Estate planning is inherently multi-generational, as assets inevitably pass from one generation to the next. The timing and method of these transfers affect both the wealth and the people involved.
The Scary Part
Questions about how and when wealth should transfer can intimidate people, deterring planning altogether. This article aims to demystify this challenging aspect, highlighting diverse options and their consequences to empower better planning decisions.
When Should It Happen?
What’s the “best” time for wealth transfers? At death? Now? At a specific age? The answer depends on factors like recipients’ age and capacity, tax implications, transfer size, and the mechanism used. Inherited wealth can benefit or harm recipients. How do we maximize its positive impact?
The Crowd Jumps Off a Cliff
To mitigate risks, many plans delay distributions until certain ages, assuming older individuals handle money better. Most Wills and Trusts use laddered distributions—e.g., portions at 30, more at 35, and all at 40. This is common in death-focused estate planning. Does it work?
- Blood on the Rocks
Data confirms what anecdotes suggested: distributed wealth has an eight-year half-life, halving every eight years. Only 57% survives the second generation, and 9% the third. As wealth depletes, so do people. Age-based distributions turn wealth, people, and Trusts into single-use, throw-away commodities. They don’t work. - Easy Come, Easy Go
A man inheriting a large estate faced bankruptcy, with creditors targeting his mother’s estate. Her Trust had protective language but mandated distributions at age 45. At 48, he received everything, and creditors took it all. Age isn’t a reliable indicator of readiness. Discretionary distributions could have preserved his mother’s wealth. - The High Ground
Retaining wealth in a “Dynasty” Trust with discretionary distributions fosters asset growth and thriving, self-reliant beneficiaries.
The Higher Road of a Dynasty Trust
A well-structured Trust does more than avoid probate or transfer wealth. It allows future generations to use and enjoy assets without owning them, protecting wealth from creditors, failed marriages, substance abuse, medical costs, special needs, lawsuits, bankruptcy, and more. The Trust acts as a protective umbrella, enabling beneficiaries to access capital and exercise control while keeping wealth within the Trust for true multi-generational impact.
Setting the Burn Rate
When, under what conditions, and in what amounts should Trust assets be distributed? Distributions should never be mandatory, always discretionary, to avoid losses to predators, waste, or self-destructive behavior. They should occur at the “right” time, in “enough” but not excessive amounts. What’s “enough”? Here are options to cap or throttle the estate’s burn rate:
- Most Permissive: Allows distribution of all assets (principal and income). Suitable for small, simple estates without family drama, but less ideal for larger estates.
- Net Income Only: Caps distributions at income, preserving principal to prevent wasteful spending, effective if income is sufficient but not excessive.
- Unitrust: Distributes a fixed percentage of assets annually, ideally less than investment income.
- Net Income Unitrust: Distributes the lesser of net income or a fixed percentage, protecting principal but risking reduced distributions in down markets.
- Fixed Dollar Amount: Sets a yearly amount with inflation adjustments, ideal for large estates where income exceeds beneficiaries’ needs.
- Fraction of Income: Distributes a portion (e.g., 3/5) of net income, a “sustainable” rate preserving principal and income growth, dubbed the “Nobel Prize model.”
- Loans Only: Provides loans, not distributions, requiring repayment to incentivize wealth production without handouts.
Money in the Bank
Capping the burn rate isn’t about denying inheritance or controlling from the grave—it’s like keeping money in the bank. For a movie outing, you withdraw only what’s needed, leaving the rest secure. Similarly, Trusts release “enough” for spending, retaining the balance for investments, purchases, or ventures under the Trust’s protection.
Instructions & Wishes
Capping sets a ceiling, not a floor. Discretionary distributions require guidance for Trustees, often via an “Ethical Will,” “Statements of Wishes,” or “Spiritual Will,” outlining factors to consider.
Lock In Your Exclusion Now
If your net worth exceeds the estate tax threshold, fund a “dynasty” Trust before the lifetime exclusion sunsets in 2026. Done correctly, this preserves control.
The Long View
Families planning this way a century ago now enjoy vast wealth and high-functioning descendants. Where will your family be in 100 years? Setting the burn rate merits thoughtful discussion with advisors experienced in multi-generational planning.
Distribution Strategies © 2025 by Rick Durfee is licensed under CC BY 4.0 
Distribution Strategies