A Family Advancement Sustainability Trust (FAST)

Take-Away: Estate planners have yet another acronym to learn and discuss with their clients: the family advancement sustainability trust, or FAST. The purpose behind a FAST is to bring the focus of estate planning, along with finances, to the identification and preservation of the individual’s qualitative goals. In short, a FAST is intended to preserve the family as a family.

Purpose: There is already considerable literature with regard to identifying and preserving family values in wills, trusts, and other family business instruments and transactions, like stock redemption and buy-sell agreements and family foundations. As such, the concept of a family advancement sustainability trust, or FAST, may be just another name that is used to identify and preserve family values as a part of a comprehensive estate planning process. The FAST’s structure references family values, or goals. It is intended to implement senior family members’ desires to not only prepare their estate for their heirs, but also to prepare their heirs to receive responsibly, manage, and maintain that estate. In many respects, a FAST is viewed as a legal device to preserve the family. To that end, a FAST is intended to fill the family leadership vacuum that often results on the death of the family patriarch or matriarch.

Structure: A FAST is intended as an estate plan enhancement without causing a major disruption in the individual’s established estate plan structure. A FAST functions as a directed trust, which allows decision-making to be divided among separate co-trustees, advisors, and trust directors. This divided structure enables some family member and trusted advisors to participate directly in the governance of the FAST. Like any directed trust, these divided functions can be allocated among an administrative trustee, an investment committee, and a distribution committee. Yet a FAST creates yet a fourth decision-making committee, one that is charged with participating in, and taking accountability for, the carrying on of the family’s legacy. This last committee is principally charged with making the ultimate goal of the FAST the promotion of the family itself. The following is a breakdown of those separate decision-making committees:

• Administrative: Due to the long-term purpose of a FAST, this function is normally carried out by a corporate trustee. There is no control over investments or distributions. Rather, the corporate trustee’s functions are to maintain records, file tax returns, and maintain custody of the FAST assets.
• Investments: Often this committee is comprised of two family members and one professional investment advisor. Obviously, this committee is charged with making investments, but also coordinating with the Distribution committee to ensure that the FAST generates enough income required to pay for the best practices and family activities.
• Distribution: This committee usually has multiple members. Many are family members. Other committee members might be a legacy-planning consultant or a professional whose expertise is family dynamics. The key to this committee is rather than making distributions to individual trust beneficiaries, instead its decisions are with respect to disbursing FAST assets in a manner designed to preserve and strengthen the family as a unit.
• Director (Protector): Usually this committee is comprised of professional advisors to the family, such as the attorney, CPA, financial advisor, or a family trust officer. Family members could be named as consultants to this committee. [Note that if a family member were a member of this committee, there is the risk that such member might be viewed as holding a general power of appointment over the FAST assets.] In effect, this committee stands in the shoes of the FAST settlor with the ability to amend the FAST instrument, remove the corporate trustee, and  address unforeseen circumstances that might otherwise frustrate the FAST’s purposes. One possible aspect of this committee would be to conduct periodically, e.g. every 5 years, a peer review to determine how well the FAST is functioning to carry out the patriarch/matriarch’s original objectives. This committee would also hold the other committees accountable. Alternatively, outside peer reviewers could be hired to provide recommendations to the Trust Director committee.

Funding: A FAST is usually funded using liquid family assets and investments. How important the patriarch/matriarch believes the preservation of family values to be will dictate the amount that is ultimately dedicated to funding the FAST to ensure that it will function as they intend.

• Life Insurance: If there are insufficient investment assets available to fund the FAST,  a life insurance policy can be put in place, e.g. an LLC owned life insurance policy or an ILIT owned policy insuring the patriarch/matriarch’s life, that acts as the FAST funding mechanism.
• Beneficiary Defective Trust: A FAST could also be funded with a Beneficiary Defective Irrevocable Trust. This type of trust authorized under IRC 678, with the patriarch or matriarch as its beneficiaries, would ‘pour over’ its assets to the FAST, GST-exempt.  This ‘pour over’ of wealth would be accomplished with the patriarch/matriarch exercising a limited testamentary power of appointment directing that trust’s assets to be distributed to the FAST. With the limited testamentary power of appointment mechanism, the patriarch/matriarch could periodically adjust the amount that is ultimately distributed to the FAST.
• Legacy Assets: A FAST could also be funded, in part, with legacy assets like family cottages or ranches (usually title to which is held in an LLC to protect and insulate the other FAST assets.) The other FAST income producing assets could be used to sustain that legacy asset.

Taxes: There will be tax implications with a FAST. If the FAST pays for expenses like a family retreat, e.g. airfare and hotels, that expenditure would be considered a distribution to the FAST beneficiary, and thus it would carry out distributable net income of the trust causing the beneficiary a tax liability. As such, the FAST would also include a provision that authorizes tax distributions to the trust beneficiaries. Less clear is what trust administration expenses would be tax deductible on the trusts Form 1041. To the extent that the FAST’s expenses are not tax deductible, the trust would need to retain sufficient cash to cover its own income tax liability.

Practical Benefits: With many families, on the death of the patriarch or matriarch, once the death occurs and the estate is settled, the decedent’s assets are distributed to their heirs, and the heirs often have little reason to remain in touch with one another. A FAST is intended to address that ‘gone to the four winds’ result from a conventional estate plan. A FAST is used to: (i) set aside funds to pay for best practices learned from successful families, such as retreats, travel, and family education; and (ii) put in place a leadership structure to assure that these family enrichment activities actually take place. Instead of simply distributing assets to heirs with the hope that they will use part of their inheritance to remain in touch with other family members, a FAST is funded and used to incent family members to regularly meet and pass along family wisdom and experience to younger family members. Implicit in the FAST’s structure is that if a family member chooses not to participate in the retreats or meetings, he/she will not benefit from the assets that were set aside to fund the FAST. In short, there is a use-it-or-lose-it motivation to participate with other members of the extended family in FAST sponsored activities.

Conclusion:  Often a patriarch or matriarch are the ‘glue’ that hold a family together. By creating and funding  a FAST the patriarch or matriarch are creating a replacement ‘glue’ that assumes the responsibility to foster and nurture family relationships and maintain the family’s identity. The FAST’s purposes can be accomplished with any trust, with the retention of assets after the settlor’s death as a continuing trust share from which all family members benefit. However, rather than appear as merely the settlor’s ‘after-thought,’ a stand-alone FAST might better communicate and emphasize to the settlor’s descendants the importance of the family continuing to gather over several generations to preserve and carry on the family’s legacy, traditions, and values.