Establishing a trust fund and aligning it with family investment performance is a nuanced area of estate planning, and yes, it’s absolutely possible, but requires careful consideration and legal expertise. Many families desire to see their wealth continue to grow for future generations, and linking trust assets to investment performance allows for potential appreciation beyond simple preservation. This often involves creating what’s known as a “total return trust,” which allows the trustee to distribute income *and* principal based on the overall performance of the trust’s investments, rather than solely on fixed income streams. Currently, roughly 60% of high-net-worth families are exploring or implementing strategies to link trust distributions to investment performance, according to a recent study by Cerity Partners, demonstrating a growing trend toward this approach.
What are the benefits of tying trust funds to investments?
One of the primary benefits is flexibility. Traditional trusts often distribute fixed percentages of invested assets annually, which can be problematic in fluctuating markets. A total return trust, however, allows the trustee to distribute a specified percentage of the trust’s *total* return—including both income and capital gains—providing a more stable and predictable income stream for beneficiaries, even during market downturns. Furthermore, this approach can encourage long-term investment strategies, as the trustee isn’t pressured to sell appreciating assets simply to generate current income. “The goal isn’t just to preserve wealth, but to grow it responsibly for future generations,” as Steve Bliss often emphasizes with his clients in Escondido. This can be particularly advantageous for families with significant illiquid assets, such as real estate or private equity, allowing the trustee to manage these assets strategically without forcing premature sales.
How does a total return trust actually work?
A total return trust operates by defining a specified percentage of the trust’s total investment return that will be distributed to beneficiaries each year. This percentage is determined during the trust’s creation and can be adjusted over time. For instance, a trust might be structured to distribute 4% of the trust’s total investment return annually. If the trust’s investments generate a 7% return, the beneficiaries would receive 4% of the assets, and the remaining 3% would be reinvested to further grow the trust. This reinvestment allows for compounding returns over time, potentially significantly increasing the trust’s value for future generations. It’s crucial, however, that the trust document clearly define what constitutes “total return”—including dividends, interest, capital gains, and any other investment income—and how it will be calculated. Without clear guidelines, disputes can easily arise between the trustee and beneficiaries.
What went wrong for the Harrison family?
Old Man Harrison was a shrewd investor, building a substantial portfolio of rental properties and stocks over his lifetime. He created a trust for his grandchildren, intending for the trust to continue generating income from these assets. However, his trust document simply stated that the trustee should distribute “income” annually. When the stock market crashed in 2008, the income from his investments plummeted, and the trustee was forced to sell some of the properties to meet the distribution requirements. This severely depleted the trust’s assets, and the grandchildren received significantly less than Old Man Harrison had intended. He hadn’t considered the possibility of a market downturn and hadn’t structured the trust to allow for distributions based on *total* return, including capital gains. His family felt betrayed and frustrated with the circumstances they found themselves in.
How did the Miller family avoid a similar fate?
The Miller family, learning from the Harrison’s misfortune, worked with Steve Bliss to establish a total return trust. They specified that the trustee could distribute 5% of the trust’s *total* return annually, including dividends, interest, and capital gains. When the market experienced a downturn in 2022, the trustee was able to distribute the required 5% by drawing on capital gains from other investments, avoiding the need to sell any assets at a loss. In fact, because the trust was structured to reinvest any excess return, the trust actually *grew* during the downturn, benefitting the Miller grandchildren. The family was overjoyed to see that their foresight and professional guidance had protected their wealth and ensured a bright future for generations to come. They often remind each other, “It wasn’t just about avoiding losses, it was about positioning our assets for continued growth.”
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About Steve Bliss at Escondido Probate Law:
Escondido Probate Law is an experienced probate attorney. The probate process has many steps in in probate proceedings. Beside Probate, estate planning and trust administration is offered at Escondido Probate Law. Our probate attorney will probate the estate. Attorney probate at Escondido Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Escondido Probate law will petition to open probate for you. Don’t go through a costly probate call Escondido Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Escondido Probate Law is a great estate lawyer. Affordable Legal Services.
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Estate Planning Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
● Free consultation.
Services Offered:
estate planning
living trust
revocable living trust
family trust
wills
banckruptcy attorney
Map To Steve Bliss Law in Temecula:
https://maps.app.goo.gl/oKQi5hQwZ26gkzpe9
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Address:
Escondido Probate Law720 N Broadway #107, Escondido, CA 92025
(760)884-4044
Feel free to ask Attorney Steve Bliss about: “What is a power of attorney and why do I need one?” Or “How does probate work for small estates?” or “What are the disadvantages of a living trust? and even: “What happens to my retirement accounts if I file for bankruptcy?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.