaries do not wish to make ac- pool constitutes animal cruelty. If kennel, they can sue to invalidate commodations to continue the family public policy. If the settlor used an the trust on the grounds it violates continue the family business and the HBT to encourage beneficiaries to trust could not be voided because it same policy change happened, the must run a dog kennel to would not explicitly state that the beneficiaries part of the HBT might direct qualify for payments. Rather, the “hidden” if they remain in the kennel business, the trustee to pay the beneficiaries would allow more general fulfilment but the settlor’s purpose statement such as an active role in dog services. focus on resulting behavior. The problem with the hedonic treadmill \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown122 C Seq: 30 28-NOV-18 13:32 cated by the trust director and safeguarded from litigation by the charita- litigation by and safeguarded from the trust director cated by clause. ble no contest instruct the could further The settlor of continuing education. importance beneficiary a bonus to any meeting to give the fiduciary trustee during bonuses to benefi- college. The trustee must give who graduates from has discretion to from college, but the trustee still ciaries who graduate in other ways. who continue their education give bonuses to beneficiaries but rather could is not limited to a college degree, Continuing education reading, etc. online accounting course, pleasure encompass trade school, to void on public Incentive trusts are susceptible changing public policy. to act towards announced policy grounds because they pay beneficiaries benchmarks. that once beneficiaries reach a monetary incentive, it is unsatisfying. Beneficiaries find their satisfaction can only be quenched by achieving not more milestones and earning more money. Beneficiaries to HBTs are 40749-cjp_28-1 Sheet No. 65 Side B 11/30/2018 10:47:34 B 11/30/2018 65 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 66 Side A 11/30/2018 10:47:34 123 Incentive trusts give 291 When beneficiaries, rather HILDREN Therefore, if an HBT does Therefore, if an 292 C 290 OUR Y RUST T OU Y O 293 Part II.D. Gallo, supra note 6, ¶ 1102.3. See supra Id. Id. For example, compare an HBT expectation of living a healthy lifes- For example, compare an HBT expectation 5. Parenting First The purpose statement of a HBT serves as a pseudo parenting ses- 4. Motivation autotelic behavior by draw- HBTs build self-efficacy and encourage One concern raised by HBTs is what if the hidden bonuses consume is what if the hidden raised by HBTs One concern 290 291 292 293 M K tyle against an incentive trust benchmark of “quit smoking for cash.” A tyle against an incentive trust benchmark decide what promotes health, which beneficiary to the HBT will have to The process of internalizing rudimentarily would involve not smoking. self-efficacy. The same benefi- this decision and acting upon it promotes is primarily externally moti- ciary facing the incentive trust provision to break the habit or addiction. vated, which in most cases is not enough the sion. It allows settlors to explain to beneficiaries the reasons behind a HBT and why the expectations are valuable and reasonable. This goes long way to ensure beneficiaries do not feel slighted, but rather feel cared for. \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown2018] Seq: 31 D 28-NOV-18 13:32 than the settlors, are choosing their behaviors, the behaviors will likely than the settlors, are choosing their become autotelic. not motivate beneficiaries to try and meet the expectations outlined in the to try and meet the expectations not motivate beneficiaries than before the beneficiaries are in no worse position purpose statement, to figure out the Beneficiaries can either keep trying trust was created. settlor would want by behaving how they believe the bonus provisions the share of the trust of the HBT to begin with), or (which is the purpose donated to charity. beneficiaries will be available to the unparticipating motivation. ing on the beneficiaries’ intrinsic aware of monetary rewards for any specific behavior. In this way, benefi- behavior. In this way, for any specific monetary rewards aware of an extrin- rather than an intrinsic motivation are based on ciaries’ choices motivation endures. by intrinsic Change induced sic motivation. who meant for beneficiaries bequest is Any conditional the beneficiaries. and self-efficacy.” lack “self-motivation HBTs seek to inspire beneficiaries beneficiaries a “to-do list,” while to determine on their own from within. HBTs empower beneficiaries guidelines set forth in the purpose which behaviors best carry out the likely to stimulate lasting change. statement; therefore, HBTs are more actions creates the cognitive step- Allowing beneficiaries to choose their ping stones towards “mastery experiences.” C Y 40749-cjp_28-1 Sheet No. 66 Side A 11/30/2018 10:47:34 A 11/30/2018 66 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 66 Side B 11/30/2018 10:47:34 M K C Y [Vol. 28:93 where a bene- 296 , OLICY P Nelson UBLIC P Rather than focusing solely on 295 HBTs