A new Delaware law will allow US families to use Delaware trusts to include beneficiary well-being programs to provide a family legacy in addition to a family endowment, enabling them to better preserve their wealth.
This first-of-its-kind statute adds another tool to Delaware’s favorable trust laws, which help affluent families located anywhere in the country take advantage of historically high exemptions from federal estate and gift taxes—at least until it’s cut in half at the end of 2025.
Trusts have typically focused on financial management, with a trustee holding duties to invest as a prudent person and make distributions to beneficiaries based on the common standards of health, education, maintenance, or support. Families facing the difficult choice of whether to capture the bonus exemption in trusts now have Delaware’s new law on their side to provide for a beneficiary’s well-being.
Under the new Delaware law, beneficiary well-being programs may include seminars, counselors, personal coaches, family meetings, family retreats, and short-term university programs. These aim to prepare each generation of beneficiaries for inheriting wealth by providing them with financial literacy skills, along with educating them about their family history, family values, family governance, mental health and well-being, and family connections. The trustee of a beneficiary well-being trust has a duty to provide these programs at the expense of the trust.
In new trusts, the Delaware law makes it possible to require beneficiary well-being programs as a duty of the trustee. The law also adds to the default powers of a trustee by permitting them to provide these services on a discretionary basis.
When crafting estate plans, wealthy families have traditionally focused on minimizing taxes and maximizing distributions to family members. During this process, families may miss the opportunity to help develop future generations of family leaders, fund personal development activities, and maintain multi-generational family cohesion.
Beneficiaries often take their inheritances and go their separate ways without properly shepherding family endowments through the generations. This loss of family wealth often stems from a lack of understanding and education. A beneficiary well-being trust may provide the financial resources to fund these educational and personal development activities.
The Internal Revenue Code provides an exemption from the estate and gift tax that, in 2024, offsets the tax on the first $13.61 million. This elevated credit amount will fall to approximately $7 million in 2026 after the Tax Code and Jobs Act provision expires.
The exemption’s reduction makes capturing this bonus exemption through completing gifts by 2025 a use-it-or-lose-it opportunity.
A beneficiary well-being trust may be one of many favorable features of a trust administered in Delaware. Investments and distributions may be controlled by hand-selected advisers to retain further control over these trusts.
In addition, there is no limit to how long a trust may last in Delaware, where many states still require a trust to end and be distributed to current beneficiaries at the end of what is commonly referred to as the “perpetuities period.” Consequently, these substantial family endowments that offer beneficiary well-being programs may be held in investment- and distribution-directed trusts that last through generations.
Beyond the ultra-wealthy who are capturing bonus exemption in multimillion-dollar trusts, a beneficiary well-being trust can serve any affluent family that wants their heirs to receive more than financial benefits from their wealth.
Even if a trust doesn’t last indefinitely, subsequent generations may benefit from receiving financial literacy education, coaching around inheriting wealth, and information about the beneficiaries’ family history, family values, family governance.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Author Information
Jeffrey Wolken is Wilmington Trust’s National Director of Delaware Trust Planning.
Write for Us: Author Guidelines
To contact the editors responsible for this story: