As an estate planning attorney in San Diego, I often field questions about the flexibility trusts offer, and clients are sometimes surprised to learn they can indeed exert control over where and how their trust assets are invested, even to the point of excluding entire countries or sectors. This level of control, while not standard, is absolutely achievable through carefully drafted trust provisions, but it requires a nuanced understanding of both trust law and investment strategies. The ability to restrict investments isn’t about dictating *every* investment decision, but rather establishing clear boundaries aligned with the grantor’s values and risk tolerance.
What are “Ethical Wills” and how do they influence investment choices?
Many clients aren’t just concerned with financial returns; they want their wealth to reflect their beliefs. This is where “ethical wills” come into play – statements of values and principles to guide trustees. For example, a client might express a strong aversion to industries involved in fossil fuels, weapons manufacturing, or countries with questionable human rights records. These aren’t legally binding in the same way as direct investment restrictions, but they provide crucial context for the trustee and encourage responsible investment decisions. In fact, studies show that “impact investing” – investments made with the intention of generating positive social and environmental impact alongside financial return – has grown exponentially, with assets under management exceeding $500 billion globally, demonstrating a clear shift in investor priorities.
How do “negative screening” and “positive screening” impact trust investments?
There are two primary methods for implementing investment restrictions within a trust: negative screening and positive screening. Negative screening involves *excluding* certain investments based on predefined criteria – for example, excluding companies involved in tobacco or gambling. This is the more common approach for clients seeking to avoid specific industries or countries. Positive screening, on the other hand, focuses on *actively* seeking out investments that align with specific values – like renewable energy or companies with strong environmental, social, and governance (ESG) practices. While both approaches can be effective, they require careful consideration and ongoing monitoring to ensure the trust portfolio remains diversified and meets its financial objectives. According to a recent report by the Forum for Sustainable and Responsible Investment, over 25% of all investment assets under professional management in the US now incorporate ESG factors, highlighting the growing demand for socially responsible investing.
What happened when a client’s values weren’t clearly documented?
I once represented a client, Eleanor, a passionate environmentalist, who unfortunately passed away without explicitly outlining her preferences regarding sustainable investing in her trust documents. Her trust stipulated that her assets should be invested for “prudent growth,” leaving the interpretation open to the trustee. The trustee, unfamiliar with Eleanor’s values, made several investments in oil and gas companies, believing they offered the highest potential returns. When Eleanor’s daughter discovered this, she was understandably devastated. The situation required costly legal intervention and ultimately a modification of the trust to reflect her mother’s wishes. This situation underscores the importance of clear, detailed documentation of values and preferences in trust documents, particularly when it comes to ethical considerations. It also highlights the need for open communication between the grantor, trustee, and financial advisor.
How did detailed planning ensure a client’s wishes were honored?
Conversely, I worked with Robert, a retired professor with strong convictions against investing in countries with oppressive regimes. We meticulously drafted his trust to explicitly prohibit investments in any nation designated as “not free” by Freedom House, a non-governmental organization that promotes democracy and human rights. We also included a clause requiring the trustee to prioritize investments in companies committed to fair labor practices and environmental sustainability. Years later, Robert’s trust was successfully managed according to his values, providing him with peace of mind knowing his wealth would be used to support causes he believed in. This demonstrates that, with careful planning and clear documentation, it is indeed possible to exert meaningful control over trust investments and ensure they align with one’s ethical and social principles. In fact, a study by Boston College found that over 70% of high-net-worth individuals express a desire to align their investments with their values, further emphasizing the importance of incorporating ethical considerations into estate planning.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
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