pay bonuses when it is apparent HBTs pay bonuses AW AND L 294 note 6, ¶ 1105.2. OURNAL OF J supra Part III. Gallo, Nelson v. Daniels, No. 94CA29, 1995 WL 535200, at *3 (Ohio Ct. App. Sept. 5, ORNELL See supra See See For example, incentive trusts designed to pay beneficiaries when For example, incentive trusts designed For example, when settlors deliver the purpose statement, they will statement, they deliver the purpose when settlors For example, 6. Sooner Later Rather Than handle an in- more likely to be mature enough to Beneficiaries are 7. Discuss Family Expectations family expectations with If settlors have not previously discussed that provides a trust pay- For example, an incentive trust provision 294 295 296 1995). \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown124 C Seq: 32 28-NOV-18 13:32 their beneficiaries, the purpose statement provides the platform to do so. their beneficiaries, the purpose statement expectations and reasons for using As discussed above, being clear with to ensure beneficiaries do not feel a conditional estate planning tool helps slighted, but cared for. from an Ivy League law school ment only after a beneficiary graduates undeserving and deficient to the set- could lead that beneficiary to feel reasons for his expectations in the tlor. In HBTs, the settlor explains the the purpose statement, which are more likely because of the experience settlor had at such an institution, not as a metric to define the benefici- ary’s self-worth. To avoid the situation seen in ficiary believed his mother hated him when she died, HBTs empower settlors to explain the reasons behind the testamentary plan they chose. the end result, HBTs distribute bonuses to encourage steps towards that the end result, HBTs distribute bonuses insurance, opening an IRA or end result: buying life insurance, disability settlors will know that benefi- contributing to a 401K. By using HBTs, before receiving their inheritances. ciaries reached the desired maturity to the trustee that beneficiaries are making decisions in line with the pur- beneficiaries are making decisions to the trustee that bonuses when they HBT beneficiaries receive pose statement. Therefore, This differentiates levels of maturity, not older age. demonstrate older that incentive trusts trusts. The external motivation HBTs from incentive to handle significant the skills beneficiaries need rely on will not develop inheritances. commonly disburse payments they attain levels of financial security based on the beneficiaries’ tax returns. confront the beneficiaries. This meeting allows settlors to engage in a settlors to engage This meeting allows the beneficiaries. confront to the bene- behind the HBT the reasoning moment and explain teaching document for the trust the teaching moments rather than leaving ficiaries, have been if the beneficiaries it will be better all circumstances, alone. In throughout their lives. taught these values are older. heritance when they 40749-cjp_28-1 Sheet No. 66 Side B 11/30/2018 10:47:34 B 11/30/2018 66 Side Sheet No. 40749-cjp_28-1 40749-cjp_28-1 Sheet No. 67 Side A 11/30/2018 10:47:34 125 , but do not fix it. Charitable giving Charitable 297 HILDREN C OUR Y ONCLUSION RUST parent’s final dilemma C T OU Y O Part IV.A. See supra Incentive trusts address a For example, if an HBT provides a ten-year phase that a beneficiary HBT provides a ten-year phase that For example, if an 8. Giving Charitable element of HBTs. giving is a core Charitable 297 M K Incentive trusts developed out of unique American inheritance laws and Incentive trusts developed out of unique tool. Policy, observation, and have become a regarded estate planning although still uncritically used. research suggest that they are inadequate, solution that builds on the short- A Hidden Bonus Trust is an improved Bonus Trusts quench parents’ desires comings of incentive trusts. Hidden beneficiaries. If Mr. Shapira used to leave legacies and motivate troubled to marry a Jewish woman, the a Hidden Bonus Trust to inspire Daniel Tov,” rather than Daniel diminish- story might have ended with “Mazel ing his father’s fortune in legal battles. \\jciprod01\productn\C\CJP\28-1\CJP104.txt unknown2018] Seq: 33 D 28-NOV-18 13:32 protects the trust’s assets and ensures that if the beneficiaries do not meet the beneficiaries ensures that if trust’s assets and protects the admirable still goes to an the settlor’s fortune expectations, the settlor’s a sense to give beneficiaries also a tool used giving is cause. Charitable that fulfills civic responsibility, and self-satisfaction of achievement, opportunities. beneficiary collects $100,000 of bonuses and the is eligible to receive will be donated bonuses, the remaining $47,000 $53,000 of the eligible beneficiaries sue settlor designated. Also, if unhappy to the charity the is instructed to pay claiming misconduct, the trustee the settlor’s estate These backup whole share to the designated charity. the beneficiaries’ legacy will be provisions ensure that the settlor’s charitable giving protected. C Y 40749-cjp_28-1 Sheet No. 67 Side A 11/30/2018 10:47:34 A 11/30/2018 67 Side Sheet No. 40749-cjp_28-1